Japan Economy & Housing
A variety of recent economic indicators are showing expansion in Japan’s economy. Nominal annualized GDP grew a surprising 4.9% in the January to March quarter. In April exports grew 7.9%, industrial production rose 12.9%, machinery orders rose 6.6% and department store sales rose upwards 1.6%. While it should be noted that year prior statistics in April did show a March 11th earthquake related contraction, the economic growth trend in Japan is beginning to show signs of firming.
One key factor underpinning this expansion is virtually free money. Fleeing risk related to the European debt crisis, international investors are piling into Japanese Government Bonds. Increased demand for JGB’s has recently driven 10 year yields to a 9 year low of 0.8%. In the first half of 2012 yen denominated debt (known as Samurai bonds) held by foreign financial institutions reached a 4 year high of 1.2 trillion yen. This is despite the Bank of Japan recently appointing two new board members in favour of more aggressive monetary easing. With Japan’s legislature deadlocked over fiscal reforms and consumption tax hikes, it appears that the only measure that Japanese politicians can agree on is lobbying the Bank of Japan to print more money.
While free money has been a two decade long BOJ policy pillar, increased competition from consumer lenders are now resulting in near zero interest loans for personal borrowers as well. In June leading financial institutions such as the Mitsubishi UFJ Bank dropped 10 year fixed mortgage rates to 1.4% from 2.0% a year earlier. Variable rate mortgages currently trade at below 1% per annum. Even consumer credit cards are available at 3.0% annual interest rates. Aggressive consumer lending is expected to support housing and consumer lending near term, but with the sobering recent examples of the United States, Spain and Ireland one wonders at what future cost.
Japan Housing Starts Update
Posting a third monthly consecutive increase, total April housing starts registered a 10.3% gain over year prior figures. Total wooden homes rose 5.2% to 37,112 units. The “mansion” or condominium starts jumped 27% to 13,734 units. The higher increase in non-wood starts resulted in a market share drop of wooden starts to just above the 50% level when measured against total housing starts.
Among wooden starts, platform frame construction posted the strongest gains. Two by four housing increased 8.2% to 7,876 units. Owner occupied single family custom starts rose 8.2%. Rentals jumped 10.9% to 4,340 units. Single family spec housing dropped 1.1% to 1,106 units. Average floor area saw little change. Post and beam starts totaled 28,297 units; up 4.5% over April 2011. Pre-fab wooden housing starts increased 2.2% to 939 units. Overall pre-fab starts increased 3.1% to 9,410.
Between January and April 2012 cumulative softwood lumber shipments to Japan increased 5.7% to 798,200m3. Total April softwood shipments were 225,979m3, representing a 16.5% increase over year prior levels. April SPF shipments increased 25% to 152,518m3. In the same month Hemlock shipments rose 4.5% to 36,969m3. By value April YTD softwood exports to Japan totaled $211,762,000 or 3.9% of year prior results.