Where has the Japanese property market bull gone? This was the forecast 2 years ago by a Money Week writer. Well, markets are understandably hard to forecast. However the collapse in global financial markets was not hard to fathom given the legacy of fiscal and monetary stimulus over the last decade. The Japanese market was already in the midst of a recovery. It was merely curtailed by the current recession. The prospects for a property boom in Japan remain good, however the question is one of 'when' rather than 'if' I believe. There are a number of ducks which have to line up before we are likely to see a recovery in Japan's property market:
1. Reform-minded government able to deliver on productivity gains. This will likely take a charismatic leader since parliament is full of dead wood. The question of who is a plausible leader will be the subject of a later blog post.
2. Expansionist policy: Productivity gains will deliver the increases in real incomes which will stimulate spending and increases in property prices (as a demand response). In most cases governments are not satisfied with 'real income' gains, and are so inclined to artificially stimulate money supply through debt facilitation. Just as banks have been called upon for the last decade to curtail debt financing, in future they will be called upon to increase debt issuance.
3. Global recovery: A global recovery will result in a recovery in Japanese exports. Japan is well positioned to profit from exports to the USA, but also the Asian tigers and China.
4. Weaker Yen: Japan's national savings rate is gradually falling because of the legacy of decadence in wealthier Japanese youth, and also because of falling real incomes and reduced job opportunities. I am actually uncertain about whether the yen will depreciate. With interest rates so low, there is really only one way the Yen can go - UP! But relative yield is more important that absolute shifts, and loyal Japanese investors are reluctant to send savings abroad anyway. Low interest rates has the favourable benefit of discouraging Japan as a savings repository. Why hold yen given the low return on Japanese bonds? The only people silly enough to hold Yen are the Japanese savers - usually in the form of Japanese bonds. It is silly to hold bonds paying a 1% yield when you can buy foreclosed property in Japan and make 13% yield, and that is before you even consider debt financing for added leverage. If Japan can attract savings at 1%, clearly it does not need to rise much to attract savings. The reality however is that Japanese savers continue to be motivated by fear and nationalism rather than investment logic. The implication is that when foreign interest rates are increasing, Japan might not need to raise its rates as much. Afterall its intent has only been to subdue the currency. Is there a reason to change this policy? The time will come when the Japanese government does that. I think that policy is a decade off. What is worse - Japanese savers holding Japanese bonds yielding 1% or depreciating US bonds? I'd prefer to be a Chinaman saving an appreciating Yuan and a factory pumping out product. For this reason I am inclined to expect a weaker Yen for the next few years, though perhaps stability against the USD given its perturbed standing. I actually expect a rally in the USD in future because of rising interest rates. The US is down, but not out.
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Andrew Sheldon www.sheldonthinks.com
1. Reform-minded government able to deliver on productivity gains. This will likely take a charismatic leader since parliament is full of dead wood. The question of who is a plausible leader will be the subject of a later blog post.
2. Expansionist policy: Productivity gains will deliver the increases in real incomes which will stimulate spending and increases in property prices (as a demand response). In most cases governments are not satisfied with 'real income' gains, and are so inclined to artificially stimulate money supply through debt facilitation. Just as banks have been called upon for the last decade to curtail debt financing, in future they will be called upon to increase debt issuance.
3. Global recovery: A global recovery will result in a recovery in Japanese exports. Japan is well positioned to profit from exports to the USA, but also the Asian tigers and China.
4. Weaker Yen: Japan's national savings rate is gradually falling because of the legacy of decadence in wealthier Japanese youth, and also because of falling real incomes and reduced job opportunities. I am actually uncertain about whether the yen will depreciate. With interest rates so low, there is really only one way the Yen can go - UP! But relative yield is more important that absolute shifts, and loyal Japanese investors are reluctant to send savings abroad anyway. Low interest rates has the favourable benefit of discouraging Japan as a savings repository. Why hold yen given the low return on Japanese bonds? The only people silly enough to hold Yen are the Japanese savers - usually in the form of Japanese bonds. It is silly to hold bonds paying a 1% yield when you can buy foreclosed property in Japan and make 13% yield, and that is before you even consider debt financing for added leverage. If Japan can attract savings at 1%, clearly it does not need to rise much to attract savings. The reality however is that Japanese savers continue to be motivated by fear and nationalism rather than investment logic. The implication is that when foreign interest rates are increasing, Japan might not need to raise its rates as much. Afterall its intent has only been to subdue the currency. Is there a reason to change this policy? The time will come when the Japanese government does that. I think that policy is a decade off. What is worse - Japanese savers holding Japanese bonds yielding 1% or depreciating US bonds? I'd prefer to be a Chinaman saving an appreciating Yuan and a factory pumping out product. For this reason I am inclined to expect a weaker Yen for the next few years, though perhaps stability against the USD given its perturbed standing. I actually expect a rally in the USD in future because of rising interest rates. The US is down, but not out.
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Andrew Sheldon www.sheldonthinks.com
1 comment:
At this stage the whole economy in the world is facing recession, Thus thorough knowledge of foreclosures is necessary to attain success from it.
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