In December, Shinzo Abe’s Liberal Democratic Party won the lower house election making him the Prime Minister for the 2nd time (he had to quit for health reasons in 2007 after being at the helm for less than a year). He campaigned on ending deflation and returning Japan to a solid growth path stating that he was willing to follow the American policy of printing money until the ink runs out if necessary to do so. Apparently believing both his commitment and capability to achieve these goals, the markets reacted bullishly the day after election and the Nikkei has been on a tear rising over 12% since the election.
More importantly, the people actually seem to have faith in him. This is saying a lot in a country that had seemingly lost all faith in politicians and has seen a revolving door of new PMs each year. The mood of the country has changed and for the first time in a very long time people are positive about the economy. The new government’s approval of a Y20 trillion (US$234 billion) stimulus package just three weeks after the election that aims to create 600,000 jobs and add 2% to Japan’s growth rate will further bolster people’s confidence. Economic growth depends a great deal on consumers feeling positive about spending, but the Japanese have held their wallets shut tight for many years. If this newfound consumer confidence sticks, the new PM may actually be able to achieve his economic goals more easily than many had anticipated.
The housing industry is in an even more interesting position. Construction of new homes took off in 2012 with people looking to avoid the consumption tax increases scheduled to begin in 2014. 2013 was expected to be even stronger as the “tax incentive” would be coupled with full-scale reconstruction in Tohoku. Add optimistic consumers with large savings behind them to this mix and the year of the snake could be a bonanza for the construction industry.
Last week I attended a New Year’s reception for the imported lumber industry and was interested in hearing how companies were dealing with higher SPF prices combined with a weaker Yen (like the weak US$, the weak Yen is a result of Abe’s willingness to print money). In the past, the specter of even one of these sent importers into a state of panic. However, at last week’s reception everyone was bullish. People told me the market had to and would accept the price increases. One president confidently told me, “if they don’t pay the increase, there is no lumber for them!” With even the lumber industry in Japan this positive, it is definitely shaping up to be a Happy New Year indeed!