Reforms Not Guaranteed Despite Greater Policy Execution Potential
BMI View: The Liberal Democratic Party's recent success in the Upper House elections has increased the potential for policy formation and execution in Japan, prompting us to revise up our near-term forecasts for the country's construction sector. However, it still remains to be seen if the Japanese government will be able to take advantage of its political strength and carry out the necessary reforms that could lift long-term construction demand. At present, we have seen some progress in implementing reforms specific to the infrastructure sector.
Japan's construction activity continues to improve since 2011. Latest data from the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) showed that monthly construction works executed by the country's 50 largest construction companies grew at an average rate of 6.1% year-on-year (y-o-y) in H113, significantly higher than the same periods in 2012 (3.9% y-o-y in H112) and 2011 (-2.2 y-o-y in H111). We believe this indicates that the economic stimulus package approved by the Liberal Democratic Party (LDP) on January 11 2013 is providing some impetus in spurring reconstruction and infrastructure activity in the country.
Despite this pick-up, we believe that a large portion of the project pipeline in the construction sector has yet to be completed. Since the March 2011 earthquake and tsunami, monthly construction orders in Japan have grown at an average rate of 8.6% y-o-y, while monthly construction works has only grown at an average rate of 4. 1% y-o-y over the same period.
|Orders Slowly Translating To Activity|
|Japan - Monthly Value of Construction Orders Received And Work Executed, Big 50 Construction Companies, % chg y-o-y|