Japan Infrastructure Report Q2 2008

The Japanese construction industry contributes over 6% to the nation's gross domestic product (GDP).

Strictly pursued delivery times and quality systems in Japan constitute benchmarks for the global construction industry. Earlier BMI forecasts expected the industry to touch US$333.21bn in 2008, contributing nearly 6.20% to GDP. However, the Japanese economy has been at the forefront of recent contraction in world markets and huge equity sell offs, which in turn has given rise to liquidity squeeze and risk aversion in the credit markets. The economy and growth levels of Japan rely on the construction sector to a far larger degree than other G8 countries. For this reason, when the country's construction numbers tumbled in Q407, macroeconomic growth forecasts also declined. These developments suggest downside risks on our construction growth forecast for the medium term.

Housing construction has been a revenue source in Japan, primarily because of the low average lifespan of dwellings. However, the Japanese economy is now being driven by the surge in demand for goods, including construction machinery, from China. Major infrastructure projects currently on the anvil in Japan include high-speed magnetic trains connecting Tokyo and Nagoya; the 300m tall commercial building in Osaka, and the NAND flash memory plant at Yokkaichi. Conversion of old buildings for new uses is also a fast-growing trend in the Japanese construction industry.

In the emerging situation, the Japanese construction industry is likely to post flat growth performance, with many players seeking projects overseas. BMI forecasts the construction industry to reach a value of US$328.23bn by 2012 and grow at an average rate of 1.40% during 2008-2012.