Japanese Construction Companies On The Fence About Abenomics

When Tokyo asked for bidders to build what is expected to be the world’s largest fish market on the city’s vacant eastern edge there were no takers.

In a graphic illustration of how the hopes for “Abenomics” are falling short, the city was forced to raise by two-thirds its budget for the project to more than $1 billion before some of Japan’s top construction companies stepped forward.

“Wages and material costs are rising, and that’s why we failed to attract bidders the first time we tried,” said Koji Ishii, a city official overseeing the project, on a sprawl of landfill at Toyosu, next to Tokyo Bay.

Tokyo’s predicament highlights a deeper problem for Prime Minister Shinzo Abe’s economic revival plan for Japan, comprising his “three arrows” of hyper-easy monetary policy, fiscal spending and growth-generating structural reform.

The construction industry has gone through a scorching restructuring over the past decade and a half of hard times since Tokyo last opened the fiscal taps, government officials and managers in the business say.

Many firms are choosing to walk away from government projects rather than invest more in equipment or hire workers – fixed costs that would be hard to shed in the next downturn. In the midst of a building boom, Japan’s construction companies, who stand to benefit most directly from Abe’s policies, are acting as though the good times will not last.

Some critics argue that spending on public works projects – a mainstay of Japan’s economic stimulus efforts in the 1990s – is wasteful and Abe would be better off focusing on deregulation and reform.

But progress on that “third arrow” has been slow, and while Bank of Japan’s massive monetary stimulus has been generally judged effective, the fiscal boost many hoped would keep the economy rolling is proving hard to restart.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza