Japanese take on the Australian economy
Australia is not bucking the trend of global synchronised growth but neither does it hold the shining-star role it enjoyed five or six years ago. Japanese investors have a cautious outlook.
ISHIDE The ECB or Fed stance will affect our investment in Australian dollars, but not a lot. The RBA’s policy rate has been unchanged for the past two years. Furthermore, while the RBA says its next action is a rate hike, when I interpret its most recent statement it seems to me that it is in fact taking a dovish stance.
The RBA is looking at future wage growth but unfortunately wages are not accelerating as much as the RBA wants. It’s the same story with inflation. Conditions for a rate hike are therefore not yet in place.
The housing adjustment continues in Australia and the problems with the banks are being investigated by the royal commission, which will take two more months to complete. It is therefore reasonable for investors looking at Australia to consider that the timing of RBA rate hikes may be pushed back instead of being front-loaded. The Australian dollar is softening as a result.
Will this situation change with the next CPI or wage numbers? Will the next wages and CPI numbers support the RBA’s rate hike? This is what I’m focusing on.
Australia's migration policy is changing after a period in which immigration has been increasing. The impact of this on real demand for housing is something we have to keep a close eye on.
DOMOTO Housing-price movements, the recurrent issue of the royal commission and the banks’ valuation structures, and delinquency rates are a few concerning points. However, overall the Australian economy as a whole is not volatile. It’s not the case that we will cut our exposure in the near future – we don’t have this in our plan. It’s just that there are a few concerning factors.
SAKURAI The key points I focus on have not changed much. These are the housing market, whether the rate hike will happen and whether population growth will cause real demand for housing to move favourably.
Regarding the potential for rate hikes, the debt burden in Australia is still increasing so I don’t think a hike will happen very shortly. Regarding population, Australia’s migration policy is changing after a period in which immigration has been increasing. The impact of this on real demand for housing is something we have to keep a close eye on.
This doesn’t mean we expect to stop residential mortgage-backed securities (RMBS) investment imminently. Housing prices are easing, but housing loans in RMBS pools are on average three-years seasoned so mortgage loans have ample buffer at the moment. Less seasoned loans may have to be watched.
With regard to the Australian economy, banks’ balance sheets are mostly mortgage loans so the housing market will always be a key focus. We will watch and, if there are new events, we may think about reducing our exposure. However, right now we are not thinking of taking immediate measures.
IKEDA The Australian housing market has been said to be overheating for a while so we have been keeping an eye on mortgage loans, unemployment and the household debt level. I have been looking at Australian Prudential Regulation Authority (APRA) policy and I don’t anticipate any big change. Our current stance is that we are not going to change our exposure or our policy dramatically.
BANK INVESTOR I have the same view. APRA policy will not have a big negative impact on us. Yes, there are concerns about the credit cycle and investment environment but it’s not that Australia is of particular concern compared with other regions. We will continue with our investments.
