Key Takeaways
- Our credit analysis of Japanese residential mortgage loan pools, which incorporates our current outlook, reflects our view on expected losses for an archetypal pool of Japanese residential mortgage-backed loans.
- Our outlook is for Japan's residential mortgage and real estate market to remain benign.
- We expect that Japan will continue to see low unemployment, steady GDP growth, and historically low interest rates for the foreseeable future.
- Given our outlook on the Japanese economy, we consider the base-case expected losses of 0.4% at the 'B' rating level for an archetypal pool of Japanese mortgage loans, and the other assumptions in our Japanese RMBS criteria, to be appropriate.
S&P Global Ratings is publishing its outlook assumptions for Japanese residential mortgage market. We are doing so to help market participants better understand our current approach to reviewing Japanese residential mortgage-backed securities (RMBS) under the criteria "Methodology And Assumptions For Rating Japanese RMBS," published on Dec. 19, 2014 (hereafter, "Japanese RMBS criteria"). We review outlook assumptions periodically, and we update them as we deem necessary in response to changes in the local housing market. We last published outlook assumptions for Japan's residential mortgage market on Jan. 15, 2019.
Under our Japanese RMBS criteria, we establish how our loan-level analysis incorporates our current outlook for the local market.
Our benchmark assumptions for projected losses assume benign starting conditions--a positive or stable outlook on the local housing and mortgage markets. If the starting conditions are adverse, we modify these assumptions (see paragraphs 56-62 of the Japanese RMBS criteria).
Our current outlook is for Japan's residential mortgage and real estate market to remain benign.
Given our outlook on the Japanese economy, we consider the base-case expected losses of 0.4% at the 'B' rating level for an archetypal pool of Japanese mortgage loans, and the other assumptions in the Japanese RMBS criteria, to be appropriate.
We forecast as of December 2019 that annualized real GDP will increase by 0.8% in 2019. In our opinion, the positive momentum and strength in Japan will continue, and economic recovery will therefore continue with steady growth. We expect GDP to grow 0.1% in 2020, 0.8% in 2021, and 1.1% in 2022.
Under our December 2019 assumptions, we project the unemployment rate will be 2.3% on average in 2019, and that it will then decline slightly but remain at 2.2% through 2022. In addition, the government's active job openings-to-applicants ratio as of November 2019 was 1.57x, hovering at around its highest level since 1974. We believe the strong labor market will support mortgage performance.
The Bank of Japan has maintained a negative interest rate policy since early 2016. Our December 2019 assumptions call for the policy rate to remain in negative territory, at -0.06%, through 2022. Interest rates at the level we forecast would likely provide some relief to homeowners and support mortgage performance.
The residential land price index (national average) has been rising for three consecutive years, and its upward momentum is accelerating. Housing demand will continue to be supported by robust employment conditions and low mortgage rates, which remain historically low. We forecast that the residential land price index (national average) will remain positive in 2020, reflecting continued economic growth thanks to the government's economic stimulus measures.
Despite possible negative impact on the Japanese economy from U.S.-China trade tensions and a Japan-Korea trade dispute, we expect any effect on underlying mortgage loans to be limited. This is because the performance of mortgage loans in Japan was stable even during the Great Recession. Japanese mortgage loans have been performing in a stable manner, and we expect them to continue doing so for the foreseeable future.
As our outlook is for the Japanese residential mortgage and real estate market to remain benign, we have kept our expected 'B' foreclosure frequency at 1.1%.
Related Criteria
- Methodology And Assumptions For Rating Japanese RMBS, Dec. 19, 2014
Related Research
- Credit Conditions Asia-Pacific: Rate Relief, Risks Remain, Dec. 3, 2019
This report does not constitute a rating action.
| Primary Credit Analyst: | Hiroshi Sonoda, Tokyo (81) 3-4550-8474; hiroshi.sonoda@spglobal.com |
| Secondary Contact: | Yuji Hashimoto, Tokyo (81) 3-4550-8275; yuji.hashimoto@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.