Abstract
January export numbers for Japan painted a grim picture, reinforcing
BMI’s prediction that GDP will
contract by 2.3% in 2009. The figure
is comparable to other Asian export-oriented economies, which we
anticipate to be affected badly by the global slowdown. As one of the most
highly developed economies
in its region, Japan’s infrastructure
sector has nonetheless struggled with poor growth since the early 90s.
Despite a slight recovery in 2006 and 2007, last year saw pronounced negative
growth estimated at -3.8%
year-on-year (y-o-y). This contraction is
expected to continue throughout 2009 with construction sector
growth of
-2.01% forecast.
In common with many countries policies around the world,
the Japanese government has backed a
stimulus package to maintain the
economy. Despite some success, the Prime Minister Taro Aso and his
Liberal
Democratic Party (LDP) have seen a dramatic loss of confidence in polls,
raising doubts about
either' s ability to remain in office and govern
successfully. Topics such as the mooted use of government
funds to prop up
the stock market have also fuelled concern about the wise allocation of state
resources, at
a time when efforts should be channelled towards
resuscitating domestic demand.
While this current political turmoil
continues it is likely to negatively impact Japan’s ability to deal
with
economic problems, and in particular resuscitate the infrastructure
sector, which is very closely linked to
government spending. Although
opinion polls indicate historically low popularity for Prime Minister Aso
and the LDP party, an unfolding donation scandal is hurting the prospects of a
decisive victory by the
main opposition Democratic Party of Japan (DPJ),
and could yet prompt DPJ leader Ichiro Ozawa to
resign.
Despite these
difficulties at home, Japan is strengthening ties with neighbouring states
through lending
stimulus. This includes a proposal for financial
assistance of more than US$17bn to Asian countries over
three years in
order to combat the global economic downturn, and a bilateral swap agreement
between
Japan and Indonesia of US$12bn.
Energy security has also been
on the agenda, with a consortium of three major Japanese companies –
Tokyo Electric Power (Tepco), state-backed Japan Bank for International
Cooperation (JBIC) and
Toshiba – agreeing to buy 117mn shares in
Canadian uranium producer Uranium One, in a private
placement totalling
CAD270mn (US$220mn). This gives the consortium the option to buy a further
20%
of the company' s available production, part of a broader strategic
relationship agreed between all four.
With nuclear production accounting
for around 30% of Japan' s electricity, reliance on imported uranium
is a
key issue. This deal aims to build on previous investments by Japanese firms
designed to secure
strategic stakes in suppliers overseas and shield
nuclear operators from the fluctuating price of raw
materials.
In
terms of construction and infrastructure in Japan, the country’s
existing high level of development
combined with economic stagnation has
meant that relatively few deals have been carried out beyond
essential
infrastructure upgrade work.
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