Japan’s property market is well placed to withstand Iran war energy shock

Spare a thought for investors seeking shelter from the energy shock caused by the war in Iran. There are no sanctuaries. Government bonds, a traditional beneficiary of a flight to safety, have fallen in response to fears central banks will be forced to raise interest rates to combat a surge in inflation. Even gold, long viewed as a refuge in times of geopolitical uncertainty, has fallen about 15 per cent this month following a blistering rally.The safe haven credentials of Dubai have taken a harder knock. Previously an island of stability in one of the most dangerous areas of the world, the financial hub has been a target of Iran’s missile and drone attacks, calling into question its ability to attract talent and dealing a severe blow to its tourism industry.However, the impact of the energy shock is most acute in Asia. Before the war, the region’s four largest economies – China, India, Japan and South Korea – accounted for 75 per cent of oil and 59 per cent of liquefied natural gas (LNG) flows through the Strait of Hormuz.Japan is particularly vulnerable. Nearly all its oil consumption is met by imports, with the Middle East accounting for 96 per cent of supplies. Nomura ranks Japan as Asia’s fifth most exposed economy to the energy shock.The war could not come at a worse time for Japan. Prime Minister Sanae Takaichi’s fiscal stimulus package and her resistance to further rises in borrowing costs have spooked bond markets. Traditionally a safe haven currency, the yen has become a gauge of the vulnerability of Japan’s economy, plunging more than 30 per cent against the US dollar since February 2022 to its lowest level since 1986.The weakness of the yen has amplified the impact of external shocks by increasing the cost of raw materials, food and energy. Construction costs have increased by about a third since the eruption of the Covid-19 pandemic, exacerbated by acute labour shortages.