Japan Is Back. Is Inflation the Reason?
Kanebridge News
    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,603,134 (+0.55%)       elbourne $989,193 (-0.36%)       Brisbane $963,516 (+0.83%)       Adelaide $873,972 (+1.09%)       Perth $833,820 (+0.12%)       Hobart $754,479 (+3.18%)       Darwin $668,319 (-0.54%)       Canberra $993,398 (-1.72%)       National $1,033,710 (+0.29%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $748,302 (+0.18%)       Melbourne $497,833 (-0.44%)       Brisbane $540,964 (-1.56%)       Adelaide $441,967 (-0.38%)       Perth $442,262 (+1.33%)       Hobart $525,313 (+0.38%)       Darwin $347,105 (-0.72%)       Canberra $496,490 (+0.93%)       National $528,262 (-0.02%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 10,189 (-104)       Melbourne 14,713 (+210)       Brisbane 7,971 (+283)       Adelaide 2,420 (+58)       Perth 6,383 (+298)       Hobart 1,336 (+6)       Darwin 228 (-12)       Canberra 1,029 (+8)       National 44,269 (+747)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 8,795 (-1)       Melbourne 8,207 (+293)       Brisbane 1,636 (+1)       Adelaide 421 (-4)       Perth 1,664 (+15)       Hobart 204 (-1)       Darwin 404 (-2)       Canberra 988 (+12)       National 22,319 (+313)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $800 (+$5)       Melbourne $600 ($0)       Brisbane $640 (+$10)       Adelaide $600 ($0)       Perth $660 ($0)       Hobart $550 ($0)       Darwin $700 ($0)       Canberra $690 ($0)       National $663 (+$2)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $750 ($0)       Melbourne $590 (+$10)       Brisbane $630 ($0)       Adelaide $490 (+$10)       Perth $600 ($0)       Hobart $475 (+$23)       Darwin $550 ($0)       Canberra $570 (+$5)       National $593 (+$4)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 5,364 (+80)       Melbourne 5,428 (+4)       Brisbane 4,002 (+12)       Adelaide 1,329 (+16)       Perth 2,113 (+91)       Hobart 398 (0)       Darwin 99 (-5)       Canberra 574 (+39)       National 19,307 (+237)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 7,687 (+257)       Melbourne 4,793 (+88)       Brisbane 2,098 (+33)       Adelaide 354 (-11)       Perth 650 (+5)       Hobart 135 (-1)       Darwin 176 (-9)       Canberra 569 (+14)       National 16,462 (+376)                HOUSE ANNUAL GROSS YIELDS AND TREND       Sydney 2.59% (↑)      Melbourne 3.15% (↑)      Brisbane 3.45% (↑)        Adelaide 3.57% (↓)       Perth 4.12% (↓)       Hobart 3.79% (↓)     Darwin 5.45% (↑)      Canberra 3.61% (↑)      National 3.33% (↑)             UNIT ANNUAL GROSS YIELDS AND TREND         Sydney 5.21% (↓)     Melbourne 6.16% (↑)      Brisbane 6.06% (↑)      Adelaide 5.77% (↑)        Perth 7.05% (↓)     Hobart 4.70% (↑)      Darwin 8.24% (↑)        Canberra 5.97% (↓)     National 5.84% (↑)             HOUSE RENTAL VACANCY RATES AND TREND       Sydney 0.8% (↑)      Melbourne 0.7% (↑)      Brisbane 0.7% (↑)      Adelaide 0.4% (↑)      Perth 0.4% (↑)      Hobart 0.9% (↑)      Darwin 0.8% (↑)      Canberra 1.0% (↑)      National 0.7% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 0.9% (↑)      Melbourne 1.1% (↑)      Brisbane 1.0% (↑)      Adelaide 0.5% (↑)      Perth 0.5% (↑)        Hobart 1.4% (↓)     Darwin 1.7% (↑)      Canberra 1.4% (↑)      National 1.1% (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND       Sydney 29.7 (↑)      Melbourne 30.9 (↑)      Brisbane 31.2 (↑)      Adelaide 25.1 (↑)      Perth 34.4 (↑)      Hobart 35.8 (↑)      Darwin 35.9 (↑)      Canberra 30.4 (↑)      National 31.7 (↑)             AVERAGE DAYS TO SELL UNITS AND TREND       Sydney 30.0 (↑)      Melbourne 30.5 (↑)      Brisbane 28.8 (↑)        Adelaide 25.2 (↓)       Perth 38.3 (↓)       Hobart 27.8 (↓)     Darwin 45.8 (↑)      Canberra 38.1 (↑)      National 33.1 (↑)            
Share Button

Japan Is Back. Is Inflation the Reason?

Deflation might be vanquished, but the payoff could be elusive

By GREG IP
Fri, Mar 1, 2024 9:10amGrey Clock 4 min

The Nikkei stock index recorded last week its first new high in 34 years, a fitting tribute to Japan’s re-emergence as a genuinely exciting economy.

It also comes amid mounting evidence that Japan has finally broken the hold of deflation. Inflation in January was 2.2%, the 22nd month above 2%. Wage growth has picked up too.

This appears to vindicate the economic consensus that deflation was a primary driver of Japan’s decades long malaise. But that conclusion might be premature. Proof of deflation’s harm has been elusive, and the benefits of low, positive inflation might be similarly subtle.

Consumers are often surprised to hear that deflation is supposed to be bad. In the U.S., where prices have risen steeply since 2021 , normal people, and even economists, wouldn’t object if they fell a bit.

The trouble arises when prices fall persistently, year in and year out, because wages, incomes and the prices of assets such as property tend to follow. Debtors struggle to repay loans and might slash spending or default, endangering the financial system. That is what happened in the U.S. when prices fell 27% from 1929 to 1933.

Even mild deflation can, in theory, inhibit growth. Central banks stimulate spending by lowering nominal interest rates below inflation to make the real—i.e., inflation-adjusted—cost of borrowing negative. That is almost impossible when inflation is itself negative.

The roots of deflation

Japan’s deflation began after its property and stock-market bubbles burst in the early 1990s. Ensuing losses at banks eroded their ability to lend. Inflation turned negative in 1999.

Western economists such as future Federal Reserve Chair Ben Bernanke argued that curing deflation was essential to restoring Japan’s economic health. The Bank of Japan agreed, at first half heartedly and then wholeheartedly.

It used zero, then negative, short-term interest rates. Next came purchases of short-term, then long-term, government securities. Finally, the BOJ even bought shares in companies with newly created money to stimulate spending and raise inflation.

The BOJ only succeeded in bringing inflation up to around zero. It took the global supply chain shocks of the pandemic to finally push underlying inflation to 2%, the bank’s target .

Japan’s 25 years of zero to negative inflation was accompanied by one of the rich world’s lowest growth rates. Japanese deflation became a cautionary tale for other countries, most recently China, where prices are currently falling .

Yet proving that deflation was behind Japan’s problems is maddeningly hard. Arguably, it was more symptom than cause.

In the early 1990s, working-age population growth turned negative. This happened just as Japan’s post-World War II phase of catching up to other developed nations ended. Meanwhile, industry began moving production to lower-wage countries.

All this, plus the banking crisis, put structural downward pressure on prices, wages and growth.

Underlying performance

Adjusted for its shrinking population, however, Japan’s performance has been respectable. From 1991 to 2019, its output per hour worked rose 1.3% a year. This was slower than in the U.S. but comparable with Canada, France, Germany and Britain, and faster than Italy or Spain, according to the economists Jesús Fernández-Villaverde, Gustavo Ventura and Wen Yao.

Since 2019, output per working-age person rose 7% in the U.S., 5% in Japan, 2% in the eurozone and zero in Britain, by my calculations. (This might overstate Japan’s performance because many of its elderly still work.) As any visitor can attest, Japan remains a prosperous, harmonious and well-ordered place.

“Had you appointed me governor of the Bank of Japan for 25 years with all the power in the world, I don’t think I would have been able to do better,” said Fernández-Villaverde.

This doesn’t prove deflation was benign. Growth (and deflation) might have been worse without the BOJ’s herculean monetary efforts. And if inflation had been positive, growth might have been stronger.

Still, it raises an awkward question: If zero to negative inflation is so damaging, where is the evidence?

The price mechanism

The harm might lie in subtle behavioural changes by investors, companies and the public. For example, in a market economy, changing relative prices and wages are critical signals for reallocating capital and labor from stagnant to growing sectors.

Relative prices changes are unusually rare in Japan, according to the University of Tokyo economist Tsutomu Watanabe. He has found that from 1995 through 2021, prices of more than half of products didn’t change at all from year to year. This wasn’t just because average inflation was lower; price changes deviated from the average much less than in other countries.

In a December speech, Bank of Japan Governor Kazuo Ueda said years of low to negative inflation led to a “status quo in wage- and price-setting behaviour,” so many prices and wages didn’t change. “The know-how for raising prices was thus lost,” he said.

The absence of this price-discovery function, Ueda contended, sapped productivity and dynamism.

Watanabe’s research shows that since January 2022, prices have been less sticky and more dispersed. Coincidentally, the Nikkei’s latest rally began a year later.

This in great part reflects the enthusiasm of foreign investors such as Warren Buffett , shareholder-friendly changes in corporate governance, and Japan’s importance as an alternative to China for high-end manufacturing and technology.

Inflation, though, might also be a factor, said Paul Sheard , a former vice chairman at S&P Global who has studied the Japanese economy for decades. He added that investors care about nominal, not real, stock prices, earnings, dividends and cash flow.

Higher inflation flatters all those metrics. That benefit might be neutralised by higher interest rates, but Japanese bond yields have risen less than expected inflation, so real yields are down to minus 0.6%.

So perhaps inflation is reviving businesses’ and investors’ animal spirits. Even so, growth last year was about the same as before the pandemic and turned slightly negative in the third and fourth quarters, producing a technical recession . What’s more, wages have lagged behind inflation, and Prime Minister Fumio Kishida ’s approval ratings have plummeted.

Japan might have prevailed in its war against deflation. But ordinary Japanese have yet to see a peace dividend.



MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Property
How much income is required to service a mortgage? It depends on where you live
By Bronwyn Allen 25/04/2024
Money
Australian Inflation Stays Strong, Highlighting Challenge Facing RBA
By DAVID WINNING 25/04/2024
Money
Personal Wardrobe of the Iconic Late Fashion Designer Vivienne Westwood Goes up for Auction
By CASEY FARMER 25/04/2024
How much income is required to service a mortgage? It depends on where you live

New research suggests spending 40 percent of household income on loan repayments is the new normal

By Bronwyn Allen
Thu, Apr 25, 2024 3 min

Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.

Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.

“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.

CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.

Sydney

Sydney’s median house price is $1,414,229 and the median unit price is $839,344.

Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.

Melbourne

Melbourne’s median house price is $935,049 and the median apartment price is $612,906.

Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.

Brisbane

Brisbane’s median house price is $909,988 and the median unit price is $587,793.

Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.

Adelaide

Adelaide’s median house price is $785,971 and the median apartment price is $504,799.

Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.

Perth

Perth’s median house price is $735,276 and the median unit price is $495,360.

Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.

Hobart

Hobart’s median house price is $692,951 and the median apartment price is $522,258.

Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.

Darwin

Darwin’s median house price is $573,498 and the median unit price is $367,716.

Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.

Canberra

Canberra’s median house price is $964,136 and the median apartment price is $585,057.

Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.

 

MOST POPULAR

Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts

11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

Related Stories
Property
A ‘cracking’ start to 2024 with strong weekend property auction results
By Bronwyn Allen 06/02/2024
Lifestyle
Millennials Are Coming for Your Golf Communities
By JESSICA FLINT 21/04/2024
Property
Monaco Was the World’s Top Luxury Property Market in 2023
By ELAINE PAOLONI QUILICI 20/03/2024
0
    Your Cart
    Your cart is emptyReturn to Shop