How is Abenomics transforming Japan?
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Abenomics has brought about many benefits to the domestic economy, specifically to the real estate market. While its long-term impact on the broader economy remains uncertain, there have been positive indicators. In fact, Japan’s stock benchmark, the Nikkei 225 index, closed at its highest level in 18 years on 24 June.
Under the theme Transforming Japan in the New Global Context, the 2015 World Economic Forum Japan Meeting, held earlier this month in Tokyo, was a chance to reflect on our role in the world and look at how the economy is faring.
A number of powerful members of Japan’s National Diet were present at the event and the Forum highlighted some pertinent issues surrounding the nation’s economy. Other attendees included government officials, CEOs of Japanese and foreign corporations, and academic and religious leaders.
Of particular interest was a session titled Transforming Economy: Economic Growth and Social Inclusion, which included a discussion about women’s participation in the workforce. Prime Minister Shinzo Abe has emphasized the importance of women’s contribution in working life. His reforms in this area range from increasing childcare facilities for working mothers and pressuring companies to include women in senior management and board positions. These reforms are widely regarded as positive, but more needs to be done to bring participation on a par with Western levels.
Separately, the prime minister’s policy on easing visa restrictions for visitors has helped the tourism sector. However, with a declining and an ageing population, Japan needs more contribution not only from women but also from overseas workers.
Reforms in agriculture
Another interesting topic discussed in the session was agriculture, an area in which the prime minister is aggressively pursuing reforms. The export of Japanese homegrown products is rising, and the reforms should improve productivity in the agriculture industry. This potential growth should help to narrow the economic and social gaps between urban and local areas.
In principle, Abenomics is investor-friendly. The Bank of Japan’s inflation target has increased asset prices, including real estate and stocks. These have been positive, but there is still room for improvement. Japan’s economy underwent two decades of sluggish growth and deflation as the population aged and productivity fell.
Abenomics is based on “three arrows” of fiscal stimulus, monetary easing and economic growth strategies to encourage private investment. Reforms have initially centred on the first two arrows of monetary easing and fiscal consolidation.
Implementation of the third arrow, which includes tax reforms and measures to increase labour flexibility, encourage employment of women, promote innovation and strengthen Japan’s agricultural system, had been slow in part because of policy-makers’ divisions over specific reforms. However, some policy changes came into effect and the jury is still out on their impact.
Amid the reforms, investors may be asking whether Japan is the right destination for their money. What we are seeing at JLL is a lot of demand globally for all types of Japanese real estate: rents are rising and there remains a strong appetite among both domestic and international investors. The problem is that there is a limited supply.
As the economy performs, consumption has increased, which in turn has been beneficial for retail assets. Increasing tourist numbers have boosted demand for hotels. Logistics and industrial real estate have also been a focus as online retail sales continue to increase. Japan’s hosting of the 2020 Olympics has also helped to bolster sentiment and demand. In this context, we see improving fundamentals in the short term and beyond.
Author: Toshinobu Kasai, Managing Director, JLL Japan
Image: A woman uses her mobile phone at an office building in Tokyo July 21, 2015. REUTERS/Toru Hanai
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