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Japan Economy, Housing & Lumber Shipments

Japan Economic Update: Hopes for Abenomics Fading

Shawn Lawlor

By Shawn Lawlor

Director, Canada Wood Japan

March 9, 2016

The year of the monkey brings with it a string of troubling news for the Japanese economy. GDP shrank an annualized 1.4% in the final three months of 2015. The causes were multiple. Household spending fell 4.4 December for the 4th consecutive monthly decline. As China is Japan’s top trading partner, the Chinese slowdown is having rippling effects to Japanese industrial production and exports. Exports fell 13% in January, marking the largest decrease since 2009.

The deepening global commodity and equities slump in January is also intensifying headwinds for Japan. The currency strengthened approximately 7% to the 112yen to USD level as the global sell off sought a so called “flight to safety” in the yen. As the yen rises the dominoes begin to fall on corporate profits of exporters and subsequently Japanese equities. The Nikkei 225 index fell from the high 17,000 level and the beginning of February to the high 15,000 by late month.

Falling commodity prices and trade also continued to exercise deflationary pressure on Japan, as wholesale prices for January fell 3.1% for the 10th consecutive month. Average wages for 2015 also retreated 0.9%, underlining a painful lack of progress in creating the virtuous cycle of rising wages, prices and asset values that Abenomics had promised. Concerned with this trend, Bank of Japan governor Kuroda further raised the ante for monetary stimulus by introducing a negative interest rate 0.1% for the first time at the end of January. The move is to encourage Japanese banks to lend or penalize them for hoarding cash, but despite a brief uptick in Japanese equities in the following days this development is likely more indicative of Abenomics running out of steam and the BOJ running out of options.

Japanese Monthly Housing Starts Summary for December 2015

Housing market activity turned sluggish in December. Total starts fell 1.3% to 75,452 units. Owner occupied single family starts fell 5.4% and the mansion condominium market fell 13.5% for the fourth consecutive monthly decline.

Total wooden housing fell 1.6% to 43,141 units. Post and beam starts gained 4.7% to 32,942 units. Wooden pre-fab starts slumped 14.6% to 1,161 units. Platform frame starts also came up surprisingly short with a 16% loss to finish at 9,038 units; with custom ordered single family homes declining 10.4% to 2,427 units, rentals down 20% to 5,496 units and built for sale 2×4 spec housing down 4.8% to 1,104 units. Recent feedback from the housing industry front lines indicate that sluggish market conditions continue to prevail and we have yet to see any material increase in expected demand leading up to the second consumption tax increase slated for 2017.

2015 Year End Summary of Japanese Housing Starts

Year over year Japan’s total housing starts improved 1.9% to finish at a semi-respectable 909,299 units. Total wooden housing starts increased 3.1% to 504,318 units or 55.5% of total starts. Platform frame starts rang out the year up 2.8% to 114,617 units. Post and beam starts grew 3.5% to 375,357 units. Total pre-fab starts edged up 2.2% to 143,549 units; however, wooden pre-fab declined 4.2% to 14,344 units.

Looking over the course of the last 5 to 10 years (please see chart, percentage and yearly tabs) several trends are discernable. Firstly, since the global economic crisis of 2009 non-wood construction market share (high rise condominiums and apartments etc…) has fallen dramatically. As a result the market share for wooden construction has increased from an average of around 45% to 55% of all starts and has remained resilient at this level. In terms of wood demand this is a significant factor. For example, the 504,000 total wooden starts in 2015 were at the same level as they were in 2007 even though total housing starts declined from 1.06 million in 2007 to 909,000 in 2015.

On the other hand we look at platform frame “2×4” starts we saw strong growth in the previous decade led by an increase in multi-family apartments which resulted in an overall market share increase from 6.4% in 2000 to 11.6% in 2009. However, the pace of increasing 2×4 market share has slowed considerably in recent years – growing from 11.6% in 2009 to 12.6% in 2015. Both pre-fab and post and beam housing methods appear to be tenaciously holding onto market share.

B.C. Softwood Exports to Japan

BC total softwood lumber shipments to Japan increased 2.1% to 2,180,939m3 in 2015. By value softwood exports increased 3.2% to $754.9 million. By specie, SPF softwood exports increased 5.1% to 1,501,510m3, Hemlock exports declined 3.5% to 310,999m3 and Douglas Fir shipments increased 2.2% to 234,169m3.