"Abenomics" is a term coined to describe the economic policies of the current Prime Minister of Japan, Mr Shinzo Abe. It refers to the “three arrow” plan which includes a large fiscal stimulus package, a huge expansion of monetary policy, and a number of structural reforms, all aimed at achieving structural growth and an inflation target of 2 per cent.

The monetary expansion policies are essentially a quantitative easing package, whereby the central bank (Bank of Japan) digitally creates money in order to purchase bonds from the Japanese government (as well as some other assets), called an asset purchase program. Right now, this program of “money printing” is worth 80 trillion yen per year. At today’s exchange rate, that’s just shy of 1 trillion Australian dollars. This is almost the same size as the former US Quantitate Easing package, albeit in an economy only one third of the size.

However, understanding the size and impact of such policies in Japan can be challenging for the casual market watcher, given the ease with which the terms billion, trillion and yes, even quadrillion tend to be used. So let’s try to put some of these figures into a more digestible perspective.  

Take BHP Billiton, for example. Its current market capitalisation is AUD 80 billion dollars. That is equivalent to just one month of Japan’s asset purchase program. So if the Bank of Japan could buy shares in BHP as part of their asset purchase program (and assuming they had no impact on the share price), they could essentially own the entire company in one month with digitally printed money.

So the combined value of the big four banks, Rio, BHP, and Telstra, as well as Australia’s gross government debt is roughly $979 billion, essentially the same as the annual size of Japan’s asset purchase program ($963 billion).

This program, however, generally targets government securities with medium to long term maturities. With such a large wave of capital being allocated to these JGBs, pricing has been pushed to the limit. Quite incredibly, the yield on Japanese 10-year government bonds is negative. In other words, if you would like to lend to the Japanese government, you have to pay them for the privilege.

Of course, such unprecedented policies have had an impact on the markets in various ways, with real estate markets actually being a key beneficiary. Investors have been attracted to the real estate market due to a growing yield spread to other asset classes. Typical net yields on residential property in Tokyo are actually around about the same as they are in Sydney, ranging from anywhere between 2.5% - 5.0%, depending on various factors. A key difference lies in the cost of financing, however. Lending rates in Japan have generally been quite low, but they have continued to drop over the past few years, with residents now able to secure housing loans with interest rates below one per cent, fixed for 10+ years. It is therefore fairly easy to see why the buy versus rent decision is very much in favour of buying, given that net rental income would cover typical interest expenses multiple times over.

Whilst no one can be entirely sure of the long-term impact of these previously mentioned policies, the current fundamentals and returns on offer will continue to attract new investors into the market. The fundamentals remain firm and the investment case for Tokyo real estate remains among the best in the Asia Pacific region.