Relaxation of monetary policy fails to halt economic slowdown

PUBLISHED : Wednesday, 10 February, 1993, 12:00am
UPDATED : Wednesday, 10 February, 1993, 12:00am

DESPITE the easing of monetary policy in late spring last year, the slowdown in the Japanese economy continued unabated, with the stock market falling to a six-year low by mid-August.

The Japanese Ministry of Finance's rescue package proposed in late August helped to revive stock prices, but there is general scepticism as to the extent that the 10.7 trillion yen (about HK$6.6 million) package could stimulate growth in the economy.

Contrary to the government's estimate of 3.5 per cent GDP growth for 1992, GDP only rose an annualised 1.1 per cent by August. Nevertheless, inflation and unemployment has remained low, a phenomenon peculiar to the Japanese economy.

However, the slowing economy is increasing the demise of Japan's banking sector. One estimate shows that about 20 trillion yen of direct and indirect loans outstanding to the real estate sector by Japanese banks, finance and insurance companies have become non-performing.

But as land prices and the attendant property prices fall, property owners and their creditors, are still hanging on in the hope that prices will recover soon.

Despite rapidly falling land prices, commercial land in Toyko's ginza area, assessed at more than 36 million yen per square metre, remains the most expensive in the world.

Office space in Tokyo's prime Chiyoda ward remains tight as tenants stay put, so that the vacancy rate is very low and rental values remain high. The situation in Chuo and Minato wards has eased and rents started coming down last year and finished the year about 10 per cent below 1991 levels.

However, new space is being completed in other parts of Tokyo, allowing tenants greater flexibility in negotiating future rents. The construction of new offices is expected to slow down by 1995.

The increase in the supply of new office space in Tokyo's 23 wards duringthe next three years will turn it into a tenants' market.

Office vacancy in the city was estimated to rise to about five per cent last year, up from 2.9 per cent in 1991.

Newly developed office districts around the Tokyo Bay area have been adversely affected as a result and development has slowed substantially, while high vacancy haunts new space that is nearing completion.

As with offices, retail space in ginza's prime pitch is scarce so that rents have remained unchanged. Outside this area, the decline in consumer spending since early last year has cooled demand for retail space.

Last year the level of retail sales dropped steadily for the first time in a decade.

Sluggish domestic consumption is expected to remain until the economy revives.

David Faulkner is a partner at Brooke Hillier Parker.

and retail rents are likely to remain stagnant in the coming year.