Abe Eyes Land-Price Reflation in Zones to Spur Construction Boom
Comment of the Day

January 20 2014

Commentary by David Fuller

Abe Eyes Land-Price Reflation in Zones to Spur Construction Boom

Here is the opening for this interesting article from Bloomberg:

Japan aims to trigger a jump in inner-city property prices that could provide an “extremely big” boost to the economy by loosening building restrictions in test zones under Abenomics, a government adviser said.

The changes will make it easier to construct residential buildings in business districts in designated zones, creating opportunities to improve urban planning and make Japan’s cities more enticing to employees of foreign companies, said Tatsuo Hatta, 70, a member of a government council on special economic zones.

“Central city property prices will likely rise when various plans are announced,” he said in an interview last week in Tokyo. “In terms of economic impact, the revision related to urban planning in the special zones will be extremely big.”

Hatta’s comments offer some insight into the government’s plans for special economic zones, as investors wait for Prime Minister Shinzo Abe to flesh out his growth strategy, the so-called Third Arrow of Abenomics. Tokyo’s real-estate market has started to rebound as Abe tries to end the deflationary malaise that began with stock and property bubbles bursting more than two decades ago.

Parliament last month passed a bill to establish special economic zones, where rules will be pared in areas from labor to medical care and agriculture, with many details yet to be set.

David Fuller's view

If you were monitoring Japan’s economic progress in the 1970s and 1980s, it seemed as if there was nothing that the Japanese could not achieve.  However, in 1990 we discovered that Japan’s remarkable economic advance was too good to last, when one of the biggest all-time property and stock market bubbles burst. 

Fast forward to just over a year ago and most financial commentators were sceptical about Japan’s recovery prospects after so many years of disinflation, deflation and failed governments.  Japan’s stock market was rallying in anticipation of Shinzo Abe’s policies but most analysts gave it a few months to a year or so at most.

Japan’s stock market was one of FT Money’s favourites last year and I would continue to give it the benefit of the doubt this year.  Yes, there are always risks but I think Abe’s developing programmes for reviving Japan’s economy are sensible.  Japan’s stock market is still cheap relative to Wall Street on the basis of book value.  Japan introduced a huge monetary stimulus in 1Q 2013 which will continue for at least the lengthy medium term.  It looks to me as if Japan’s Nikkei 225 Index (weekly & daily) is in the process of completing its medium-term consolidation which commenced in May 2013.  A decline back beneath 15,000 would be required to delay further upside scope beyond the short term.  Japan’s Topix 2nd Section Index (weekly & daily) usually leads and it has risen for 11 of the last 12 days, clearing May 2013’s high in the process.  It is temporarily overextended but a close beneath 3300, which I do not expect, would be required to question medium-term upward scope.  

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