Industry Trend Analysis - Attractive Market Size But Limited Growth Opportunities - MAR 2018

BMI View: Despite Japan's status as Asia's second-largest construction market, growth opportunities in the country will be limited by low demand and unfavourable macroeconomic and demographic factors. Japan remains in the top half of our latest Asia-Pacific Infrastructure Risk/Reward Index but trails faster-growing - and higher-risk - emerging markets in the region.

Regional and Global Rankings

  • Regional rank (out of 21): 10
  • Global rank (out of 105): 31

Key Features and Latest Updates

  • Japan is home to Asia's second-largest construction market in terms of industry value, a product of its developed-nation status, large population and high-urbanisation rate. While this will sustain overall construction activity, new investment and development is limited with the construction industry's tepid growth outlook lowering the country's overall Industry Rewards and Country Rewards scores.
  • The legal and operational environment in Japan remains one of the most favourable in the Asia-Pacific region, with the market scoring highly in terms of construction timeliness, contracts and political risk. The country's Industry Risks and Country Risks scores are significantly above the regional average.
  • Supporting Japan's high Industry Risks score is the presence of robust domestic competition among construction companies, which will be further fostered as the government relaxes restrictions on private ownership and operation of infrastructure assets. Japan is home to several globally competitive construction and engineering firms which are also increasingly looking abroad for investment and contract opportunities.
  • Although preparatory works for the 2020 Tokyo Olympics have resulted in a near-term uptick in infrastructure and real estate investment, long-term demand prospects for Japan's infrastructure industry are unfavourable. An ageing and shrinking population, coupled with an already well-developed stock of infrastructure assets limits the country's long-term infrastructure needs.

Risk/Reward Snapshot
Japan and Asia-Pacific Risk/Reward Index
Scores out of 100. Higher score = more attractive market. Source: BMI Infrastructure Risk/Reward Index

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