BMI View: The rapid decline in construction and infrastructure growth in Japan is a sign the government's aggressive stimulus measures have already begun to wear off. This again underscores our long-held view that Japan's fiscal stimulus programme is not sustainable for the infrastructure sector and significant structural reforms are needed to restore competitiveness. To this end, a new market on the Tokyo Stock Exchange for infrastructure funds has the potential to boost private participation in the industry, while simultaneously taking pressure of f government expenditure. Following an estimated 1.6% contraction in 2014 , we expect the construction industry to recover only slightly in 2015, with a forecasted real growth rate of 0.8%.
Key Trends And Developments
The opening of a new market for infrastructure funds in Japan will boost the funding environment for domestic and regional infrastructure significantly. According to the Nikkei Asian Review, the Tokyo Stock Exchange (TSE) - a unit of the Japan Exchange Group (JXG) - could open a market for infrastructure funds as early as April 2015. The market will target funds that invest in infrastructure projects, such as renewable energy facilities, as well as airports and railways. The creation of such a market will allow investors to buy and sell funds listed on the exchange as shares and receive dividends based on the returns generated by the infrastructure.
Narita International had long sought to develop an offering for budget flights and in April opened a terminal to handle the growing number of budget airlines for domestic and short-haul overseas flights. The terminal will be exclusively for low-cost airlines. It has a three-storey main building and a two-storey satellite facility. Australian airline Jetstar will run domestic and international services, as too will Japan's Vanilla Air, while South Korean Jeju Air will run an international service and Spring Japan will run a domestic service. The terminal will connect Narita to 19 domestic and international cities.
A district court in April denied permission to local firm Kansai Electric Power to restart two of its nuclear reactors at the Takahama nuclear power station on the coast of Fukui prefecture. Involving reactors 3 and 4, the decision was made due to safety reasons. The two units have generation capacity of 870MW each. This came despite the plant having already passed a safety screening under the NRA in the country in February. This was followed by a district court in Kagoshima again in April, granting the restart of Sendai 1&2, meaning these could be the country's first re-operational units as early as June.
Housing starts in the 12 months to February 2015 were down 11.0% on full-year 2013, with February the twelfth consecutive month of y-o-y contraction - this was mirrored in total building starts, which fell 11.2% in the 12 months to February 2013. This effectively ended five years of building starts growing annually. Meanwhile, construction order growth slowed to 1.7% in 2014, after growing 12% in 2013. Dwellings to the market have also been falling in 2014, with new condominiums in Tokyo and Osaka averaging -21% y-o-y, a trend seemingly slowing slightly in the first few months of 2015. Meanwhile, existing condominiums being put on the market increased during 2014, while the number sold decreased, pointing to a supply-demand divergence caused by the weakened economy.