Japan Infrastructure Report Q4 2009

BMI has revised its forecasts for Japan's infrastructure sector on the back of new data. As a result, the short-term picture for the sector is slightly worse than previously expected, with overall year-on-year (yo- y) growth of -12.21% predicted for 2009. This decline is expected to continue into 2010 with the sector only recovering in 2011 with 3.5% y-o-y growth. This is despite a record government stimulus of JPY15.4trn (US$154bn) that takes the cumulative total to JPY25trn (US$250bn), representing 5.5% of the country's GDP.

Liquefied Natural Gas (LNG) projects have dominated Japanese infrastructure developments in recent months but this is mainly because of a substantial slow down in other projects. Many Japanese infrastructure firms have been involved in projects in nearby Asian states given the difficulty in winning contracts at home. The government announced plans in August to set up a pan-Asian infrastructure fund to invest US$1.06bn in transport and other infrastructure projects, in which Japanese companies would participate. Japanese refiner Nippon Oil announced plans in July to build an LNG terminal in Kushiro City.

Meanwhile, Japanese energy company Inpex started construction of its Naoetsu LNG-receiving terminal in Joetsu City. The construction of the terminal will cost JPY100bn (US$1.04bn) and will involve building two 180,000 kilolitre storage tanks, a vaporiser and a berth, among other facilities.

Japan has been placed in a difficult position by the recent global downturn. Despite receiving an overall score of 71.6 in BMI's business environment ratings, placing it first in the Asia pacific region, it is let down by sector growth. This indicates a real problem for the country, as although it has an excellent regulatory environment and skilled workforce, there is little potential for high growth and this is likely to lead to further stagnation. Japan's problems extend to its Project Finance ratings, where it has fallen to seventh place in the Asia Pacific region. This is a result of low rating inputs for Japan caused by deflationary pressures increasing the cost of debt.

After the groundbreaking general elections of August 30 it is likely that the next few months will be important in determining how quickly the Japanese infrastructure sector returns to growth. The Democratic Party of Japan (DPJ) became the first party in over 50 years to beat the incumbent Liberal Democratic Party (LDP). While there is overwhelming public support for the new parliament it still faces some stiff challenges. Most notably young and inexperienced DPJ ministers may encounter difficulties with the famously bureaucratic infrastructure sector and political friction from LDP stalwarts along with the existing economic problems.