japan economics weekly
TRANSCRIPT
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ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHER
IMPORTANT DISCLOSURES, PLEASE REFER TO https://firesearchdisclosure.credit-suisse.com.
Japan Economics Weekly
Focus of the week2
Issues relating to the Trans-Pacific Partnership agreement
On November 9 the Kan cabinet began deliberations about Japan joining the
Trans-Pacific Partnership (TPP). Exports to Free Trade Agreement (FTA)
partners currently account for around 16% of total Japanese exports. Meanwhile,
according to todays Nikkei Shimbun, the Japanese government is planning to
propose that the EU start Economic Partnership Agreement (EPA)/FTA talks as
early as spring 2011. If Japan is able to participate in the TPP and conclude the
EPA/FTA talks with the EU, exports to FTA partners could jump to close to 50%,
surpassing those to South Korea.
Business cycle update 9Corporate sentiment deteriorated further
Money and credit update 16The outstanding amount of bank lending continues to shrink
Upcoming Indicators/Events
Major Economic Data
Japan Economic Forecasts
11 November 2010
Economics Research
http://www.credit-suisse.com/researchandanalytics
Contributors
Hiromichi Shirakawa
+ 81 3 4550 7117
Satoru Ogasawara
+81 3 4550 7110
Takashi Shiono
+81 3 4550 7189
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Focus of the week
Issues relating to the Trans-Pacific Partnership agreement
On 9 November, the Kan cabinet began deliberations about Japan joining the
Trans-Pacific Partnership, also known as the Trans-Pacific Strategic Economic
Partnership Agreement or TPP agreement.
According to figures published by the Cabinet Secretariat, exports to Free Trade
Agreement (FTA) partners currently account for around 16% of total Japanese
exports, well below the corresponding percentages of 36% for South Korea, 38%
for the US, and 76% for the EU (including intra-EU trade; 30% otherwise).
According to todays Nikkei Shimbun, the Japanese government is planning to
propose that the EU start Economic Partnership Agreement (EPA)/FTA talks as
early as spring 2011. If Japan is able to participate in the TPP and conclude the
EPA/FTA talks with the EU, exports to FTA partners could jump to close to 50%,
surpassing those to South Korea.
Research analysis by the Korea Institute for International Economic Policy shows
that the South Korea-EU FTA will likely boost Koreans real GDP by as much as
almost 6% for the next 15 years. It could be a good guideline when we try to
measure the economic impact of Japans participation in TPP or the conclusion
of EPA/FTA talks with the EU.
Introduction
On 9 November the Kan cabinet began deliberations about Japan joining the Trans-Pacific
Partnership, also known as the Trans-Pacific Strategic Economic Partnership Agreement
or TPP agreement. This news should have come as no surprise given that Prime Minister
Naoto Kan had already indicated his attention to participate in talks over the multilateral
free trade agreement at this month's APEC CEO Summit in Yokohama, but it should also
be noted that a final decision on whether to join TPP is to be deferred until June 2011 as
the government seeks to address internal rifts over proposed agricultural reforms and
other liberalization measures.
South Korea officially signed an FTA with the European Union (EU) last month, thereby
gaining free access to the world's largest economic bloc. South Korea is also engaged in
EPA/FTA talks with the ASEAN economies and the US, and is set to begin negotiations
with China in 2011. According to figures published by the Cabinet Secretariat, exports to
FTA partners currently account for around 16% of total Japanese exports, well below the
corresponding percentages of 36% for South Korea, 38% for the US, and 76% for the EU
(including intra-EU trade; 30% otherwise). Japan appears to have been somewhat late to
the table with respect to EPA/FTA negotiations in view of the potential for both increased
trade (scale merits) and increased investment flows between signatories, and we have
therefore taken this opportunity to look at the current state of play regarding Japan's
ongoing and imminent negotiations along with the potential advantages anddisadvantages of TPP membership.
Significance and role of the TPP agreement
Based on the January 2001 Agreement between New Zealand and Singapore on a Closer
Economic Partnership (ANZSCEP), the original TPP agreement between Brunei, Chile,
New Zealand and Singapore entered into force in May 2006 and calls for the abolition of
all trade tariffs by 2015, combining typical aspects of an FTA (such as the elimination of
tariffs on goods and technical barriers to trade in services) with various aspects of an EPA
such as cross-border movement of people, abolition of restrictions on investment,
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clarification and streamlining of investment rules, maintenance of intellectual property
rights, regimes and systems, and coordination of economic policy.
Key features of the original TPP agreement include the following1: (1) its signatories are
small open economies that are highly dependent on foreign trade and investment; (2) it
can be viewed as a precursor to an Asia-Pacific Economic Cooperation (APEC) FTA in the
sense that other APEC members have been encouraged to join negotiations; (3) it seeks
to achieve 100% liberalization of trade (although Singapore was the only signatory toimmediately abolish all tariffs, with the other three nations opting for a phased elimination);
(4) the 45% value added content criterion used to determine "origin" is stricter than the
40% criterion used in other East-Asian FTAs; (5) the agreement includes auxiliary
provisions relating to environmental and employment issues; and (6) the agreement is
flexible in the sense that Brunei has been excluded from Chapter 12 (Trade in Services).
Five additional countries the US, Australia, Peru, Vietnam, and Malaysia are currently
negotiating to join the TPP. If Japan and each of these countries were to sign the
agreement and thereby create a ten-country bloc, Japan would see its exports to FTA
partners more than double as a percentage of total exports.
Japanese government's Basic Policy on Comprehensive
Economic PartnershipsOn 9 November the Kan cabinet endorsed a Basic Policy on Comprehensive Economic
Partnerships which states that " if Japans trade and investment environment becomes
less attractive than the environment in other countries, there is a possibility that future
employment opportunities will be lost. In order to achieve the 'strong economy' described
in Japan's New Growth Strategy (endorsed by the Cabinet on 18 June 2010), it is
necessary to deepen economic relationships with Asian and emerging countries whose
markets are expected to grow, and with Western and resource-rich countries. It is also
necessary to rebuild the foundation for future growth and development in Japan."
The government thus appears to be open to the possibility of joining the TPP, although at
this stage it has simply indicated that Japan will "act through gathering further information"
and initiate "consultations" with TPP member countries before reaching a decision on
whether or not to seek TPP membership in June 2011.
Exhibit 1: Exports to Major Economies (2009)Exhibit 2: Share of Exports among Major Economies(% to Global Exports)
($billion EU China US Japan
World 4587.1 1203.4 1057.1 581.6
For EU 236.5 221.3 72.6
For Chine 141.7 90.7 141.5
For the US 286.0 221.4 95.3
For Japan 50.2 98.0 51.2
Total of three 477.9 555.9 363.2 309.4
% of exports to three major economies to
total exports 10.4 46.2 34.4 53.2
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2Q912Q932Q952Q972Q992Q012Q032Q052Q072Q09
0.0
10.0
20.0
30.0
40.0
50.0
ChinaJapanUSEU (RHS)
(%)(%)
Note: China includes Hong Kong.Source: IMF, Credit Suisse
Source: IMF, Credit Suisse
1For further details, please refer to the following research note by Professor Koichi Ishikawa of AsiaUniversity (currently available in Japanese only):http://www.iti.or.jp/kikan81/81ishikawa.pdf
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Overview ofBasic Policy
Concrete action to strengthen comprehensive economic partnerships
(1) Gathering further information and commencing consultations
- Japan will increase its efforts to conclude the ongoing EPA negotiations with Peru
and Australia, resume the currently suspended Japan-Korea EPA negotiations, andactively promote bilateral EPAs with major countries/regions in the Asia-Pacific
region with which Japan has not yet started negotiations
- Establishment of "The Ministerial Meeting for Realization of a Free Trade Area in the
Asia Pacific (provisional title)"
(2) Outside the Asia-Pacific region, Japan will expedite arrangements to enter into
negotiations with the EU and make efforts to facilitate ongoing negotiations with the
Gulf Cooperation Council (GCC)
Domestic measures
(1) Agriculture
- Establishment of "The Headquarters for the Promotion of Agricultural StructuralReform (provisional title)" in order to promote high-level EPAs, improvement of
Japan's food self-sufficiency, revitalization of its agriculture industry and rural
communities, and measures aimed at fostering sustainable and strong agriculture
- The government will review tariffs and other borders measures, and consider
transitioning to a more transparent system in which taxpayers will bear the burden
(2) Movement of natural persons
- The government will consider measures to address issues relating to the movement
of natural persons from abroad, such as nurses and certified careworkers, on the
basis of its efforts to promote the "employment and human resources strategies"
described in its New Growth Strategy
(3) Regulatory reform
- The Government Revitalization Unit is to decide on a concrete plan with a view to
achieving active economic partnerships and eliminating non-tariff barriers
Potential impact of joining the TPP
So what would be the advantages of TPP membership from Japan's perspective? As
discussed above, the TPP is a multilateral EPA/FTA. Generally speaking, reducing or
eliminating tariffs via such agreements will tend to boost intra-bloc trade by stimulating
demand for imports from other bloc members at the expense of domestically
manufactured products and imports from outside the bloc. Moreover, liberalization of trade
and investment will tend to result in larger markets and higher intra-bloc direct investment,
new entry to the market and inflows of cheaper goods and services will tend to promote
intra-bloc competition, and deregulation will tend to have a positive impact on productivity.
As noted earlier, South Korea formally signed an FTA with the EU last month. While Japan
has still entered into a greater number of FTAs than South Korea's current total of seven,
South Korea's agreements with the EU and the US mean that its FTA trade ratio is
considerably higher than that of Japan. The Korea Institute for International Economic
Policy has published analysis based on a computational general equilibrium (CGE) model
indicating that the South Korea-EU FTA is likely to boost South Korean real GDP by
somewhere between 0.1% and 5.6%, with the lower estimate calculated by considering
only increased trade due to the abolition of tariffs, improved allocation of resources, and
increased domestic production, while the higher estimate reflects the productivity gains
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that could be expected to result from increased competition and higher technological
investment stemming from the removal or minimization of various barriers to trade.
TPP membership would offer Japan access to a considerably larger market than a typical
bilateral agreement. Japan's current EPA/FTA partners include seven ASEAN nations,
Mexico, Chile, and Switzerland. Trade with these countries amounted to 106 trillion in
CY2009, or around 17% of Japan's 113 trillion in total trade for that year. Adding current
and prospective TPP members would see Japan's trade with EPA/FTA partners more thandouble to around 39 trillion based on current trade flow, with the actual figure likely to rise
beyond 40 trillion once tariffs are abolished.
Given that Japan has entered into most of its EPA/FTAs since autumn 2007, the global
economic and financial crisis makes it somewhat difficult to analyze the impact of these
new relationships. That said, the Japan-Mexico EPA/FTA concluded in April 2005 does
appear to have boosted trade between the two countries, with Japan's exports to Mexico
roughly jumping 80% between CY2004 and CY2008 compared with a 32% increase in
total exports. Year-on-year growth in Japan's worldwide exports averaged 11% over the
period in question, during which time exports to Mexico of transport equipment and
general machinery increased by around 30%yoy. Japan's imports from Mexico also
increased by about 90% between CY2004 and CY2007 compared with about an 80%
increase in total imports.
Looking at post-crisis trade
flows, Japan's worldwide
trade has increased at an
average pace of 25.8%yoy
through 3Q 2010, but this has
been outpaced by growth in
Japan's trade with the
ASEAN bloc (+32.5%yoy),
Mexico (+33.0%yoy), and
Chile (+45.2%yoy). The total
proportion of Japan's trade
done with EPA/FTA partners
has thus increased by a non-
trivial 1.5pp since the April
2005 conclusion of the Japan-
Mexico agreement, from
15.0% to 16.5% (Exhibit 3).
Estimates based on the Cabinet Office's Global Trade Analysis Project (GTAP)
macroeconomic model suggest that TPP membership would increase Japan's real GDP
by 0.48-0.65% from FY2008 levels (2.4 trillion-3.2 trillion) by around 2018, a somewhat
bigger boost than would be delivered by either a Japan-US (0.36%, 1.8 trillion) or a
Japan-EU (0.27%, 1.3 trillion) EPA. On the other hand, if Japan does not join the TPP
and also fails to enters into Japan-US and Japan-EU EPAs while South Korea enters into
FTAs with the US, the EU, and China, then this could be expected to subtract around
0.13-0.14% (0.6 trillion-0.7 trillion) from Japanese real GDP.
Trade liberalization may also be disadvantageous in a number of regards, however.
EPA/FTAs are of course premised on the assumption of free competition and
rationalization throughout a region or bloc, and therefore tend to be opposed by those
domestic industries and sectors that are likely to find it hardest to compete with cheaply
imported goods and services following the removal of tariffs and other trade barriers. Other
concerns that are often raised include the impact of liberalization on domestic industrial
structure, the associated impact on employment, and the potential for a massive influx of
immigrant labor. To take just one real world example, the US dairy industry is currently
seeking to have US and New Zealand dairy products removed from the scope of TPP
Exhibit 3:% of Trade Value with EPA/FTA Partners
14.0
14.5
15.0
15.5
16.0
16.5
17.0
Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10
(%)
Note: % to Japan's total trade valueSource: MoF, Credit Suisse
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negotiations out of concerns that it might be unable to compete with a flood of relatively
cheap imports.
According to estimates by the Ministry of Agriculture, Forestry and Fisheries focusing on
agricultural products with domestic output of at least 1 billion that are subject to tariffs of
10% or higher, removal of these tariffs would subtract around 8 trillion from Japanese
GDP, reflecting a 4.1 trillion decline in output of agricultural products and a 3.7 trillion hit
attributable to a loss of functional capacity. The Ministry of Economy, Trade and Industryhas however estimated that failure to join the TPP would depress GDP by around 10.5
trillion due to the combined impact on core industries such as motor vehicles, machinery,
and electronics, which implies that Japan would be more than 2 trillion better off in net
terms if it were to opt for TPP membership.
Opposition from domestic agricultural interests is clearly the main reason why Japan has
opted to postpone a formal decision until June of next year. While the government has
announced its intention to establish a new "Headquarters for the Promotion of Agricultural
Structural Reform", it remains to be seen whether it can move beyond mere subsidization
of farmers and find ways of boosting agricultural productivity and competitiveness by
encouraging new entry and promoting consolidation initiatives aimed at exploiting
economies of scale.
Agricultural issues were also a major sticking point in negotiations over the South Korea-EU FTA, with the Korea Institute for International Economic Policy estimating that while
annual manufacturing output would be boosted by an average of KRW152 million over a
15-year horizon, this would be largely offset by a 123 million decline for the farming and
fishing sectors. The Korean government has therefore opted to spend around KRW2.1
billion on a decade-long program aimed at providing financial assistance for agricultural
households while proceeding with the necessary reforms.
Which Japanese sectors are likely to benefit most from TPPmembership and which would be exposed to greater competition?
Japanese exporters could expect to benefit significantly from the removal of tariffs and the
easing of restrictions on market entry, while sectors dependent on domestic demand might
see an increase in overall productivity due to increased foreign participation (inward directinvestment), but could also suffer a loss of market share with negative ramifications for
domestic employment owing to increased demand for imported goods and services.
Exhibit 4 shows trade specialization coefficients (averages for the past five years) for
various sectors. A trade specialization coefficient may take on values between -1 and +1,
with a higher figure (closer to +1) corresponding to a higher level of international
competitiveness. Japan's transport equipment sector ranks in first place with a coefficient
of +0.78, followed by general machinery (+0.42) and electrical machinery (+0.29). Within
the electrical machinery sector, however, the electrical appliances sector saw its
coefficient turn negative in the second half of the 1990s, and its FY2009 level of -0.73
points to a high reliance on imports. The iron & steel products sector has also seen an
increase in its trade specialization coefficient over the past few years.
Japan clearly stands to benefit from the fact that whereas the EU and the US imposetariffs on motor vehicles, flat-screen TVs, and other major products exported by Japan,
Japan imposes no tariffs whatsoever on virtually all types of machinery and equipment
(Exhibit 5). Abolition of tariffs based on EPA/FTAs would therefore be likely to trigger an
increase in exports of internationally competitive products while having virtually no impact
on imports of machinery and equipment. And even if demand for Japanese products were
to show relatively little growth, abolition of tariffs should still help to mitigate some of the
aforementioned losses that are anticipated by METI (in the event that Japan fails to join
the TPP).
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Exhibit 4: Trade Specialization Coefficients ofJapan's Tradable Goods
Exhibit 5: Tariff Rates on Major ManufacturedProducts
-1.2-1.0-0.8-0.6-0.4-0.2
0.00.20.40.60.81.0
Foods
RawM
aterials
MineralFuels
Chemicals
Manufactured
Industrial
Electrical
Transport
Meatstuff,
etc.
Dairy
Fishery
Grain
Fruit/vegetable
of w hich food stuff
EU US Japan
Passenger cars 10% 2.5% 0%
Trucks 25% 0%
Flat TVs 14% 9% 0%
MFP 6% 0%
Microwave 5% 0%
Bearing 9% 0%
Note: Trade specialization coefficients=(exports-imports/exports+imports.
Source: MoF, Credit Suisse
Note: MFP(Multi Function Printer).Source: METI, MoF
On a somewhat gloomier
note, trade specializationcoefficients are deep in
negative territory for most
sectors that are heavily
dependent on basic
materials, including foods
and mineral fuels. Mineral
fuels and most raw materials
(including iron ore and coal)
are currently tariff free, but
meat and other foods are
subject to rather high tariffs
(Exhibit 6). Worse still,
whereas Japan's current EPA/FTA partners account for less than 20% of Japan's
worldwide food imports, this percentage would rise beyond 50% if Japan were to enter into
agreements with the US, Australia, and New Zealand, and would reach roughly 60% for
meat and 80% for grains. It should be clear from these figures that Japan's agricultural
sector could suffer significant damage if current tariffs were to be abolished.
This should not be an
insurmountable obstacle,
however, when one
considers that Japan's
agricultural sector accounts
for less than 2% of total
output versus around 25%
for the manufacturing sector.
The number of agricultural
workers as a proportion of
total employed persons has
also declined to less than 4%,
down from around 9% in the
early 1980s. That said,
agricultural lobby groups
remain very important
sources of votes for both the
ruling Democratic Party of
Exhibit 6: Tariff Rate on Major Imported Foods
General Temporary
Meat
Beaf 50% 38.50%
Pork 5% 361/kg
Vegetables, etc.
Banana 40%
Orange 20-40%
Wheat 65/kg 65/kg
Rice 402/kg 49/kg
Source: MoF
Exhibit 7: Japan's Trades with EPA/FTA Partners
0
10
20
30
40
50
60
Current EAP/FTP TPP TPP+EU
(%)
Note: Percentage of Japan's trades with EPA/FTA parters to Japan's total trade values (five-year average. TPP includes prospective members.Source: METI, MoF, Credit Suisse
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Japan and the opposition Liberal Democratic Party, and with a Lower House election likely
to be held in 2012, it is almost certain that debate over the pros and cons of TPP
membership with a view to a formal decision by June 2011, as indicated in the recently
announced Basic Policy on Comprehensive Economic Partnerships will pay particularly
close attention to the agricultural sector and its ability to survive in the event that tariff
protection is removed or reduced.
According to todays Nikkei Shimbun, the Japanese government is planning to proposethat the EU start EPA/FTA talks as early as spring 2011. While Japan is requesting that
the EU lifts or reduces tariffs on automobiles and flat TVs, the EU is insisting that Japan
should eliminate non-tariff barriers. Japans action is obviously a countermove against
South Korea, which had already concluded an FTA with the EU. As mentioned earlier,
South Korea also signed an FTA with the US last month and is trying to gain international
trade competitiveness. If Japan is able to participate in the TPP and conclude EPA/FTA
talks with the EU, exports to FTA partners could jump to close to 50%, surpassing those to
South Korea (Exhibit 7). Currently, tariffs on goods such as automobiles and flat TVs in the
EU are relatively higher than those in the US. It is probable that Japans exporters will
receive greater benefits from eliminating tariffs in the EU.
Exhibit 8: Anticipated timeline
March 2011: Government to draft regulatory reform policies aimed at eliminating non-tariff barriers
June 2011: Government to draft basic policy regarding agricultural reforms
Government to draft basic policy regarding immigration policies (including arrangements under which
foreigners would be permitted to work in Japan as nurses and careworkers)
Government to decide whether or not to join TPP (negotiations will also require agreement from each of the
individual signatories to TPP)
October 2011: Government to compile action plan regarding agricultural reforms
November 2011: APEC CEO Summit (Honolulu, US)
Source: Credit Suisse
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Business cycle updateCorporate sentiment continues to fall
Corporate sentiment weakens in reaction to the natural pullback after last-
minute data before the expiration of eco-car subsidies and the hike in cigarette
taxes.
Although the pace of deterioration in consumer sentiment is slowing slightly,we must closely monitor future employment conditions.
Foreign demand (Exhibits 9-14)
According to BoJs real trade index, real exports dropped quarter-on-quarter for the first
time in six quarters by 0.4% in July-September. While real imports continued to rise for the
six consecutive quarters, a rate of increase was the smallest in three quarters, rising only
by 1.1%. Meanwhile, trade volume indices calculated by Cabinet Office showed that
export volume dropped 2.6%qoq for the same period. Exports to the US (+6.2%) and EU
(+2.0%) continued to rise, but those to Asia dropped for the first time in six quarters by
2.7%. However, the USs ISM New Orders Index and Chinas PMI New Orders Index,
leading indicators for exports, are beginning to show signs that exports have bottomed out.
Industrial production (Exhibits 15-18)
Industrial production has entered an adjustment phase in Japan. Production dropped by
1.9%mom in September for the fourth consecutive monthly decrease, much weaker than
the market consensus expectation of a 0.6% decline according to a Bloomberg survey.
Production dropped 1.9%qoq in July-September, the first quarterly decrease in six
quarters. In addition to the decline in exports resulting from the slowdown in global
manufacturing activities, a large drop in auto sales after the end of the tax incentive
scheme for purchasing environment-friendly cars has started to affect production.
Corporate sentiment (Exhibits 19-20)
The September BoJ Tankan survey reported that companies DI for business conditions
improved for the sixth straight quarter for both manufacturers (+1 to +8) and non-
manufacturers (-5 to 2) due to the effect of an unseasonably hot summer and the impact oflast-minute demand. The October Economy Watchers Survey showed that the corporate
activity-related DI fell 2.3pts mom to 39.1. This is the third month in a row that the index
undercut the previous months levels, and the negative margin also expanded over the
previous month (-1.3pts). Corporate sentiment is apparently under pressure from the
natural pullback after last-minute demand before the expiration of eco-car subsidies and
the hike in tobacco taxes.
Corporate capex (Exhibits 21-24)
In the BoJ Tankan survey, capital spending for FY10 on an all-firms basis was revised
upward 1.3pp compared to the June survey, to a 1.0%yoy decline. However, this is a
modest upward revision compared to past capital spending recoveries, and suggests that
companies are maintaining their cautious stance on capital spending. Core machinery
orders for August jumped 10.1%mom, but, taken as a three-month moving average, the
total value of orders was still just 80% of its pre-crisis level, leaving it near the lowest
levels seen during each of Japan's three previous economic downturns. Moreover,
whereas machinery orders and corporate capex tend to be relatively closely correlated
when the latter is in correction mode, the correlation is generally much weaker during
recovery phases, making it difficult to know whether the recent surge in machinery orders
not particularly unusual in view of historical month-to-month volatility will ultimately
translate into higher levels of capital investment.
The USs ISM New
Orders Index and
Chinas PMI index,
leading indicators for
exports, offer hopeful
signs
Industrial production
has entered an
adjustment phase
Corporate activity-
related DI worsens for
third straight month
FY10 capital spending
plans are revised
upward only slightly
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Employment (Exhibits 25-29)
The September employed population statistic (including the self-employed) rose
significantly by +410K mom, compared with a 10K decline in August). According to MIC,
the employed population was inflated by about 100K in September due to temporary
employment for the senses survey. On a quarter-over-quarter basis, employment rose
290K in July-September for the first quarterly increase in two quarters (April-June: -540
qoq, January-March: +370 qoq), suggesting that the job market may have finally bottomedout. However, industrial production seems to have entered an adjustment phase and this
presents a risk that the job recovery will remain weak or even stall early next year.
Consumer sentiment (Exhibits 30-32)
Although consumer sentiment has been deteriorating, the pace seems to be slowing
somewhat. The October Economy Watchers Survey reported that the household activity-
related DI fell 0.3pts mom to 39.2, down for the third straight month. However, although
the DIs in the retail-related and housing-related sectors worsened over the previous month,
DIs in the food and beverage-related and service-related sectors both improved for the
first time in three months. The household activity-related DI for future economic conditions
rose 0.4pts mom to 41.7, marking the second straight month of improvements. The
Consumer Confidence Survey for the same month showed that the Consumer Confidence
Index had fallen for the fourth straight month to 40.9, but the negative margin was 0.3pts,narrowing 0.8pts from the previous month. Of the four indicators making up the index
(overall livelihood, income growth, employment, and willingness to buy durable goods),
consumer perceptions of income growth was unchanged over the previous month, while
the perception of employment improved 0.1pt. With production corrections expected to
continue for the near future, we do not expect the employment and income environment to
improve on a full scale, and believe that these improvements are likely to be no more than
a temporary reaction after the dramatic deterioration thus far.
Consumer spending (Exhibits 33-34)
Real household consumption fell -0.4%mom in September according to the Household
Survey (Family Income and Expenditure Survey, seasonally adjusted), while it expanded
2.1%qoq in July-September. Real retail sales lost -3.0%mom in September (+1.6%mom in
July), reflecting a negative rebound due to the termination of the eco car incentivescheme. On a quarterly basis, real retail sales recovered +1.1%, indicating that real GDP
private consumption also archived positive growth in the quarter. Meanwhile, new
passenger car sales dropped 26.7%yoy in October for the largest year-on-year decline
since April, 2009 as an incentive scheme for purchasing environment-friendly car ended in
early September.
Residential investment (Exhibits 35-36)
New housing starts rose 17.1%yoy in September higher than the market consensus
(+15.3%yoy). Houses for sales jumped 58.9%yoy led by condominiums for sales
(+124.8%yoy), while housing for rent slowed down to 2.2%yoy from 16.9%yoy in August.
On seasonally adjusted base, the housing starts rose for the fourth consecutive month by
1.0%mom. The level of the starts still remains very low at 0.837 million units compared
with an average 1.1 million since 2000, but is likely to have bottomed out at least. An
introduction of eco-point system to housing investment, decline in house prices, and lower
mortgage rates seem to be supporting this moderate recovery in housing markets.
The job market has
bottomed out, but the
outlook has become
even gloomier
Pace of deterioration in
consumer sentiment
slows slightly
Real consumer
spending rose for the
fourth consecutive
quarter in July-September
Housing starts rose for
the fourth consecutive
month in September,
indicating that the
housing investment
has bottomed out
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Public demand (Exhibit 37)
Real public works spending rose 9.3% in FY2009, for the first time in 15 years, thanks to
the formulation of a large-scale supplemental budget and the decision to bring forward the
public works budget as an additional stimulus measure. However, the DPJ government
froze about 3tn worth of projects in the first supplementary budget, and the second
supplementary budget for fiscal 2009 consists almost entirely of financing support for
SMEs and employment measures. Public works spending amounts to only 500bn forregional infrastructure development. On a GDP basis, real public works spending has
fallen quarter on quarter since last autumn.
Wage and price indicators (Exhibits 38-40)
Total cash earnings rose for the seventh consecutive month by 0.9%yoy in September.
Increases in overtime working hours in the manufacturing and the wholesale/retail sales
industries, etc. contributed to the increase. But, hourly wage dropped 1.3%yoy after falling
1.6% in August. The lack of response by retail prices to the shrinking negative output gap
over the past four quarters suggests to us that the level of the output gap matters more
than its direction. September core core CPI (CPI excluding food and energy) was in line
with consensus expectations according to a Bloomberg survey, declining -1.5%yoy. On a
seasonally adjusted basis, September core core CPI remained weak, recording a
0.0%mom statistic. On a quarterly basis, core core CPI declined -0.2%qoq, the eighthconsecutive quarter of non-positive changes. Meanwhile, October Tokyo core core CPI
was +0.6%mom, reflecting the tobacco tax hike and the coordinated hikes of accident
insurance premiums by major non-life insurance companies. This statistic suggests that
nationwide core core CPI in October may show a one shot rise of the same magnitude, in
our view. It is unlikely that core core CPI will turn positive during FY2011. The corporate
goods price index (CGPI) dropped 0.1%yoy for the first year-on-year decline in two
months. Softer international commodity prices, yen appreciation and weak demand/supply
conditions in the domestic market are weighing on corporate good prices.
Second supplementary
budget consists
primarily of financing
support for SMEs and
employment measures
The level of the output
gap matters more than
its direction
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Japan Economics Weekly 12
Exhibit 9: US Manuf. ISM Survey New Order Index Exhibit 10: Manufacturing Survey New Order Index
20
30
40
50
60
70
80
Oct-
01
Oct-
02
Oct-
03
Oct-
04
Oct-
05
Oct-
06
Oct-
07
Oct-
08
Oct-
09
Oct-
10
-50.0
-40.0
-30.0
-20.0-10.0
0.0
10.0
20.0
30.0
40.0
50.0
Oct-
02
Oct-
03
Oct-
04
Oct-
05
Oct-
06
Oct-
07
Oct-
08
Oct-
09
Oct-
10
NY Fed Manufact uring Survey
Philadelphia Fed Business Outlook Surv ey
Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse Source: NY Fed, Philadelphia Fed, Credit Suisse
Exhibit 11: China PMI Manuf. Survey Exhibit 12: Real Trade Indices
20
25
30
35
40
45
50
55
60
65
70
Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10
New orders
Imports
60
70
80
90
100
110
120
130
140
Sep-
01
Sep-
02
Sep-
03
Sep-
04
Sep-
05
Sep-
06
Sep-
07
Sep-
08
Sep-
09
Sep-
10
Real Exports
Real Imports
(2005=100)
Source: Thomson Reuters DataStream, Credit Suisse Source: BoJ, Credit Suisse
Exhibit 13: Customs-Cleared Trade Indices Exhibit 14: Current Account Balance
-50
-40
-30
-20
-10
0
10
20
30
40
50
Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10
Exports (mom)
Imports (mom)
Exports (yoy )
Imports (yoy )0
5
10
15
20
25
30
35
Sep-
01
Sep-
02
Sep-
03
Sep-
04
Sep-
05
Sep-
06
Sep-
07
Sep-
08
Sep-
09
Sep-
10
-80
-60
-40
-20
0
2040
60
80
100
Current Account (LHS)
YoY (3MMA, RHS)
(trillion y en) (%)
Source:MoF, Credit Suisse Source: BoJ, Credit Suisse
Exhibit 15: Industrial Production and Shipments Exhibit 16: Industrial Production and Shipments (2)
60
70
80
90
100
110
120
Nov-
01
Nov-
02
Nov-
03
Nov-
04
Nov-
05
Nov-
06
Nov-
07
Nov-
08
Nov-
09
Nov-
10
Production
Shipments
(2005=100)
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
Oct-
06
Apr-
07
Oct-
07
Apr-
08
Oct-
08
Apr-
09
Oct-
09
Apr-
10
Oct-
10
Production (mom % chg)
Shipments (mom % chg)
Production (yoy % chg)
Shipments (y oy % chg)
(%)
Note Production data in Sep and Oct are METI's forecasts.
Source: METI, Credit Suisse
Source: METI, Credit Suisse
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Exhibit 17: Industrial Inventory Index and Inventory toShipment Ratio Exhibit 18: Industrial Inventory Changes
80
90
100
110
120
130
140
150
160
Jul-
01
Jul-
02
Jul-
03
Jul-
04
Jul-
05
Jul-
06
Jul-
07
Jul-
08
Jul-
09
Jul-
10
Inv entory index
Inv entory t o shipment ratio index
(2005=100)
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
Jul-
06
Jan-
07
Jul-
07
Jan-
08
Jul-
08
Jan-
09
Jul-
09
Jan-
10
Jul-
10
Seasonally adjusted mom % chg
YoY % chg
(%)
Source: METI, Credit Suisse Source: METI, Credit Suisse
Exhibit 19: BoJ TankanSurvey (BusinessConditions DI)
Exhibit 20: Business Watchers Survey forManufacturers and the Nomura PMI
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Sep-96 Sep-98 Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10
Large manufact urers
Large non-manuf acturers
("good""bad"%points
0
10
20
30
40
50
60
Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10
Future condition DI
Nomura/J MMA Manuf acture PMI
(%)
Source: BoJ, Credit Suisse Source: Cabinet Office, the BLOOMBERG PROFESSIONAL service
Exhibit 21: Core Machinery Orders (1) Exhibit 22: Core Machinery Orders (2)
600
700
800
900
1000
11001200
1300
Sep-
01
Sep-
02
Sep-
03
Sep-
04
Sep-
05
Sep-
06
Sep-
07
Sep-
08
Sep-
09
Sep-
10
(billion y en)
-50
-40
-30
-20
-10
0
10
20
30
Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10
Seasonally adjusted mom % chg
YoY % chg
(%)
Source: Cabinet Office, Credit Suisse Source: Cabinet Office, Credit Suisse
Exhibit 23: Floor Area of Construction Started (non-residential) Exhibit 24: Average Office Vacancy Rates
-60
-40
-20
0
20
40
60
80
Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
(%) 1000)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Sep-98 Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10
Tokyo
Nagoy a
Osaka
(%)
Source: MLIT, Credit Suisse Source: Miki Shoji, Credit Suisse
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Exhibit 25: Changes in the Number of Workers Exhibit 26: Changes in the Non-Farm Payroll Number
-3
-2.5
-2
-1.5-1
-0.5
0
0.5
1
1.5
Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10
Seasonally adjusted mom % chg
YoY % chg
(%)
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10
Seasonally adjusted mom % chg
yoy % chg
Source: MIC, Credit Suisse Source: MIC, Credit Suisse
Exhibit 27: Unemployment Rate Exhibit 28: Job Offers to Applicants Ratio
3
3.5
4
4.5
5
5.5
6
Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10
220
240
260
280
300
320
340
360
380No. of unemployed (RHS)
Unemployment Rate (LSH)
(%) (10 thousand)
0.4
0.5
0.6
0.70.8
0.9
1
1.1
1.2
Sep-
01
Sep-
02
Sep-
03
Sep-
04
Sep-
05
Sep-
06
Sep-
07
Sep-
08
Sep-
09
Sep-
10
(X)
Source: MIC, Credit Suisse Source: MLHS, Credit Suisse
Exhibit 29: New Job Offers (Including Part-TimeEmployees) Exhibit 30: Consumer Sentiment Index
-40
-30
-20
-10
0
10
20
30
Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10
Seasonally adjusted mom % chg
yoy % chg
(%)
20
25
30
35
40
45
50
55
Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10
(%)
Source: MHLW, Credit Suisse Note: Data before April 2004 use old base.
Source: Cabinet Office, Credit Suisse
Exhibit 31: Business Watchers Survey CurrentBusiness Conditions for Households (1)
Exhibit 32: Business Watchers Survey CurrentBusiness Conditions for Households (2)
10
15
20
25
30
35
40
45
50
55
60
Oct-
01
Oct-
02
Oct-
03
Oct-
04
Oct-
05
Oct-
06
Oct-
07
Oct-
08
Oct-
09
Oct-
10
Household activ ity -related
(Retail)
(%)
0
10
20
30
40
50
60
70
Aug-
01
Aug-
02
Aug-
03
Aug-
04
Aug-
05
Aug-
06
Aug-
07
Aug-
08
Aug-
09
Aug-
10
Food and beverageServices
Housing
(%)
Source: Cabinet Office, Credit Suisse Source: Cabinet Office, Credit Suisse
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Exhibit 33: Real Household Spending Exhibit 34: Retail Sales
-8
-6
-4
-2
0
2
4
6
8
Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10
Seasonally adjusted mom % chg
yoy % chg
(%)
-8
-6
-4
-2
0
2
4
6
Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10
Seasonally adjusted mom % chg
yoy % chg
(%)
Source: MIC, Credit Suisse Note: Retail sales indices, % mom chg.
Source: METI, Credit Suisse
Exhibit 35: New Housing Started Exhibit 36: New Housing Started (2)
50
60
70
80
90
100
110
120
Sep-
01
Sep-
02
Sep-
03
Sep-
04
Sep-
05
Sep-
06
Sep-
07
Sep-
08
Sep-
09
Sep-
10
4
5
6
7
8
9
10
Units (LHS)
Square meters (RHS)
1000 units million
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
Sep-
06
Mar-
07
Sep-
07
Mar-
08
Sep-
08
Mar-
09
Sep-
09
Mar-
10
Sep-
10
Units (mom % chg)
Square meter (mom % chg)
Units (yoy % chg)
Square meter (yoy % chg)
(%)
Source: MLIT, Credit Suisse Source: MLIT, Credit Suisse
Exhibit 37: Construction Orders from Public Sector Exhibit 38: Corporate Prices
-80
-60
-40
-20
0
20
40
60
80
J ul-07 J an-08 J ul-08 J an-09 J ul-09 J an-10 J ul-10
Orders f rom central government
Orders f rom local government
yoy %
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Oct-
01
Oct-
02
Oct-
03
Oct-
04
Oct-
05
Oct-
06
Oct-
07
Oct-
08
Oct-
09
Oct-
10
CGPI
CSPI
YoY %
Note: Quarterly base, but monthly base for 2009.
Source: MLIT, Credit Suisse
Source: BoJ, Credit Suisse
Exhibit 39: CPI Exhibit 40: Nominal Wage Indices
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Sep-
01
Sep-
02
Sep-
03
Sep-
04
Sep-
05
Sep-
06
Sep-
07
Sep-
08
Sep-
09
Sep-
10
Core CPI
Core core CPI
YoY%
-8-7
-6-5
-4-3
-2-1
01
23
Sep-
01
Sep-
02
Sep-
03
Sep-
04
Sep-
05
Sep-
06
Sep-
07
Sep-
08
Sep-
09
Sep-
10
Total Cash Earnings
Scheduled Earnings
YoY%
Source: MIC, Credit Suisse Source: MHLW, Credit Suisse
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Japan Economics Weekly 16
Money and credit update
Monetary base showed a double-digit growth for the first time inthree months in October
Balance of bank loans undercuts year-on-year growth for the eleventh straight
month in October.
The Bank of Japan decided to ease terms and conditions for CPs and corporate bonds it is
purchasing at its regular Monetary Policy Meeting last month. The Bank also set the
guideline of the asset-purchase program (purchases of ETFs and J-REITs) at todays
meeting. The Bank seems positioned to emphasize its credit risk taking for the moment.
BoJ current account and monetary base (Exhibit 41)
Growth in the monetary base reaccelerated for the second consecutive month to 6.4%yoy
in October. While current account balances at the BJ slowed down to 38.0%yoy from
38.4% in September, banknotes in circulation reaccelerated to 1.5%yoy, the largest year-
on-year increase sine January, 2008. On a seasonally adjusted basis, the monetary base
continued to rise by an annualized 12.0%mom. The BoJ decided to lower policy rate target
from 0.1% to 0-0.1% at the MPC meeting last month. However, an average overnight call
rate has remained at around the upper end of the target range during the most of time in
October. We expect that overnight call rate will start to fall further gradually as the BoJ
starts purchasing assets somewhat more aggressively going forward, which will likely
contribute to increase current account at balances at the BoJ.
Money stock (Exhibit 42)
M2 rose 2.7%yoy in October, 0.1pt slower over the previous month. On a seasonally adjusted
annualized basis, M2 increased 2.7%mom for the second straight month of lower growth.
Although M1 rose 2.9%yoy for the fourth consecutive month of stronger growth, quasi-money
increased 0.3% to mark the twelfth straight month of declining growth. It seems that, while
peoples actions to avoid risk accelerated the growth of cash currency in circulation and deposit
money, sluggish demand for loans in the private sector seems to have slowed the growth of
quasi-money. Broadly defined liquidity was unchanged from the previous month at 0.4%yoygrowth, but it was up 3.0%mom saa for the second straight month of positive growth. Risk
assets continued to decline, with investment trusts down 0.4%yoy and foreign bonds down
2.3%. In addition, Japanese government bonds continued to record heavy negative growth,
down 20.4%yoy as investors were put off by the low yields.
Bank lending (Exhibits 43-45)
The September Principal Figures of Financial Institutions reported a 2.0%yoy decline in
banks average loan balances, with the negative margin expanding again (down 1.8% in
September). The balance of loans at regional banks and Tier 2 regional banks was up
0.4% for the third straight month of stronger growth, but city banks loan balances dropped
4.3%yoy, 0.4pts worse than in the previous month. In seasonally adjusted terms, the loan
balance of banks overall was down for the third straight month, albeit to a modest extent.
Although regional banks loan balances increased 0.2%yoy sa for the ninth straight monthof (moderate) growth, city banks lending decreased 0.4% for the third straight month of
declines.
Credit markets (Exhibits 46-48)
Credit markets continued to ease on receding financial market concerns and expectations
of economic recovery. While LIBOR rates have declined slowly, they have undercut levels
recorded before the Lehman shock and have narrowed to November 2007 levels. Term
rates also fell further, reflecting the BoJs decision on additional monetary easing
measures on 5 October. In corporate bond markets, credit spreads continued to fall
reflecting the recent BoJ announcement of the creation of an asset purchase program as
part of additional monetary easing.
Overnight call rate will l
ikely fall further as the
BoJ starts purchasing
assets somewhat more
aggressively
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Japan Economics Weekly 17
Exhibit 41: Monetary Base Exhibit 42: Money Stock (M2)
0
20
40
60
80
100
120
Oct-
01
Oct-
02
Oct-
03
Oct-
04
Oct-
05
Oct-
06
Oct-
07
Oct-
08
Oct-
09
Oct-
10
BOJ current account balances
Monetary base
(trn yen)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Oct-
01
Oct-
02
Oct-
03
Oct-
04
Oct-
05
Oct-
06
Oct-
07
Oct-
08
Oct-
09
Oct-
10
YoY%
Source: BoJ, Credit Suisse Source: BoJ, Credit Suisse
Exhibit 43: Average Outstanding Bank Lending(Banks and Shinkin Banks)
Exhibit 44: Outstanding Bank Lending (DomesticBanking Accounts)
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.03.0
4.0
5.0
6.0
Oc t-04 Oc t-05 Oc t-06 Oc t-07 Oc t-08 Oc t-09 Oc t-10
Banks
Banks special fact or adjusted
yoy%
-6
-4
-2
0
2
4
6
Aug-96 Aug-98 Aug-00 Aug-02 Aug-04 Aug-06 Aug-08 Aug-10
(YoY,%)
Source: BoJ, Credit Suisse Source: BoJ, Credit Suisse
Exhibit 45: CP Underwritten by Banks Exhibit 46: LIBOR-OIS Spread (3-month)
-40
-30
-20
-10
0
10
20
Oc t-04 Oc t-05 Oc t-06 Oc t-07 Oc t-08 Oc t-09 Oc t-10
(YoY %)
0.00
0.10
0.20
0.30
0.40
0.50
0.600.70
0.80
0.90
Nov-
08
Feb-
09
May -
09
Aug-
09
Nov-
09
Feb-
10
May -
10
Aug-
10
Nov-
10
(pp)
Source: BoJ, Credit Suisse Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse
Exhibit 47: Money Market Rates Exhibit 48: Credit Spreads
-0.2
0
0.2
0.4
0.6
0.8
1
Nov-
01
Nov-
02
Nov-
03
Nov-
04
Nov-
05
Nov-
06
Nov-
07
Nov-
08
Nov-
09
Nov-
10
O/N call rate
TIBOR3M
TIBOR6M
(%)
0
10
20
30
40
50
60
70
80
90
100
Nov -04 Nov -05 Nov -06 Nov -07 Nov -08 Nov -09 Nov -10
Aa, Spread
A, Spread
Baa, Spread
Source: the BLOOMBERG PROFESSIONAL service , Credit Suisse Note: Credit spreads are calculated using the Bloomberg Fair Market Value index and JGB5Y yields.
Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse
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Upcoming Indicators/Events
July-September GDP 1st prelim: Monday 15 November
Previous (April-June real GDP, qoq annualized): 1.5%
Credit Suisse forecast (July-September real GDP, qoq annualized): 2.0%
Having digested the
implications of economic
data for the July-September
quarter, we remain of the
view that first preliminary
GDP estimates for 3Q 2010
(due 15 September) will
show an acceleration of real
growth to +2.0%qoq
annualized (up from +1.5% in
2Q), thereby marking a thirdconsecutive quarter of
positive growth. We also still
expect the economy to
experience a mild correction
from 4Q 2010 through spring
next year. While a domestic economic recovery appears likely to be delayed by a
temporary retrenchment of domestic demand as well as the negative impact of a strong
yen on corporate earnings, the recent improvements in US and Chinese economic data
are of course to be welcomed.
Upcoming IndicatorsPrior
Nov 15 (Mon) 8:50 GDP (Jul - Sep, 1st prelim) Real GDP (qoq%, annualized) 1.5
8:50 Input-Output Price Index of MFG (Oct) Output / Input (yoy%) 2.3 / -0.5
Nov 16 (Tue) 8:50 Tertiary Industry Index (Sep) (mom%) -0.2
Nov 17 (Wed) 14:00 Indexes of Business Conditions (Sep, final) Leading CI 98.9
Coincident CI 102.0
Nov 19 (Fr i) 8:50 Minutes of the Monetary Policy Meeting (Oct)
13:30 All Industry Activity Index (Sep) (mom%) -0.4
Indicator
Source: BoJ, Cabinet Office, Ministry of Public Management, Home Affairs, Posts and Telecommunications, MoF, METI, MHLW, MLIT, Credit Suisse
Exhibit 49: Real GDP Growth
-6
-4
-2
0
2
4
6
3Q09 1Q10 3Q10 1Q11 3Q11 1Q12
QoQ annualized
YoY
(%)
Credit Suisse forecasts
Source: Cabinet Office, Credit Suisse
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19
Major Economic DataFeb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10
Consumption-related indicators
Real spending by all households YoY % -0.5 4.4 -0.7 -0.7 0.5 1.1
Real spending by wage-earners YoY % -2.2 3.6 -2.3 -3.4 0.3 1.0
Real disposable income YoY % 1.5 0.3 0.8 -5.3 7.4 -0.3
Average propensity to consume YoY % 72.2 78.1 72.7 72.8 71.0 76.1
Department store sales YoY % -7.1 -5.1 -5.8 -3.9 -7.4 -3.0
Super store sales YoY % -2.0 -6.7 -5.5 -6.2 -3.5 -3.3Convenience store sales YoY % -2.0 -2.6 -1.4 -1.1 0.9 2.6
Household activity-related DI YoY pts 19.1 16.5 12.5 9.0 3.8 8.0
Consumer sentiment index YoY pts 13.1 12.0 9.6 7.1 5.9 3.9
Monthly wages YoY % -0.7 1.0 1.6 0.1 1.8 1.4
Real monthly wages YoY % 0.6 2.2 3.0 1.1 2.7 2.4
Labor market conditions
Unemployment rate s.a. % 4.9 5.0 5.1 5.2 5.3 5.2
# of workers s.a, MoM 10k -25 -5 -28 -24 4 21
# of unemployed s.a, MoM 10k -7 10 8 1 7 -6
# of non-labor force s.a, MoM 10k 26 -8 25 30 -8 -17
Job offers to applicants ratio s.a. 0.47 0.49 0.48 0.50 0.52 0.53
Job offers s.a. MoM 1.5 2.7 -1.0 3.5 2.7 1.3
Job seekers s.a. MoM -1.9 0.4 -0.5 -0.2 -1.2 -0.6
New job seekers s.a. MoM -0.4 5.6 0.9 -1.3 5.8 -1.7Corporate-related indicators
Industrial production
Production s.a. MoM % -0.6 1.2 1.3 0.1 -1.1 -0.2
Production YoY % 31.3 31.8 25.9 20.4 17.3 14.2
Shipments YoY % 29.0 29.9 27.1 21.0 18.1 14.7
Inventory YoY % -7.5 -6.0 -3.4 -0.8 1.2 1.3
Inventory to sales ratio s.a.(2005=100) 108.3 102.3 103.5 108.5 106.7 108.2
Manufacturers' operating ratio s.a.(2005=100) 90.1 90.6 90.6 91.3 89.4 89.1
Machinery orders
Core machinery orders s.a. MoM % -3.8 5.4 4.0 -9.1 1.6 8.8
YoY % -7.1 1.2 9.4 4.3 -2.2 15.9
Foreign demands s.a. MoM % 3.0 3.9 -3.7 2.7 2.4 2.6
YoY % 137.3 52.4 92.5 129.5 74.7 50.2
New housing starts YoY % -9.3 -2.4 0.6 -4.6 0.6 4.3s.a. annualized, 10k 79.4 85.4 79.3 73.7 75.0 77.2
Construction starts (floor) YoY % -15.9 8.1 4.4 14.7 -1.4 7.8
s.a. MoM % 7.3 23.7 -32.8 8.2 -0.9 10.3
* Contracted rate is the number of contracts sold divided by the number of units for sale.Source: MIAC, Department Store Assoc., Chain Store Assoc. Convenience Store Assoc., Cabinet Office, MHLW, METI, MLIT, MoF, BoJ, JREI, Credit Suisse
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Major Economic Data (continued)Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10
Contracted rate for condominiums
Tokyo metropolitan area % 70.7 82.8 79.9 77.0 83.9 78.2
Kinki area % 63.2 64.6 72.3 76.0 76.9 70.2
Prices
Nationwide core CPI YoY % -1.2 -1.2 -1.5 -1.2 -1.0 -1.1
Tokyo core CPI YoY % -1.8 -1.8 -1.9 -1.5 -1.3 -1.3
Domestic CGPI YoY % -1.6 -1.3 -0.2 0.5 0.4 -0.1Raw materials YoY % 17.4 13.6 23.8 31.2 19.0 10.5
Intermediate goods YoY % -1.3 -1.2 1.0 2.0 1.9 1.0
Final goods YoY % -0.6 -1.0 -1.1 -1.2 -1.7 -1.8
CSPI YoY % -1.3 -1.2 -1.0 -0.7 -1.0 -1.1
External demand
Trade balance billion yen 647.3 949.9 734.9 316.0 682.2 799.2
Exports YoY % 45.4 43.5 40.3 32.1 27.7 23.5
Imports YoY % 30.1 21.1 24.8 34.2 26.2 15.8
Trade volume
Exports YoY % 46.1 43.7 39.6 31.9 27.5 25.5
Imports YoY % 23.0 16.9 17.7 22.5 18.1 13.8
Real trade balance s.a. MoM % -1.4 25.8 14.9 -15.0 -2.4 12.2
Exports s.a. MoM % 1.0 2.8 6.6 1.0 -0.3 2.4
Imports s.a. MoM % 1.8 -3.8 3.0 7.4 1.1 -0.8Balance of payments
Current account balance billion yen 1,593.3 2,556.4 1,331.2 1,222.6 1,057.8 1,675.9
Current account balance s.a. billion yen 1,184.6 1,784.5 1,481.7 917.8 1,377.1 1,463.6
Trade and services billion yen 712.3 1,099.5 474.6 368.9 670.2 738.3
Trade balance billion yen 785.3 1,089.0 871.1 402.7 762.0 916.1
Service balance billion yen -73.0 10.5 -396.4 -33.7 -91.8 -177.8
Income accounts billion yen 961.9 1,667.6 986.2 925.9 460.7 1,021.8
Capital and financial balance billion yen -1,542.0 -3,694.5 345.0 -1,238.6 -752.9 -2,182.3
Financial account billion yen -1,518.5 -3,616.5 368.7 -1,191.3 -754.6 -2,128.7
Direct investment billion yen -1,124.8 -153.7 -113.2 -466.1 -458.4 9.6
Portfolio investment billion yen -1,297.0 -9,784.0 6,604.5 1,780.7 -7,788.1 -323.9
Changes in reserve assets billion yen -29.7 181.6 -214.5 -91.0 -407.5 -103.8
Business conditions indices
Coincident CI MoM % 0.2 1.3 0.6 0.7 0.4 0.6
Leading CI MoM % 1.3 4.0 0.2 -2.5 0.7 -0.3
* Contracted rate is the number of contracts sold divided by the number of units for sale.Source: MIAC, Department Store Assoc., Chain Store Assoc. Convenience Store Assoc., Cabinet Office, MHLW, METI, MLIT, MoF, BoJ, JREI, Credit Suisse
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11 November 2010
Japan Economics Weekly 21
Japan Economic Forecasts
As of 11 November 2010
Q1 Q2 Q3 Q4 Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E 07 08 09E 10E 11E 08 09E 10E 11E
Real GDP -16.4 9.7 -0.3 3.4 5.0 1.5 2.0 -0.8 -0.1 0.5 1.8 1.9 1.8 -3.7 -1.9 2.0 0.8 -1.2 -5.2 2.9 0.6
Private consumption -5.5 5.2 2.5 2.7 2.2 0.0 3.0 -0.4 0.4 0.8 0.8 0.8 0.9 -1.8 0.7 1.4 0.7 -0.7 -1.0 2.0 0.7
Private residential investment -25.9 -33.2 -25.8 -11.0 1 .2 -5 .1 3 .2 0 .8 0.8 2 .0 2 .8 3 .2 -13.5 -3 .7 -18.5 -3 .7 2 .1 -8 .1 -14.2 -8 .6 1 .4
Private non-residential investment -30.9 -19.2 -6.7 6.8 3.2 6.2 4.0 0.0 1.2 1.6 2.4 2.4 2.1 -6.8 -15.3 3.3 1.8 0.1 -19.2 1.4 1.9
Private inventory (c ontribution) -5.3 0.6 -0.8 -1.6 0.5 -0.2 0.2 -0.2 0.0 0.0 0.0 0.0 0.1 -0.1 -0.5 -0.2 0.0 -0.4 -0.4 -0.2 0.0
Public investment 14.6 39.0 -4.8 -4.9 -3.5 -10.3 -3.9 -3.9 -18.5 -18.5 -5.0 -5.0 -6.3 -6.6 9.3 -6.6 -11.0 -8.5 7.4 -3.2 -11.2
Net exports (c ontribution) -3.0 8.5 0.9 2.4 2.4 1.4 -0.4 -0.3 0.1 0.3 0.9 1.1 1.3 -1.2 0.4 1.3 0.4 0.1 -1.3 2.1 0.3
Exports -68.1 48.6 38.4 24 .8 31 .0 25 .8 -0 .2 0 .0 2 .0 4 .1 8 .2 10 .4 9 .3 -10.4 -9 .5 16.7 4 .8 1 .6 - 23 .9 23.8 4 .3
Imports -53.8 -18.3 27.6 6 .1 12.6 17.4 4 .0 2 .8 2 .4 3 .2 3 .2 4 .9 1 .7 -4 .0 -11.8 10.1 3 .5 1 .0 - 16 .7 10.0 4 .0
Nominal GDP (yoy%) -8.6 -6.3 -5.8 -3.8 1.8 0.7 1.8 0.9 -1.1 -0.8 -0.7 0.3 0.9 -4.2 -3.6 0.6 -0.1 -2.0 -6.1 1.3 -0.6
Industrial production (yoy% ) -34.6 -27.4 -19.4 -4.3 27.5 20.9 13.7 4.5 2.7 -12.7 -8.9 8.5 0.8 -3.4 -21.9 16.1 -1.1
CPI (core, yoy%) 0 .0 -0 .9 -2 .3 -1 .7 -1 .2 -1 .2 -1 .1 -0 .6 -0.6 -0 .5 -0 .4 -0 .5 0 .3 1 .2 -1 .6 -1 .0 -0 .5 1 .5 -1.3 -0 .8 -0 .5
CPI (excluding food and energy, yoy%) -0 .2 -0 .5 -0 .9 -1 .1 -1 .1 -1 .6 -1 .5 -1 .0 -0.9 -0 .6 -0 .5 -0 .8 -0 .2 0 .0 -0 .9 -1 .3 -0 .7 0 .0 -0.7 -1 .2 -0 .7
Unemployment rate (%) 4.6 5.2 5.4 5.2 4.9 5.2 5.2 5.4 5.4 5.1 4.8 4.8 3.8 4.1 5.2 5.2 5.0 4.0 5.1 5.3 4.9
Current account balance to GDP (%) 1.8 3.0 3.1 3.3 3.9 3.1 3.3 3.3 4.8 2.5 3.3 3.3 3.4 3.2 2.8 3.4 3.5
Overnight call rate (%) 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.5 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
5yr JGB yields 0.8 0.7 0.6 0.6 0.6 0.4 0.4 0.3 0.3 0.7 0.8 0.6 0.3 -- 0.7 0.6 0.3 --
10yr JGB yields 1.4 1.4 1.3 1.3 1.4 1.1 1.2 0.9 0.9 1.3 1.4 1.4 0.9 -- 1.2 1.3 0.9 --USD/JPY 99 96 90 93 93 89 86 86 89 93 100 99 93 89 -- 91 93 86 --
Notes: 1. q/q percentage changes at annualized rates
2. IP grow th is calculated by using non-seasonally adjusted actual figures, w hile forecast f igures are calculated based on seasonally adjusted figures
3. Current account balance as a percentage of GDP
4. Policy rate and JGB yields are end of period data
2010 2011 FY CY2009
Source: Cabinet Office, MoF, METI, Statistics Bureau, Credit Suisse estimates
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FIXED INCOME RESEARCH > ECONOMICS RESEARCH > DEVELOPED COUNTRIES
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Disclosure Appendix
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