November 19, 2013 4:21 pm

Japan’s battle to lift inflation hits landmark

This photo taken on July 12, 2013 shows various kinds of fish being displayed at the Tsukiji fish market in Tokyo©AFP

Shinzo Abe’s quest to haul Japan out of deflation reached a landmark on Tuesday when rising prices set back a long-cherished project to replace Tsukiji, the iconic fish market in the heart of Tokyo.

For more than a decade, the Tokyo Metropolitan Government has aimed to uproot the 78 year-old market to a new site on reclaimed land across Tokyo Bay. But on Tuesday it announced that three of four tenders for the Y70bn ($700m) project had failed to attract low-enough bids from some of the nation’s biggest contractors.

Koji Ishii, a finance manager at the government’s wholesale markets division, said that “price surges” in the cost of labour had opened up big gaps between what companies bid and the government quoted. The weaker yen had exacerbated the problem, he added, as it had driven up the cost of construction materials.

The failure of the project to overhaul the world’s largest fish and seafood market, a short distance from the fashionable Ginza shopping district, is “a very symbolic action”, said Kentaro Maekawa, an analyst at Nomura Securities in Tokyo.

“Contractors want to preserve the profitability of big projects, so they are now refusing low-margin work”, he said.

Mr Abe’s huge doses of fiscal and monetary stimulus caused Japan to power ahead of every other major economy in the first half of the year, as it recorded annualised growth of about 4 per cent. While momentum sagged between July and September, growth was still well above the average rate of recent years. Public-works spending made one of the biggest contributions, logging quarter-on-quarter growth of 29 per cent.

In the central bank’s last quarterly Tankan survey, which tests the temperature of various segments of the economy, sentiment among large contractors rose to its highest level in more than 20 years.

Yet two of the big four contractors, Kajima Corp and Obayashi Corp, made less money in the first six months of the fiscal year beginning in April than in 2012, thanks to the squeeze on margins caused by labour shortages and the steep fall in the yen.

With the 2020 Olympics providing an additional boost to public and private spending, the outlook is now good enough for builders to start pushing up prices, said Mr Maekawa of Nomura.

Tsukiji has long been a fixture of the tourist trail in Tokyo, with hundreds of visitors making a trip each morning to watch auctions of tuna, and to sample the freshest of catches. Yet fears have mounted that the facility is now well past its service life.

Three years ago former governor Shintaro Ishihara described the Tsukiji relocation as “unfinished homework” from the Showa era, which ran for 63 years until 1989.

“The market has aged to the point where even a small tremor can cause a portion of the roof to fall in”, he said.

Additional reporting by Nobuko Juji

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