Japanese industrial output fell almost 10% in Dec 2008 whilst unemployment shot up from 3.9 to 4.4%, the fastest pace for more than 40 years. The pace of this rise belies the ease companies have in laying off casual contract workers. Some of the countries largest companies are slashing their workforce, with NEC saying it will retrench 20,000 workers worldwide. In the last year the number of unemployed has risen by 390,000 to 2.7 million. Household spending is down 4.6%, the 10th consecutive monthly fall. Core consumer inflation edged up 0.2%. The early phase of this recession is likely to see mostly temporary workers lose their jobs.
Prime Minister Taro Aso's boast that “Japan will be the first to emerge from the recession” may look increasingly hollow, but it’s probably not wrong. The Philippines and Japan are best able to weather this recession because they don’t have the high levels of household debt of many OECD countries. Japan will however suffer some pain due to the strength of the yen, which gained 23% against the US dollar in 2008.
The fact that the Japanese economy is not excessively leveraged means that property prices outside the CBD of the major cities will hold up well, and this is where the best yields on foreclosed property exist anyway. The poor investor sentiment should auger well for fearless investors and home buyers. Should people step with trepidation at the thought of taking on large amounts of debt? That depends. There is the prospect of higher inflation, so if it’s an owner-occupied property and your job is not secure, you are advised not to take on large amounts of debt. If it’s an investment property in a sought-after area, you should ensure the rental yield easily covers your interest repayments. This should not be so hard in outer city and rural areas. I was able to find properties offering unleverage yields of 13% per annum. They are very attractive returns if you can borrow money. This is not a time for growth property unless you know of a new gold mine starting up and are buying up all the houses in town. Therefore I recommend 'underloved' rural properties for the next few years, for living or rentals if the market allows. In Japan, the good news is that you don't need to go too far bush to find a very attractive yield. How about 4km from a railway, 1.3 hours from Tokyo.
In a few years, after city property has bottomed, you will have paid off your fringe property, and you will be ready to lunge into a city property anywhere in the world. Or you can sell your property, realise a forex gain, and buy a bigger house abroad because I dare say this recession will spark reform in Japan. Why? Because reform was delayed before by a strong Japanese export sector. There is no such salvation this time. But lets see....the Japanese do take too much pride in their capacity to suffer. Not my paradigm! :)
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Andrew Sheldon
www.sheldonthinks.com
This property is an average or typical property in rural areas. The external appearance is ok, but the internal appearance is old. You can do much better by doing more than the 15 minutes of random search I have done tonight. This property is in a rural area of Morioka City. You would likely pick this place up for minimum bid price of Y928,000.
