japan’s economy in the aftermath · united states* 2.9 2.5 2.6 1.6 2.7 1.2 0.13 0.13 0.13 ... of...
TRANSCRIPT
June 2011
Japan’s economy in the aftermath
of the earthquake: V-shaped
recovery on the horizon
Nomura Securities Co Ltd, TokyoJapanese Economic Research
Takahide KiuchiChief Economist Japan
Nomura Securities Co., Ltd.
Tel: +81-6703-1280
E-mail: [email protected]
Please read the important disclosures and
analyst certifications on pages 41-43. gl
Nomura Securities Co., Ltd.
2
The world at a glance
Note: Aggregates calculated using purchasing power parity (PPP) adjusted shares of world GDP; Real GDP and CPI reported as annual average growth rates; Developed countries: United States, Canada, Japan, Australia, New Zealand, Hong Kong, Singapore, the euro area, and the United Kingdom - all other countries are considered Emerging Markets; BRICS: Brazil, Russia, India and China; EEMEA: Emerging Europe, Middle East and Africa; all values are forecasts. Our forecasts incorporate assumptions on the future path of oil prices based on oil price futures, consensus forecasts and Nomura in-house analysis. Currently assumed average Brent oil prices for 2010, 2011 and 2012 are $79, $88 and $95 respectively, after $62 in 2009. *2010 and 2011 policy rate forecasts are midpoint of 0-0.25% target federal funds rate range. **Inflation refers to wholesale prices. ***For Hong Kong and Singapore, the policy rate refers to 3M Hibor and 3M Sibor, respectively. †Policy rate forecasts in 2010-2012 are midpoint of BOJ‘s 0-0.10% target unsecured overnight call rate range.
Source: Nomura Global Economics.
We expect the ongoing global recovery to continue despite
multiple shocks, but to remain muted in the developed world.
We expect most of the emerging economies, led by Asia, to
continue their brisk growth after some of them go through a
rough path.
We see high headline inflation in Europe to nudge the BoE
and ECB toward several rate hikes before the Fed and the
BOJ start to move.
We see inflationary pressures continuing to mount in EM,
with policymakers risking falling behind the curve.
Downside risks: fiscal crisis escalation in euro area;
investment pull-back in China; US fiscal gridlock unnerving
markets.
The dollar looks set to recover some of its early-2011
losses as risk assets face headwinds and euro-zone tensions
persist.
[As of May 27th]
Real GDP (% y-o-y) Consumer Prices (% y-o-y) Policy Rate (% end of period)
2010 2011 2012 2010 2011 2012 2010 2011 2012
Global 5.0 4.2 4.5 3.4 4.5 3.7 3.08 3.78 4.29
Developed 2.7 2.1 2.6 1.5 2.6 1.6 0.59 0.91 1.36
Emerging Markets 7.6 6.6 6.6 5.7 6.6 6.0 5.97 6.98 7.42
Americas 3.7 3.0 2.9 3.4 4.2 3.1 2.24 2.59 2.89
United States* 2.9 2.5 2.6 1.6 2.7 1.2 0.13 0.13 0.13
Canada 3.1 2.9 2.5 1.8 2.7 2.1 1.00 1.75 3.25
Latin America†† 6.2 4.5 4.0 8.8 8.7 8.4 8.43 9.57 10.28
Argentina 9.2 8.0 4.0 25.9 24.4 25.4 10.81 12.00 11.00
Brazil 7.5 3.9 4.5 5.9 5.9 4.9 10.75 12.25 12.25
Chile 5.2 6.5 5.0 3.0 4.5 3.0 3.25 6.00 6.00
Colombia 4.3 5.0 4.5 3.2 3.5 3.7 3.00 5.00 7.00
Mexico 5.5 4.0 3.4 4.4 3.9 4.0 4.50 4.50 6.50
Venezuela -1.4 1.5 3.0 27.2 30.1 32.0 17.80 20.00 22.00
Asia/Pacific 8.0 6.3 7.1 3.6 4.8 4.4 4.26 5.22 5.54
Japan† 4.0 -0.5 3.3 -0.7 0.3 0.4 0.05 0.05 0.05
Australia 2.7 3.4 4.0 2.9 3.7 3.4 4.75 5.25 5.25
New Zealand 1.5 0.9 3.5 2.3 4.2 2.6 3.00 2.50 3.50
Asia ex Japan, Aust, NZ 9.2 7.9 8.1 4.6 5.8 5.3 5.20 6.33 6.66
China 10.3 9.4 9.2 3.3 4.9 4.8 5.81 6.81 7.31
Hong Kong*** 7.0 6.0 4.7 2.4 4.9 5.2 0.28 0.40 0.40
India** 8.8 7.9 8.3 9.6 9.1 7.0 6.25 7.75 7.75
Indonesia 6.1 6.5 7.0 5.1 5.7 6.3 6.50 7.25 7.50
Malaysia 7.2 5.2 5.5 1.7 3.5 3.6 2.75 3.25 3.25
Philippines 7.3 5.4 5.7 3.8 6.1 6.4 4.00 5.00 6.50
Singapore*** 14.5 6.0 5.8 2.8 4.5 3.4 0.44 0.35 0.35
South Korea 6.2 3.5 5.0 2.9 4.4 3.6 2.50 3.50 4.00
Taiwan 10.9 5.2 5.2 1.0 2.7 3.4 1.63 2.13 2.63
Thailand 7.8 4.1 5.2 3.3 4.7 4.8 2.00 3.25 4.00
Vietnam 6.8 6.5 7.1 9.2 18.0 12.0 10.00 16.00 11.00
Western Europe 1.7 2.1 2.1 1.9 3.0 2.0 0.94 1.66 2.67
Euro area 1.7 2.1 2.1 1.6 2.7 1.9 1.00 1.75 2.75
France 1.4 2.1 2.0 1.7 2.2 1.8 1.00 1.75 2.75
Germany 3.5 3.4 2.3 1.2 2.4 1.6 1.00 1.75 2.75
Greece -4.4 -3.7 0.3 4.7 2.9 0.8 1.00 1.75 2.75
Ireland -1.0 -0.8 1.4 -1.6 1.1 0.7 1.00 1.75 2.75
Italy 1.2 0.9 1.3 1.6 2.8 2.1 1.00 1.75 2.75
Netherlands 1.8 2.1 1.8 0.9 2.4 2.0 1.00 1.75 2.75
Portugal 1.4 -2.0 -1.8 1.4 3.7 1.3 1.00 1.75 2.75
Spain -0.1 0.8 1.0 2.0 3.2 1.9 1.00 1.75 2.75
United Kingdom 1.3 1.7 2.3 3.3 4.5 2.7 0.50 1.00 2.25
Denmark 2.1 1.6 1.8 2.3 3.1 1.7 1.05 1.80 2.80
Norway 2.1 2.5 3.4 2.5 2.1 2.0 2.00 2.75 4.00
Sweden 5.4 4.4 2.4 1.3 2.9 2.1 1.25 2.50 3.50
Switzerland 2.6 2.7 2.2 0.7 0.8 1.1 0.25 0.75 1.75
EEMEA 4.6 4.6 4.2 6.1 6.8 6.3 5.75 6.32 6.94
Czech Republic 2.3 1.4 2.6 1.5 1.9 3.8 0.75 1.25 2.00
Egypt†† 5.3 1.2 3.1 10.3 12.1 9.5 8.25 8.25 9.00
Hungary 1.2 2.5 2.7 4.9 4.5 4.4 5.75 5.50 5.50
Israel 4.5 4.0 4.0 2.7 3.3 3.4 2.00 3.50 4.00
Kazakhstan 7.0 6.5 5.5 7.2 8.4 6.7 7.00 7.50 7.50
Poland 3.8 4.5 4.6 2.7 4.5 3.8 3.50 5.00 5.50
Qatar 16.5 20.2 14.0 1.5 3.6 3.5 1.50 1.50 2.00
Romania -1.2 1.5 2.5 6.1 5.8 3.5 6.25 6.25 7.50
Russia 4.0 4.4 3.9 6.9 8.8 7.5 7.75 8.50 9.00
Saudi Arabia†† 4.0 6.0 4.5 5.4 5.6 5.0 2.00 2.00 2.00
South Africa 2.8 3.9 4.3 4.3 4.8 6.1 5.50 6.00 8.00
Turkey 8.9 6.0 4.4 8.6 6.0 7.0 6.50 7.25 8.25
Ukraine 4.1 4.8 5.0 9.4 9.8 10.5 7.75 7.75 7.50
United Arab Emirates 2.3 4.8 4.0 -0.3 2.0 3.0 2.00 2.00 2.50
(注)1.合計は購買力平価(PPP）を用いて表示通貨を統一し、世界経済に占める各国GDPの割合を基に算出。実質GDP、消費者物価指数は年間平均値。先進国は
Japan’s economy after the quake
3
We have revised down our FY11 Japan real GDP growth estimate by 1.0ppt to +0.5%, while revising up our
FY12 growth estimate by 0.6ppt to +2.9％.
We expect JP real GDP to decline by 1.5% in the coming two consecutive quarters in the aftermath of the
earthquake. That real GDP dent would be only one fifth of the 8.1% decline experienced during the two- quarter
period after the Lehman shock.
The quake will likely cause a significant economic contraction in 2011 H1 before an anticipated V-shaped
recovery from Q3 due mostly to the quicker-than-expected mitigation of supply chain disruption.
The FY11 second supplementary budget of some \13trn, equivalent to 2.6% of GDP, will likely pass through the
Diet session held in August or September. Huge reconstruction demand will be on the horizon from Q4 on. Most
of the supplementary budget spending is likely to be funded by JGB issuance and possible tax increases in the
future.
Risks associated with our scenario of near-term V-shaped recovery are: (1) delays in the implementation of the
supplementary budget amidst the current political turmoil; (2) slow progress in reconstruction of quake-stricken
regions; (3) deterioration of the economic and political environment overseas, e.g., economic slowdown, yen
appreciation, and/or higher crude oil prices; (4) slower mitigation of supply-chain constraints.
In the medium term, the foremost risk we face is an accelerated shifting of production sites by Japanese
companies in the wake of the quake disaster. Strong political initiatives for viable growth strategies could in part
reduce the risk, ie, weak economy and unstable financial system brought forth by the two previous big
earthquakes.
Revising down our FY2011 growth forecast by 1.0ppt
Source: Nomura
We have revised down our FY11 real GDP growth forecast by 1.0ppt to +0.5% from +1.5%, while revising up our FY12 growth forecast by 0.6ppt to +2.9% from +2.3%.
4
Assumptions for our economic forecasts
Summary of our forecasts for the Japanese economy
Note: Figures in brackets show contribution; Those without brackets are y-y% changes, unless otherwise noted.
Source: Nomura
FY10 FY11 FY12 FY13
Yen/dollar rate (FY-avg) 86.0 86.0 92.0 93.0
Unsecured overnight call rate (at FY-end: %) 0-0.10 0-0.10 0-0.10 0-0.10
Consumption tax rate (at FY-end: %) 5.0 5.0 5.0 5.0
WTI spot price (FY-avg: $/bbl) 83.0 110.0 109.0 107.0
FY10 FY11 FY12 CY10 CY11 CY12
(E) (E) (E) (E)
Real GDP 2.3 0.5 2.9 4.0 -0.5 3.3
<Domestic demand> 1.4 0.6 2.2 2.1 -0.4 2.7
<Private> 1.4 -0.3 2.3 1.8 -0.9 2.1
<Public> 0.0 1.0 -0.1 0.3 0.6 0.6
<Foreign demand> 0.9 -0.1 0.7 1.8 -0.2 0.6
Private consumption 0.8 -0.9 1.4 1.8 -1.3 1.2
Private housing investment -0.2 3.9 3.1 -6.3 4.5 3.2
Private capital expenditure 4.5 1.8 7.2 2.1 1.0 7.0
Changes in inventory investment 0.4 -0.2 0.3 0.6 -0.4 0.3
Public consumption 2.3 2.3 0.6 2.3 2.5 1.0
Fixed public capital formation -10.0 14.8 -5.1 -3.4 2.5 9.3
Exports 17.0 2.4 8.1 23.9 2.7 7.5
Imports 10.9 4.8 5.5 9.7 5.6 5.5
Nominal net exports (as % of GDP) 0.8 0.1 0.0 1.1 0.1 0.2
Nominal GDP 0.4 -0.3 2.7 1.8 -1.7 3.0
GDP deflator -1.9 -0.7 -0.2 -2.1 -1.1 -0.3
Industrial production 9.0 0.8 10.1 16.4 -2.3 11.6
Corporate goods price index 0.7 2.4 1.6 -0.2 2.3 1.6
Consumer price index -0.4 0.4 0.4 -0.7 0.3 0.4
Excl. fresh food -0.7 0.5 0.4 -1.0 0.4 0.3
Unemployment rate 5.0 4.8 4.4 5.1 4.8 4.5
Customs cleared trade balance (¥ trn) 5.4 -1.7 6.1 6.6 -1.7 4.9
Balance of goods (¥ trn) 6.5 0.0 7.5 8.0 0.0 6.3
Balance of goods and services (¥ trn) 5.2 -1.2 6.2 6.6 -1.2 5.0
Current account balance (¥ trn) 15.9 8.9 17.4 17.2 8.9 15.6
Current account balance ($ bn) 186.2 103.0 189.0 195.8 105.8 172.4
As a % of nominal GDP 3.3 1.9 3.6 3.6 1.9 3.2
Yen/dollar (FY-average) 86.0 86.0 92.0 87.8 84.3 85.6
Crude oil price (FY-ave:$/bbl) 83.0 110.0 109.0 79.4 107.1 108.9
Overnight call rate (at FY-end:%) 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10
Consumption tax rate (at FY-end:%) 5.0 5.0 5.0 5.0 5.0 5.0
Quarterly forecasts for the Japanese economy
Note: (1) Actual data up to 2011 Q1; Nomura estimates and projections thereafter. (2) Quarterly values, indices and unemployment rate are seasonally adjusted figures
(excluding domestic corporate goods prices). (3) Even in cases where value = -0.0, this is shown as 0.0.
Source: Cabinet Office, Ministry of Economy, Trade & Industry, Ministry of Internal Affairs and Communications, BOJ, Nomura estimates 5
10 11 12 137-9 10-12 1-3 4-6(E) 7-9(E) 10-12(E) 1-3(E) 4-6(E) 7-9(E) 10-12(E) 1-3(E)
Private consumption 309614.5 306523.4 304800.1 302361.7 303692.1 304724.6 305943.5 306830.8 307966.1 309105.5 310156.5(%q-q) 0.8 -1.0 -0.6 -0.8 0.4 0.3 0.4 0.3 0.4 0.4 0.3(%y-y) 2.4 0.6 -1.0 -1.6 -1.9 -0.6 0.4 1.5 1.4 1.4 1.4
Residential investment 12359.3 12751.7 12844.6 12878.0 12892.7 13058.4 13203.4 13301.4 13364.2 13451.9 13528.9(% q-q) 1.9 3.2 0.7 0.3 0.1 1.3 1.1 0.7 0.5 0.7 0.6(%y-y) -1.3 6.2 5.4 6.2 4.3 2.4 2.8 3.3 3.7 3.0 2.5
Private capital investment 74093.3 74182.6 73520.4 72491.1 74013.4 75789.8 77457.1 78773.9 79719.2 80915.0 82209.6(%q-q) 1.1 0.1 -0.9 -1.4 2.1 2.4 2.2 1.7 1.2 1.5 1.6(%y-y) 6.7 5.5 2.8 -1.1 -0.1 2.2 5.4 8.7 7.7 6.8 6.1
Changes in private inventories -726.2 -941.0 -3269.5 -5139.5 -3139.5 -2139.5 -1859.5 -1859.5 -1659.5 -1459.5 -1259.5(ppt contribution) 0.5 0.0 -0.5 -0.3 0.4 0.2 0.1 0.0 0.0 0.0 0.0
Government consumption 102664.5 103050.8 104045.3 104542.7 105118.1 105883.0 106023.7 105790.0 106357.7 105735.9 106162.8(%q-q) 0.3 0.4 1.0 0.5 0.6 0.7 0.1 -0.2 0.5 -0.6 0.4(%y-y) 2.1 1.6 2.9 2.2 2.4 2.7 1.9 1.2 1.2 -0.1 0.1
Public investment 19607.6 18433.0 18190.6 19619.3 20125.1 22757.6 23515.0 23887.9 21306.0 20449.6 18103.6(%q-q) -2.5 -6.0 -1.3 7.9 2.6 13.1 3.3 1.6 -10.8 -4.0 -11.5(%y-y) -4.9 -13.4 -14.0 -2.4 2.6 23.5 29.3 21.8 5.9 -10.1 -23.0
Changes in public inventories 144.7 221.8 249.8 249.8 249.8 249.8 249.8 249.8 249.8 249.8 249.8(ppt contribution) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net exports 27047.0 26524.9 25947.6 24681.2 25313.9 26613.9 27254.3 28300.1 29252.6 30164.1 30989.0(ppt contribution) -0.1 -0.1 -0.2 -0.2 0.1 0.2 0.1 0.2 0.2 0.2 0.1
(%q-q) -1.1 -1.9 -2.2 -4.9 2.6 5.1 2.4 3.8 3.4 3.1 2.7(%y-y) 48.4 21.6 1.6 -10.1 -6.2 0.4 5.0 14.9 15.3 13.2 13.8
Exports of goods and services 85635.8 84925.0 85506.8 84343.0 85798.4 88397.6 90010.6 91486.0 93088.6 95098.7 97197.7(%q-q) 1.6 -0.8 0.7 -1.4 1.7 3.0 1.8 1.6 1.8 2.2 2.2(%y-y) 21.1 13.2 6.4 0.1 0.2 4.1 5.3 8.5 8.5 7.6 8.0
Imports of goods and services 58588.8 58400.1 59559.2 59661.9 60484.5 61783.7 62756.4 63185.8 63836.0 64934.6 66208.7(%q-q) 2.9 -0.3 2.0 0.2 1.4 2.1 1.6 0.7 1.0 1.7 2.0(%y-y) 11.4 9.7 8.7 4.8 3.2 5.8 5.4 5.9 5.5 5.1 5.5
Real GDP 544099.0 539913.7 534887.3 531599.8 538223.5 546951.4 551832.2 555341.9 556631.8 558701.4 560239.4(%q-q) 0.9 -0.8 -0.9 -0.6 1.2 1.6 0.9 0.6 0.2 0.4 0.3
(%q-q ,annualized) 3.8 -3.0 -3.7 -2.4 5.1 6.6 3.6 2.6 0.9 1.5 1.1(%y-y) 5.0 2.2 -1.0 -1.4 -1.1 1.3 3.2 4.5 3.4 2.1 1.5
GDP deflator 88.4 88.1 87.8 87.6 87.5 87.5 87.3 87.4 87.3 87.5 87.4(%y-y) -2.1 -1.6 -1.9 -1.2 -1.0 -0.7 -0.5 -0.2 -0.2 0.0 0.1
Industrial production (2005=100) 94.3 94.2 92.3 87.0 90.8 99.5 101.9 102.5 103.0 105.0 107.1(%q-q) -1.0 -0.1 -2.0 -5.7 4.3 9.6 2.4 0.5 0.5 1.9 2.0(%y-y) 14.0 5.9 -2.5 -8.7 -3.7 5.6 10.4 17.8 13.5 5.5 5.1
Consumer price index (2005=100) 99.2 99.8 99.9 100.0 99.9 100.3 100.3 100.3 100.3 100.7 100.8(2005=100,seasonally adjusted) (% q-q)-0.3 0.6 0.1 0.1 -0.1 0.3 0.1 0.0 0.0 0.3 0.2
(%y-y) -0.8 0.1 0.0 0.3 0.6 0.4 0.4 0.3 0.4 0.4 0.5 excluding fresh food 98.8 99.3 99.6 99.7 99.5 99.9 100.0 99.9 99.7 100.3 100.4
(% q-q) -0.5 0.5 0.3 0.1 -0.3 0.4 0.1 -0.1 -0.2 0.5 0.1(%y-y) -1.0 -0.5 -0.2 0.4 0.6 0.6 0.4 0.2 0.3 0.4 0.4
Unemployment rate (%) 5.1 5.0 4.7 4.9 4.9 4.8 4.6 4.5 4.4 4.3 4.2
The quake likely to depress real GDP by 1.5%
We anticipate that the quake will depress real GDP by about 1.5% in Q1-Q2 2011. We think the depression of GDP will not compare to that following Lehman‘s bankruptcy in 2008, when real GDP contracted some 8.1% over a six-month period.
Source: Nomura
Note: Figures are cumulative.Source: Nomura
6
Our real GDP growth forecast revision Quake’s Impact on real GDP
-0.6
-1.7
-1.3
-0.4
0.1 0.0
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1-3 4-6 7-9 10-12 1-3 4-6
2011 2012
（％）
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
(CY)
Pre-earthquake estimates (3/10)
Latest estimates (5/24)
(y-y change in real GDP %)
Post-quake economic recovery in progress in Japan
7
I. First phase: ～ end-March
A stunning contraction of economic activity on both supply
and demand fronts
II. Second phase: ～August
A slow recovery under supply-side constraints:
supply chain bottlenecks and power shortages
III. Third phase: ～September
Economic growth vigorously resuming due in large part to
diminished supply-side constraints and reconstruction
demand coming on stream in earnest
A sharp economic contraction likely to have ended by
end-March
8
Industrial production rose 1.0% m-o-m in April after 15.3％ decline in March. The manufacturers
expect a sharp recovery in May (+8.0% m-o-m) and June (+7.7% m-o-m). Family Income and
Expenditure Survey suggested that economic activity, after experiencing a rapid contraction just after
the earthquake, would bottom and start to resume in late March .
65
75
85
95
105
115
04 05 06 07 08 09 10 11
(CY)
(2005＝100)
Note: Dotted section plots index as calculated by Nomura using growth rate for production
forecast index.
Source: Nomura, based on METI
Industrial production index Daily trend in March consumer spending
Source: Nomura, based on Ministry of Internal Affairs and Communications(MIAC)
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
7 9 11 13 15 17 19 21 23 25 27 29 31
(% y-y)
(days)
Consumer spending
Sluggish consumer spending, particularly on services
The foremost uncertainty over consumer spending is related to spending on services, particularly leisure. We think consumer spending could recover to the level before the earthquake in 2012 Q2.
-8
-6
-4
-2
0
2
4
6
94 95 96
(% y-y)
(CY)
Nationwide
Ex Kobe
Note: Excluding Kobe refers to all-Japan department store sales excluding sales at department stores in Kobe.Source: Nomura, based on Japan Department Stores Association data
85
90
95
100
105
110
115
120
125
94 95 96 (CY)
(94 Q4 = 100)
Private-sector final consumption
Durable goods
Semidurable goods
Nondurable goods
Services
Source: Nomura, based on Cabinet Office data
9
Department store sales by region after the Great Hanshin-Awaji Earthquake
Consumer spending on goods and services after the Great Hanshin-Awaji Earthquake
The labor market remains stable after the earthquake
10
就業者数 失業者数 失業率 労働力率 有効求人 新規求人雇用者数 15歳以上 倍率 倍率
Unemploy-
ment rate
Labour force
participation
rate(15-)
Effective ratio
of job offers
to applicants
Ratio of new
job offers to
applicants
万人 前期比％ 前年比％ 万人 前期比％ 前年比％ 万人 前期比％ 前年比％ ％ ％ 倍 倍 前期比％ 前年比％
10,000
persons%p-p %y-y
10,000
persons%p-p %y-y
10,000
persons%p-p %y-y x x %p-p %y-y
96 暦年 6486 NA 0.5 5322 NA 1.1 225 NA 7.2 3.4 63.5 0.70 1.19 NA 11.997 6557 NA 1.1 5391 NA 1.3 230 NA 2.3 3.4 63.7 0.72 1.20 NA 5.298 6514 NA -0.6 5368 NA -0.4 279 NA 21.0 4.1 63.3 0.53 0.92 NA -11.999 6462 NA -0.8 5331 NA -0.7 317 NA 13.8 4.7 62.9 0.48 0.87 NA -0.700 6446 NA -0.2 5356 NA 0.5 320 NA 0.9 4.7 62.4 0.59 1.05 NA 19.901 6412 NA -0.5 5369 NA 0.2 340 NA 6.1 5.0 62.0 0.59 1.01 NA 1.502 6330 NA -1.3 5331 NA -0.7 359 NA 5.7 5.4 61.2 0.54 0.93 NA 0.603 6316 NA -0.2 5335 NA 0.1 350 NA -2.3 5.3 60.8 0.64 1.07 NA 12.004 6329 NA 0.2 5355 NA 0.4 313 NA -10.6 4.7 60.4 0.83 1.29 NA 13.705 6356 NA 0.4 5393 NA 0.7 294 NA -6.1 4.4 60.4 0.95 1.46 NA 8.406 6382 NA 0.4 5472 NA 1.5 275 NA -6.6 4.1 60.4 1.06 1.56 NA 4.307 6412 NA 0.6 5523 NA 0.9 257 NA -6.4 3.9 60.4 1.04 1.52 NA -6.408 6385 NA -0.4 5524 NA 0.0 265 NA 3.2 4.0 60.2 0.88 1.25 NA -20.409 6282 NA -1.6 5460 NA -1.2 336 NA 26.6 5.1 59.9 0.46 0.79 NA -0.810 6256 NA -0.4 5462 NA 0.0 334 NA -0.6 5.1 59.6 0.52 0.89 NA -0.9
05 Q1 6338 0.2 0.2 5351 -0.1 0.0 301 0.4 -7.0 4.5 60.3 0.92 1.44 -0.2 9.3Q2 6356 0.3 0.5 5391 0.7 0.7 293 -2.5 -6.9 4.4 60.4 0.94 1.45 2.8 10.6Q3 6375 0.3 0.6 5408 0.3 0.9 288 -1.8 -8.8 4.3 60.5 0.96 1.48 0.6 9.1Q4 6356 -0.3 0.5 5422 0.3 1.2 296 2.9 -1.1 4.4 60.4 0.99 1.50 1.1 4.6
06 Q1 6371 0.2 0.6 5460 0.7 2.1 281 -5.1 -6.4 4.2 60.4 1.04 1.56 1.4 6.5Q2 6368 -0.0 0.3 5470 0.2 1.5 275 -2.1 -6.5 4.1 60.3 1.06 1.59 1.0 4.7Q3 6390 0.3 0.1 5477 0.1 1.2 274 -0.5 -4.4 4.1 60.5 1.07 1.56 0.0 3.7Q4 6401 0.2 0.7 5481 0.1 1.1 270 -1.5 -8.9 4.0 60.5 1.06 1.57 -1.8 1.9
07 Q1 6394 -0.1 0.5 5511 0.5 1.0 268 -0.5 -4.8 4.0 60.4 1.06 1.55 -1.6 -4.0Q2 6428 0.5 1.0 5533 0.4 1.1 250 -6.7 -8.3 3.7 60.5 1.07 1.56 -0.8 -4.2Q3 6410 -0.3 0.3 5521 -0.2 0.8 249 -0.4 -8.1 3.7 60.3 1.05 1.49 -3.7 -8.1Q4 6418 0.1 0.4 5529 0.1 0.9 259 3.7 -4.3 3.9 60.4 0.99 1.45 -5.8 -9.6
08 Q1 6394 -0.4 0.1 5508 -0.4 0.0 261 0.9 -3.1 3.9 60.2 0.96 1.40 -4.2 -13.8Q2 6405 0.2 -0.4 5536 0.5 -0.0 263 0.9 5.6 3.9 60.4 0.94 1.33 -2.7 -15.3Q3 6374 -0.5 -0.6 5526 -0.2 0.1 264 0.3 6.3 4.0 60.1 0.86 1.21 -5.7 -16.1Q4 6369 -0.1 -0.7 5527 0.0 0.0 272 3.2 4.4 4.1 60.1 0.75 1.04 -5.5 -18.3
09 Q1 6340 -0.5 -0.8 5489 -0.7 -0.3 302 11.0 15.3 4.6 60.1 0.58 0.82 -10.7 -23.6Q2 6276 -1.0 -2.0 5448 -0.7 -1.7 337 11.5 28.5 5.1 59.9 0.46 0.77 -8.4 -27.8Q3 6263 -0.2 -1.8 5455 0.1 -1.3 357 5.9 35.5 5.4 59.9 0.43 0.78 0.4 -22.8Q4 6250 -0.2 -1.9 5448 -0.1 -1.4 347 -2.9 27.0 5.3 59.7 0.44 0.79 1.5 -16.8
10 Q1 6272 0.4 -1.0 5474 0.5 -0.3 332 -4.2 9.4 5.0 59.8 0.47 0.83 3.1 -3.3Q2 6238 -0.6 -0.6 5436 -0.7 -0.3 338 1.7 0.6 5.1 59.5 0.50 0.86 5.2 10.1Q3 6262 0.4 -0.0 5469 0.6 0.3 331 -1.9 -6.9 5.0 59.7 0.54 0.90 3.9 15.1Q4 6254 -0.1 0.1 5470 0.0 0.4 332 0.3 -4.2 5.0 59.6 0.57 0.97 4.4 17.3
11 （*）Q1 6005 0.4 0.1 5269 0.5 0.5 295 -6.3 -6.4 4.7 59.7 0.62 1.00 2.6 17.2(e)（*）Q2 5969 -0.6 0.2 5231 -0.7 0.6 292 -1.1 -9.4 4.7 59.3 0.61 0.95 2.0 14.9
09 7月 6252 -0.0 -2.1 5449 0.2 -1.4 364 5.5 40.2 5.5 59.9 0.43 0.78 0.0 -23.48月 6270 0.3 -1.7 5458 0.2 -1.3 355 -2.5 32.7 5.4 60.0 0.43 0.77 -1.4 -24.29月 6266 -0.1 -1.5 5458 0.0 -1.1 352 -0.8 33.9 5.3 59.9 0.43 0.78 2.2 -20.8
10月 6252 -0.2 -1.8 5449 -0.2 -1.4 345 -2.0 34.9 5.2 59.7 0.44 0.79 -0.1 -18.811月 6249 -0.0 -2.0 5445 -0.1 -1.5 349 1.2 29.3 5.3 59.7 0.43 0.78 -0.1 -13.812月 6248 -0.0 -1.7 5451 0.1 -1.2 346 -0.9 17.4 5.2 59.7 0.44 0.81 2.1 -17.4
10 1月 6281 0.5 -1.3 5475 0.4 -0.6 335 -3.2 16.6 5.1 59.9 0.46 0.82 0.0 -13.42月 6268 -0.2 -1.3 5469 -0.1 -0.5 327 -2.4 8.4 5.0 59.7 0.47 0.83 0.5 -2.13月 6268 0.0 -0.6 5478 0.2 0.3 334 2.1 4.5 5.1 59.8 0.48 0.84 3.8 7.34月 6244 -0.4 -0.8 5445 -0.6 -0.2 337 0.9 2.9 5.1 59.6 0.48 0.86 1.0 5.75月 6231 -0.2 -0.7 5430 -0.3 -0.4 336 -0.3 0.0 5.1 59.4 0.50 0.85 0.6 12.36月 6238 0.1 -0.3 5433 0.1 -0.1 340 1.2 -1.1 5.2 59.5 0.52 0.88 3.1 12.8
7月 6255 0.3 0.0 5453 0.4 0.1 334 -1.8 -7.8 5.1 59.6 0.53 0.88 -0.2 9.38月 6252 -0.0 -0.3 5456 0.1 -0.0 330 -1.2 -6.6 5.0 59.6 0.54 0.90 2.6 19.09月 6279 0.4 0.2 5497 0.8 0.7 330 0.0 -6.3 5.0 59.8 0.55 0.92 0.4 17.3
10月 6268 -0.2 0.2 5486 -0.2 0.7 337 2.1 -2.9 5.1 59.8 0.56 0.95 2.7 13.911月 6241 -0.4 -0.1 5460 -0.5 0.3 336 -0.3 -3.9 5.1 59.5 0.57 0.97 1.2 22.612月 6252 0.2 0.1 5463 0.1 0.2 324 -3.6 -6.0 4.9 59.5 0.58 0.99 -0.7 15.8
11 1月 6269 0.3 -0.1 5491 0.5 0.3 322 -0.6 -4.3 4.9 59.6 0.61 1.02 2.4 18.82月 6306 0.6 0.6 5539 0.9 1.3 303 -5.9 -7.4 4.6 59.8 0.62 0.99 4.0 22.9
（*）3月 5983 -0.8 -0.2 5240 -1.1 -0.2 290 0.3 -7.9 4.6 59.4 0.63 0.98 -7.1 10.5（*）4月 5969 -0.2 0.1 5231 -0.2 0.4 292 0.7 -8.8 4.7 59.3 0.61 0.95 5.8 12.2
新規求人数
Employed persons Employees Unemployed persons New job offersCalendar year,
Quarter or
Month
With companies wary of cutting headcount or
wages, it is unlikely that chain reactions will be set in
motion, whereby lower income results in a sharp
drop in consumer spending and pushes down output.
Employment Statistics
11
Supply chain constraints being removed in the near term
【For processing companies】
【For material companies】
At production sites in the affected areas, 90％ of the companies indicated that they would resolve the problems by summer 2011. With
respect to supply chain problems, 70％ of processing companies and 80-90％ of material-producing companies said they expected to have
sufficient parts and materials by October. The companies appear to have made progress and have found alternative suppliers for raw materials
and parts—two areas in which it is taking longer for production to restart—both in Japan and overseas, especially in Asian economies.
Note: (1) Survey carried out 8–15 April, targeting 55 companies (33 in materials industries, 22
in processing industries). (2) Other Asia: Asian economies except China and India. (3)
Multiple responses allowed for countries and regions.
Source: Nomura, based on Ministry of Economy, Trade & Industry data
Likely availability of sufficient volume of parts (for processing companies
6
23
42
29 Already sourced
Expected to be sourced by July7
Not expected to be sourced until October
Not expected to be sourced until after October
8
46
31
15Already sourced
Expected to be sourced by July 7
Not Expected to be sourced until October
Not Expected to be sourced after October
Alternative sourcing partners for raw materials and parts
1
9
1
8
3
1
1
15
1
1
4
7
17
0 5 10 15 20
North America
Europe
China
India
Other Asia
Latin America
Australia
Middle East & …
Japan
(no. of companies)
Materials industries
Processing industries
Auto production back to normal by July at the earliest
12
We forecast -25% to -45% growth for domestic auto production for FY11 in 21 March.
We revised our forecast for FY11domestic auto production to -3.5% in 18 April.
Faster-than-expected progress in restarting production of microcontrollers for automobiles has meant that
normalization of auto production has been brought forward substantially from initial expectations. Cooperation between
government and the auto industry should work.
Automakers should be able to secure sufficient volume of related components, including microcontrollers, and normal
production should resume in July at the earliest, in September at the latest.
Source: Nomura
Annualized volume
(unadjusted)
CY10 Q4 = 100
(unadjusted)
Annualized volume
(seasonally adjusted)
CY10 Q4 = 100
(seasonally adjusted)
% y-y % q-q Impact on industrial
production000 units '000 units '000 units '000 units % q-q
CY10 Q4 2,301 1,000 2,232 1,000 - - -
CY11 Q1 1,901 826 1,968 881 -25.2 -11.9 -1.8
Q2 1,178 512 1,215 544 -48.8 -38.2 -4.0
Q3 1,853 805 1,805 809 -25.4 48.6 6.0
Q4 2,799 1,216 2,715 1,216 21.6 50.4 5.3
CY12 Q1 2,844 1,236 2,944 1,319 49.6 8.4 0.2
Q2 2,200 956 2,269 1,016 86.8 -22.9 -2.4
Q3 2,250 978 2,192 982 21.4 -3.4 0.2
Q4 2,400 1,043 2,328 1,043 -14.3 6.2 0.7
CY13 Q1 2,500 1,086 2,588 1,159 -12.1 11.1 0.4
Data file
Japanese automaker’s domestic production plans
13
Source: Nomura Global Economics
Supply chain problems in ex-Japan Asian countries
0.10.2
0.3 0.3 0.3
0.7
1.3
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Philippines China Taiwan India Malaysia Indonesia Thailand
Percentage point
Share of Japanese manufacturers in Asia’s car market (2010)
Car production by
Japanese
manufacturers
(including joint-
venture
Total car
production
Share ofJapanese
manufacturers
Data coverage
(A) (B) (A/B) (%)
China 2,336,300 9,575,000 24.4 Sales; Passengersedan vehicles
Taiwan 255,106 303,449 84.1 Production; Passengerand commercial vehicles
Malaysia 158,500 567,715 27.9 Production; Passengerand commercial vehicles
Thailand 738,377 800,357 92.3 Sales; Passengerand commercial vehicles
Indonesia 665,319 764,635 87.0 Sales; Passengerand commercial vehicles
Philippines 129,333 168,490 76.8 Sales; Passengerand commercial vehicles
India 1,352,021 2,819,843 47.9 Production ;Passenger vehicles
Source: CEIC data, Sinotrust and Nomura Global EconomicsSource: CEIC data, Sinotrust and Nomura Global Economics
Slowdown of real GDP growth when auto production decreases 50％
Some other Asian countries such as Thailand, Indonesia and Malaysia are likely to be adversely affected by the supply chain disruption in Japan.
Impact of supply chain disruption on US economy
14
-1.6
-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
April:50%May:50%
June:75%Case 1
April:75%May:75%
June:100%Case 2
Japanese makers' production level relative to normal capacity
q-o-q saar %
0 20,000 40,000 60,000 80,000
Vehicle makers
Vehicle body and parts maker
Other manufacturing
Non-Manufacturing
Number of layoffs
Impact of slower production on Q2 GDP growth
Source: BEA; Nomura Global EconomicsSource: BEA; Nomura Global Economics
Potential layoffs caused by auto output cut
The supply chain disruption in Japan will likely slow the US economy only temporarily.
Steady expansion of power supply capacity
15
Source: TEPCO Source: TEPCO
On 15 April, TEPCO raised its previous (25 March) forecast of end-July output from 46GW to 52GW
(53.8GW excluding electricity distributed to Tohoku Electric Power). This figure is close to the maximum
electricity demand of 55GW anticipated for the average temperature in summer. It indicates that severe
power shortages could be avoided.
25 March projection: total +10GW
(1) Resumption after interruption caused by earthquake: +7.6GW
• Units 1–6 at Kashima thermal power plant
and Unit 1 at Hitachinaka thermal power plant
(2) Resumption of operation of thermal power plants
following long-planned shutdown: +900MW
• Units 3 and 4 and No. 1 and No. 2 gas turbines
at Yokosuka thermal power plant
(3) Resumption after regular inspection: +3.7GW
• Shinagawa thermal power plant Group 1,
Unit 1; Yokohama thermal power plant Group 7, Unit 2, etc
(4) Installation of gas turbines, etc: +400MW
(5) Other measures: -2.6GW
• Reduction in output from existing thermal power plants in summer
Additional output announced on 11 April: total +5.5GW
(1) Resumption after shutdown following
earthquake and regular inspection: +1.1GW
• Units 1, 3, and 4 of Kashima Kyodo thermal power plant,
and Units 8 and 9 of jointly operated Hitachi thermal power plant
(2) Installation of gas turbines, etc: +200MW
• At Chiba and Sodegaura thermal power plants, etc
(3) Use of pumped storage generation: +4GW
(4) Other measures: +200MW
TEPCO‘s electricity output projections TEPCO‘s measures to increase electricity output by end-July
35.0 36.5
52.0
0
10
20
30
40
50
60
2011/3/12 2011/3/25 end of July, 2011（est.）
（ＧW）
Demand at daily peak （55.0GW）
Annoying power shortages in summer unlikely
16
Tepco‘s supply capacity projection for July used to be 46.5GW as of 25 March. The company raised its
projection to 55.2GW on 13 May (53.8GW excluding electricity distributed to Tohoku Electric Power).
The main reasons for the higher projection are the planned use of pumped storage power generation
and the installation of new gas turbines. The 53.8GW projection is close to the maximum electricity
demand of 55GW anticipated for the average temperature in summer.
We think that a possible substantial reduction in economic activity could be avoided, .
Our primary concern remains with the average temperature in the coming summer as the main
determinant of air conditioning demand for electricity. When Japan was hit by an unprecedented heat
wave last summer, peak electricity demand rose to 60GW. According to our calculations, peak summer
electricity demand rises 1.74GW for every one-degree increase in temperature, reducing industrial
production by about 0.3%.
According to the Meteorological Agency‗s three-month weather forecasts, temperatures in the Kanto-
Koshinetsu region will be higher than average in July at a probability of 40%, while the probability that
they will stay at the same as the average also 40%. It says the probability they will be lower than
average is 20%. While temperatures may be slightly higher than average, the heat wave we
experienced last summer appears unlikely this summer.
Source: Nomura
17
CPI CPI and output gap
End of deflation in sight in 2013
We look for underlying CPI after the benchmark change in August 2011 to return to a positive trend in 2013. The earthquake impact could be almost neutral to the price situation.
-3
-2
-1
0
1
2
3
(yy/m)
Systemic factors
Energy
Core core CPI
Food (ex alcohol)
Core CPI (% y-y)
Forecasts
10/4Abolition of public high
school fees
Reduction o f private high
school tuition feesHigher medical treatment
reimbursements
10/10Hike in tobacco tax
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1
07 08 09 10 11 12 13-10
-8
-6
-4
-2
0
2
4
6
8
-5
-4
-3
-2
-1
0
1
2
3
4
86 88 90 92 94 96 98 00 02 04 06 08 10 12
(%)(% y-y)
(CY)
Forecasts
Core CPI (lhs)
Core core (ppt contribution, lhs)
Output gap (rhs)
Note: (1) Core CPI is general index excluding fresh food and core core CPI is general index excluding food (excluding alcoholic beverages) and energy. (2) Regulatory factors refer to elimination of public high school tuition fees, reduction of private high school tuition fees, increase in medical treatment reimbursement fees in April 2010, waiving of some expressway tolls in June 2010 (reflected in CPI from July 2010), and increase in tobacco tax rate in October 2010.
Source: Nomura Global Economics, based on MIAC data
Note: Output gap = (actual GDP – potential GDP) / potential GDP.
Source: Nomura, based on various materials
Expecting trade balance will move into surplus in Q4
18
Source: Nomura Source: Nomura, based on JETRO data
We expect the trade balance to remain in deficit through to Q3, but then to move into surplus from Q4 as
exports recover as domestic production recovers. On the other hand, we expect imports to slow before long.
Looking at imports by commodity, the ratio of final demand goods is no more than slightly under 30%, while the
remaining 70%-plus comprises production-related goods, such as producer goods and capital goods . We expect
the decline in domestic production levels to tend to depress imports .
Composition of imports by commodity (2010)
Food and other direct
consumer goods8.5%
Other2.5%
Nondurableconsumer goods
6.5%
Capital goods23.6% Industrial raw
materials
52.3%
Capital goods + industrial raw materials = 75.9%
Durable goods6.6%
Projected recovery in real exports
580
600
620
640
660
680
700
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6
(¥bn)
(yy/m)
Projections
19
First supplementary budget: 0.41% boost for real GDP
Note: Impact on real GDP (in terms of ppt difference from scenario with no supplementary budget).
Impact is cumulative.
Source: Estimates by Nomura, based on Cabinet Office‘s Short-Run Macroeconometric Model of the
Japanese Economy (2008 edition)
First supplementary budget including ¥4,015.3bn in post-
quake reconstruction spending was approved on 2 May. The
amount is about four times the ¥1,022.3bn in the first
supplementary budget after the Kobe quake, and more than
the total of ¥3,229.7bn in three supplementary budgets at
that time. We estimate it will boost real GDP by a relatively
large 0.41% over a one-year period.
Source: Nikkei
(¥bn)
482.9
102,000 temporary homes 362.6
351.9
1,201.9
Repairing damage to roads, harbors, sewerage, etc 823.5
Rehabilitating farmland and farm buildings 50.0
Building 10,000 social housing units for those affected 111.6
416.0
Repairing 2,000 schools 183.1
Making schools quake-resistant 34.0
640.7
Tiding SMEs over cash flow difficulties 510.0
Cutting mortgage rates 56.0
Financial assistance to those working in farming,
forestry and fisheries40.0
120.0
801.8
Cost of SDF involvement 188.6
Reductions in/exemptions from health insurance
contributions, etc114.2
Rehabilitating fishing grounds and breeding facilities 68.1
4,015.3Total
Repairing damaged buildings
Disaster relief loans
Higher tax allocation grants to local governments
Other measures
Disaster recovery
Rubble/wreckage clearance
Public works
Items of expenditure
Text Width
Expenditure items of first supplementary budget for FY11
Estimated economic impact of first supplementary budget for FY11
(ppt)
TotalPublic
works
Rubble/wreckage
clearance
Persona
l income
Corporate
income
1st quarter 0.43 0.40 0.04 0.00 0.00
2nd quarter 0.44 0.42 0.04 -0.01 -0.01
3rd quarter 0.41 0.44 0.00 -0.02 -0.01
4th quarter 0.41 0.45 0.00 -0.03 -0.01
Text Width
Assuming a total of ¥13trn in the second supplementary budget
20
Our latest forecasts assume a total of ¥13trn (with ¥7trn in public works spending) in the second supplementary
budget, expected to be passed in September. As a result, we now project a total of about ¥17trn will be spent on
reconstruction in FY11, 70% more than we initially anticipated. We look for the FY12, FY13, and FY14 budgets to
contain reconstruction-related spending of ¥4trn, ¥3trn, and ¥1trn, respectively. Under this scenario, we assume
reconstruction-related spending over the four years of about ¥25trn, with public works spending of ¥14trn.
95/3 second
supplementary budget
96/3 first
supplementary
budget
Support for restoration of normal life in
affected area
129.3
(discretionary reserves in
95/3: 14.8)
46.6 465.3
Debris disposal34.3
(priority allocation in 96/3:
2.1)
135.7 1) Stabilization of housing situation for victims 322.6
Minimization of secondary disaster9.6
(priority allocation in 96/3:
1.5)
12.7 2) Support for victims requiring aged care 4.8
Rapid restoration of ports119.9
(priority allocation in 96/3:
6.8)
367.13) Support for cultural activities aimed at
restoring lifestyle with leisure, relaxation20.2
Rapid infrastructure build437.1
(priority allocation in 96/3:
49.5)
372.54) Support for cultural activities aimed at
restoring lifestyle with leisure, relaxation0.1
Improved earthquake resistance19.8
(priority allocation in 96/3:
38.2)
46.5 5) Other 117.6
Housing measures86.9
(priority allocation in 96/3:
18.5)
96.9 79.6
Urban rebuilding15.0
(priority allocation in 96/3:
6.2)
23.91) Transport, telecoms infrastructure to support
economic recovery14.2
Employment maintenance;
unemployment prevention- 10.5
2) Industry support to promote economic
recovery25.7
Healthcare, medical care, welfare 17.3 43.1 3) Other 39.7
Rapid restoration of educational
facilities15.4 96.2 232.8
Restoration of agriculture, forestry and
fisheries facilities
17.2
(priority allocation in 96/3:
1.0)
25.21) Planning of safe, pleasant urban environment
with open space and redundancy in transport
infrastructure
197.7
Economic recovery 60.9 118.4 2) Infrastructure for disaster minimization 12.3
Cross-sectional policies to promote
smooth recovery- 1.5 3) Public facilities for disaster response 21.1
Securing regional security and
efficient traffic flow6.6 2.4 4) Other 1.7
Disaster minimization policies6.5
(priority allocation in 96/3:
9.0)
22.8 0.4
Other 46.3 7.2
Total 1,022.30 1,429.3
778.2
(Project
spending basis:
1,410.0)
Total
3. Policies for safe urban planning
4. Other
96/3 second supplementary budget
1. Policies to promote restoration of normal life
2. Policies for economic recovery
Government spending after Kobe earthquake
Source: Nomura, based on Ministry of Economy, Trade & Industry data
Government spending before and after the Kobe earthquake
-4
-3
-2
-1
0
1
2
3
4
5
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
94 95 96
(% q-q)
(CY)
Public works investment
Government consumption
TotalRebuilding demand
Source: Nomura based on Cabinet Office data
Estimated economic impact of raising the consumption tax
21
Source: NikkeiNote: Impact on main components of real GDP (in terms of ppt difference from scenario
with no increase in consumption tax). Impact is cumulative.
Source: Cabinet Office‘s Short-Run Macroeconometric Model of the Japanese Economy (2008 edition)
(¥bn)
Sources of funding
Freeze of increase in child benefit 208.3
Freeze of abolition of highway tolls 100.0
Revision of ¥1,000 ceiling on highway tolls on weekends/public holidays 250.0
Reallocation of funds originally allocated to Special Pension Account 2,489.7
Use of special fund to support areas around power plants 50.0
Cuts in ODA budget 50.1
Cuts in Diet members' salaries 2.2
Costs shouldered by local authorities 55.1
Use of reserves 810.0
Total 4,015.3
Text Width
Source of funding for first supplementary budget for FY11
(ppt)
Real GDP
Private final
consumption
expenditure
Private plant
& machinery
Private
residencesExports Imports
1st quarter 0.00 -0.03 0.15 0.00 0.00 0.00
2nd quarter -0.30 -0.48 0.06 -0.03 0.00 -0.24
3rd quarter -0.60 -0.81 -0.30 -0.21 0.03 -0.51
4th quarter -0.93 -1.23 -0.93 -0.45 0.06 -0.84
5th quarter -1.08 -1.35 -1.35 -0.72 0.06 -1.08
6th quarter -1.08 -1.44 -0.99 -1.05 0.06 -1.23
7th quarter -1.05 -1.53 -0.84 -1.26 0.09 -1.35
8th quarter -1.02 -1.59 -0.69 -1.53 0.15 -1.41
Average annual
growth rate-0.45 -0.63 -0.24 -0.18 0.03 -0.39
Estimated economic impact of 3ppt increase in consumption tax
We expect no major adverse economic impact even if the consumption tax were raised. The
government may raise JGB issuance backed by future tax increases to finance the rebuilding costs.
Looming debate on raising the consumption tax
22
We would not expect a large economic impact from a possible consumption tax hike, even if the
hike is put in place soon.
We anticipate that a possible 3ppt consumption tax hike in April 2012 will reduce the average
annual growth rate of real GDP in FY12 by only 0.45ppt. Since we currently forecast FY12 real
GDP growth at 2.9% as the economy rebounds from a post-quake slump, a slower growth of about
2.4% due to the 3ppt consumption tax hike would still keep the economy on a steady growth track.
We estimate that if public works spending is increased by ¥7.5trn and the increased spending is
funded by the 3ppt consumption tax hike, the positive knock-on effect (multiplier effect) of the
increased public works would far outstrip the negative knock-on impact (multiplier effect) of the tax
increase, even if the package remains fiscally neutral.
We can imagine that, if consumers were well aware (or if the government were to make them
more aware) that the increased revenue from the consumption tax was being used for the benefit
of those people and areas affected by the quake disaster, the tax increase might have much less
negative impact on consumption than it would normally have.
However, we think the government is unlikely, as things stand at the moment, to try to fund the
lion‗s share of reconstruction spending by raising the consumption tax. We think this risk is unlikely
to become imminent and substantial all of a sudden because additional JGB issuance can be
implemented for funding reconstruction.
Expanding budget deficit
23
General account (¥trn, except where noted)
FY: 03 04 05 06 07 08 09 10 11E 12E
General account budget 82.4 84.9 85.5 81.4 81.8 84.7 101.0 95.1 109.0 99.0
Expenditure
General expenditure 49.5 49.7 49.3 46.7 47.6 52.7 66.0 55.4 68.6 57.7
Social security 19.7 20.3 20.6 20.6 21.1 22.6 29.7 28.6 30.2 30.2
Public works 9.4 8.2 8.4 7.7 7.3 6.9 8.4 6.4 11.0 7.0
Defense 4.9 4.9 4.9 4.8 4.8 4.8 4.8 4.8 4.8 4.8
Local allocation tax 16.4 16.6 15.9 15.9 14.6 15.7 16.1 17.9 18.8 17.8
Special local grants 1.0 1.1 1.5 0.8 0.3 0.5 0.5 0.4 0.0 0.0
National debt service 15.5 17.5 18.7 18.0 19.3 19.2 18.4 20.6 21.5 21.5
National debt service ratio (%) 18.9 20.6 21.9 22.1 23.6 22.6 18.3 21.7 19.8 19.8
Revenues
General account revenues 85.6 88.9 89.0 84.4 84.6 89.2 107.1 95.1 109.0 99.0
Tax and stamp revenues 43.3 45.6 49.1 49.1 51.0 44.3 38.9 39.6 36.4 37.7
Income tax 13.9 14.7 15.6 14.1 16.1 15.0 12.9 12.0 11.7 12.1
Corporate tax 10.1 11.4 13.3 14.9 14.7 10.0 6.4 11.1 9.3 9.5
Consumption tax 9.7 10.0 10.6 10.5 10.3 10.0 9.8 8.8 8.5 8.7
Other tax 9.5 9.5 9.6 9.6 9.9 9.3 9.8 7.7 6.9 7.4
Nontax revenues, etc 7.0 7.8 8.7 7.9 8.2 11.8 16.3 10.6 12.0 5.0
Government bond issues 35.3 35.5 31.3 27.5 25.4 33.2 52.0 42.8 60.6 56.4
Gov bond dependency ratio (%) 41.3 39.9 35.1 32.5 30.0 37.2 48.5 45.0 55.6 56.9
vs GDP (%) 7.2 7.1 6.2 5.4 4.9 6.7 11.0 9.0 12.8 11.6
Nominal GDP 493.7 498.5 503.2 510.9 515.8 492.1 474.0 475.7 474.5 487.2
Fiscal Investment and Loan Program 23.4 20.5 17.2 15.0 14.2 13.9 15.9 18.4 19.2 -
Local government budget proposals 86.2 84.7 83.8 83.2 83.1 83.4 82.6 82.1 - -
Note: (1) General account data are actual through FY08 and forecasts from FY09. (2) Forecasts do not presuppose fund surplus. (3) Fiscal
Investment and Loan Program and local government budget proposals are initial projections.
Source: MOF, Nomura estimates
Financial surplus and deficit in each sector (¥trn)
FY: 02 03 04 05 06 07 08 09 10 11E 12E
Households 10.6 3.0 9.2 9.3 17.5 23.6 13.5 11.3 11.3 28.5 22.3
As % of GDP 2.1 0.6 1.8 1.8 3.4 4.8 2.8 2.4 2.4 5.9 4.5
Nonfinancial corporations 23.5 48.8 22.4 16.1 5.5 14.1 10.3 17.9 32.5 25.6 32.8
As % of GDP 4.8 9.8 4.4 3.2 1.1 2.9 2.2 3.8 6.8 5.2 6.6
General government -33.0 -38.5 -29.9 -20.9 -27.5 -10.0 -8.3 -30.0 -35.1 -52.9 -48.7
As % of GDP -6.7 -7.7 -5.9 -4.1 -5.3 -2.0 -1.8 -6.3 -7.4 -10.9 -9.8
Overseas -13.0 -16.7 -17.8 -18.4 -20.6 -24.2 -11.8 -15.3 -16.6 -13.2 -15.3
As % of GDP -2.6 -3.4 -3.5 -3.6 -4.0 -4.9 -2.5 -3.2 -3.5 -2.7 -3.1
Financial institutions 13.8 -0.1 13.5 9.4 23.1 -3.3 -7.1 16.0 7.8 15.2 6.3
As % of GDP 2.8 -0.0 2.7 1.8 4.5 -0.7 -1.5 3.4 1.6 3.1 1.3
Note: (1) Negative number indicates shortage of funds. (2) Based on BOJ‘s Flow of Funds Accounts. (3) FY05 data exclude net impact of ¥42.8trn due
to transfer of assets and liabilities from public nonfinancial incorporated enterprise to central government in accordance with establishment of Japan
Expressway Holding and Debt Repayment Agency. (4) FY06 data adjusted for impact (¥21trn) of funds transferred from public financial institutions to
central government as result of transfer of funds from Fiscal Loan Fund special account to National Debt Consolidation Fund special account. (5)
FY07 adjusted for movement of ¥6.7trn in funds from government to financial institutions and corporations following changes in divisional organization
when Yucho Bank and Kampo Insurance started business.
Source: BOJ, Nomura estimates
Five risks threatening V-shaped recovery
24
1. Delays in implementing budgets due to political instability
2. Slow progress in reconstruction in the quake-stricken regions
3. Deterioration in the external environment, e.g.,
economic slowdown overseas, yen appreciation, or higher
crude oil prices
4. Slow progress in removing supply-side constraints
5. A further hollowing-out of the economy over the medium term
Source: Nomura
Two previous quakes might have been among the factors that helped to destabilize
Japan’s economy and financial market and trigger deflation
25
Note: Year 0 is the year of the earthquake or, in the case of World War II, the
year in which the war ended.
Source: Nomura, based on Angus Maddison website data
The Great Kanto Earthquake of 1923 and the Great Hanshin-Awaji Earthquake of 1995 did not inflict massive damage on the Japanese
economy in the short term. Real GDP growth was 1.9% y-y in 1995, the year of the Great Hanshin-Awaji Earthquake, and 2.6% the
following year. Real GDP growth was 1.4% y-y in 1923, the year of the Great Kanto Earthquake, and 5.0% the next. However, both
earthquakes might have been among the factors that helped to destabilize Japan‘s economy and financial markets and trigger deflation.
Pre- and post – quake short-term interest rates
0
123
45
67
8
1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05
(%)
(CY)
Overnight call rate before and after Great Hanshin-Awaji Earthquake (1995)
0.0
0.5
1.0
1.5
2.0
2.5
1918 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33
(%)
(CY)
Call rate before and after Great Kanto Earthquake (1923)
Source: Nomura, based on BOJ data
World War II (1945)
-10
-5
0
5
10
15
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
(%)
(years)
Year 0 = -50% Great KantoEarthquake (1923)
Great Hanshin-AwajiEarthquake (1995)
Real GDP growth around the time of major earthquakes and World War II
We should also look at how Japan rose from ashes after World War II
26
Note: (1) Year 0 is the year of the earthquake or, in the case of World War II, the year in which the war ended. (2) Rebased to 100 when real GDP = 0. Source: Nomura, based on Angus Maddison website data （出所）Angus Madison homepage
At the same time, we must not forget how the Japanese economy rose impressively from the ashes following World War II. Japan lost
around one quarter of its capital stock in World War II from 1941 through 1945, but the economy started to grow rapidly from as early as the
year after the end of the war, and after eight years real GDP was back to pre-war levels . Moreover, from the period after the war through the
mid-1970s, the economy grew more rapidly than it had before the war. There are various reasons for Japan‘s post-war recovery, but a large
part of this must almost certainly be due to the success of government policies.
Real GDP before and after major earthquakes and World War II
0
50
100
150
200
250
300
350
400
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
(years)
Great Kanto Earthquake (1923)
World War II (1945)
Great Hanshin-Awaji Earthquake (1995)
Real long-term GDP growth
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
14.5
15.0
1870
76
82
88
94
1900
06
12
18
24
30
36
42
48
54
60
66
72
78
84
90
96
2002
08
(CY)
Real GDP ($mn), natural logarithm
Trend line (polynomial approximation)
Great KantoEarthquake (1923)
Great Hanshin-AwajiEarthquake (1995)
WorldWar II (ended in 1945)
27
In our view, the risk of a hollowing out of Japanese industry
should be our main concern in the aftermath of the Great East
Japan Earthquake. Japan's country risk—in terms of the risk
of earthquakes, tsunamis, power shortages, nuclear power
problems, and yen appreciation—has clearly increased since
the quake, and conditions facing companies establishing
operations in the country have deteriorated. All of this could
encourage companies to shift production overseas.
Since before the earthquake, the Japanese government had
been pursuing a growth strategy aimed at increasing Japan‘s
international competitiveness, boosting its exports, and
stemming companies‘ shift overseas. The main elements of
this strategy are the tapping of overseas infrastructure
demand, the stabilization of exchange ranges, a lowering of
the corporate tax rate, and participation in the Trans-Pacific
Partnership (TPP). If the economic policies pursued by the
government going forward mean that these latter measures
are put on hold as the government focuses mainly on the
rehabilitation of the areas affected by the earthquake, there is
a risk that this will cause the economy to deteriorate over the
longer term even if it is revived in the short term, as was the
case after the two previous major earthquakes.
Bearing this in mind, we note that the fifth of the seven
principles as announced by the Reconstruction Design
Council on 10 May indicates that the government aims to
pursue simultaneously both the post-quake rehabilitation and
revitalization of the Japanese economy as a whole. We would
welcome the government pursuing rehabilitation policies at
the same time as continuing with its growth strategy.
Reconstruction Design Council’s seven principals
Source: Nomura, Based on Reconstruction Design Council data
Since its first meeting on 14 April, the Reconstruction Design Council in Response to the Great East Japan
Earthquake has diligently carried out many debates and a series of site visits. Today, the council announces
that it has drawn up seven ―reconstruction design principles,‖ ahead of the submission of its first set of
recommendations by the end of June.
From now on, on the basis of these seven principles, while welcoming views from all sectors of industry and all
parts of society, and while also deepening our deliberations, we aim to draw up a blueprint for the Japan we
hope to see in the future.
Principle 1: For those of us left behind, reconstruction is the starting point of our efforts in remembrance of
those who have sadly lost their lives. We will preserve the memories of this earthquake for eternity, for
example by creating monuments and forests for the repose of the departed, and ensure that the disaster is
widely analyzed by academics in a scientific manner, so that its lessons are passed on to future generations,
both in Japan and overseas.
Principle 2: The basic task is the reconstruction of regions and communities, while bearing in mind the size
and diversity of the area affected by the earthquake. The Japanese government will support this by drawing up
an overall reconstruction plan and designing a system for reconstruction.
Principle 3: We hope to take advantage of latent potential and carry out reconstruction and rehabilitation using
technological innovations, in order to revitalize the Tohoku region. We will pursue the possibility that the
Tohoku region will become an economic and social entity that will serve as an example for the rest of Japan to
follow.
Principle 4: We aim to create a region that uses natural energy, and towns that are safe and secure against
future disasters, while at the same time preserving the regional society‘s strong social ties.
Principle 5: There will be no revitalization of the Japanese economy without the reconstruction of the areas
affected by the earthquake. Without the revitalization of the Japanese economy, there will be no true
reconstruction of the affected areas. On the basis of this understanding, we aim to work simultaneously for
both the reconstruction of the affected areas and the revitalization of the Japanese economy.
Principle 6: We will work for a rapid resolution of the nuclear power-related problems, and will do our utmost
to provide support for, and help to rebuild, the areas affected by the nuclear disaster.
Principle 7: All of those who have survived the earthquake will see this as our own disaster, and will, as a
people, work together toward reconstruction, in mutual understanding.
Concerns over the risk of hollowing-out of Japanese industry
Important that policy aims to boost industry concentration in Tohoku
28
Nomura, based on Ministry of Economy, Trade and Industry’s (METI) Statistical
Tables by Industry
Since the late 1980s, an increasing number of new IT components and materials plants have been set up in the Tohoku region. The
region is one in which the electronic parts and device sector is concentrated, but this sector is still at the stage at which the advantages of
industry concentration have not yet been fully realized. If companies in the IT components industry leave the Tohoku region and move
overseas, not only would this likely do much to hinder the recovery in production and employment in the region, but it would also reduce
the competitiveness of Japanese exports as a whole, including those from the auto and electrical machinery industries, and thus increase
the risk of a hollowing out of Japanese industry. It is important to introduce preferential tax and fiscal measures and deregulation via the
establishment of special zones, We will be looking for evidence that discussions at the Reconstruction Design Council is considering such
measures aimed at boosting industry concentration.
Value
¥mn %
1 Food 636,535 13.6 10.7 2.9
2 Electronic parts and devices 491,799 10.5 5.1 5.4
3 Information and communication
electronics equipment
357,401 7.7 3.5 4.2
4 Chemical and allied products 330,458 7.1 11.4 -4.3
5 Non-ferrous metals and products 293,543 6.3 2.0 4.3
6 Transportation equipment 267,187 5.7 14.4 -8.7
7 Fabricated metal products 232,965 5.0 5.9 -0.9
8 Production machinery 227,194 4.9 5.2 -0.3
9 Business oriented machinery 193,969 7.2 3.1 4.1
10 Beverages, tobacco and feed 192,912 4.1 3.7 0.4
As % of
regional
As % of
nationwide total(a) - (b)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Natio
nw
ide
Ho
kkaid
o
To
hoku
Kan
to
Ch
ubu
Kin
ki
Ch
ug
oku
Sh
iko
ku
Kyush
u
Okin
aw
a
(¥ '000 per capita)
Note: 2009 data. Data for Okinawa not available
Source: Nomura, based on METI‘s Statistical Tables by Industry
Ranking of manufacturing sectors by value-added production in Tohoku region in 2009
Value-added productivity by region (electronic parts and devices)
29
Impact on recurring profits of a ¥1 yen appreciation against dollar (ppt)
Corporate profits sensitive to USD/JPY fluctuations
We estimate yen appreciation of ¥1 against US$ depresses NOMURA 400 (ex financials) recurring profits by 0.6%. While Japan‘s dependency on the US economy is diminishing, corporate profits in Japan remain highly sensitive to JPY/USD currency fluctuations.
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
1985 1988 1991 1994 1997 2000 2003 2006 2009
US Asia (ex. China)
China (inc. Hong Kong) EU
Resource-rich countries
(%)
(CY)
Change in export destinations
FY
2000 2005 2006 2007 2008 2009 2010
NOMURA 400 - -0.4 -0.5 -0.4 -0.4 -1.3 -0.5
NOMURA 400 (ex. Financials)) -0.9 -0.5 -0.6 -0.5 -0.5 -1.6 -0.6
Manufacturing -1.8 -0.8 -0.7 -0.7 -0.6 -11.3 -0.9
Material -0.7 -0.1 -0.3 -0.3 -0.4 -0.5 -0.1
Processing -3.3 -1.2 -1.0 -1.0 -0.8 NM -1.5
Non-manufacturing - -0.1 -0.1 -0.2 -0.2 -0.2 -0.1
Non-manufacturing (ex. financials) 0.2 -0.1 -0.2 -0.2 -0.3 -0.2 -0.2
Source: Nomura
Source: MOF
Yen-denominated export ratio at a low level
30
Export ratio by contract currency (2002-04) Export contract currency ratios in Japan
About half of export contracts are US dollar-denominated. The ratio of yen-denominated contracts has held fairly steady for 25 years. As a result, corporate earnings tend to decline when the yen appreciates against the dollar.
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
US Germany Japan UK France Italy
（％）
Source: METI
Source: MOF, METI, Nomura
31
Excess debt problems have been resolved
Companies appear to have overcome the problem of excess debt, which arose primarily from persistent deflation on both the supply and demand sides, and are now easing stringent spending controls on personnel and capital investment. They are rapidly disposing of their capital stock. This has the potential to lead to higher productivity by lowering the average age of equipment.
4
5
6
7
8
9
10
11
12
13
1955 60 65 70 75 80 85 90 95 2000 05 10
(CY)
(x)
Note: (1) Interest-bearing debt = bank loans + other borrowings + corporate bonds. (2) Cash flow = recurring profits / 2 +
depreciation. (3) Companies with capital of at least ¥10mn, excluding financial and insurance sectors. (4) Shows four-quarter moving
averages.
Source: Ministry of Finance (MOF)
Interest-bearing debt/cash flow ratio The capital retirement rate is rising
Five-year moving average
0
1
2
3
4
5
6
7
60 65 70 75 80 85 90 95 00 05 10
(CY)
(%)
Note: (1) Most recent data point is 2010 Q1. (2) Capital retirement rate = capital stock disposals/capital stock. (3) Average for past three quarters.
Source: Nomura, based on Cabinet Office data
32
Improving investment efficiency and return on investment
80
90
100
110
120
130
140
150
1961 68 75 82 89 96 2003 10
(FY)
(%)
Note: (1) Capex efficiency = value added / plant, property and equipment (ex construction in progress) (period beginning - period end average). (2) Value added = (operating profits - interest payments and discounts) + personnel expenses + interest payments/discounts + property leasing rates + taxes and public charges. (3) FY09 data are estimates based on MOF's Financial Statements Statistics of Corporations by Industry. FY10 data (dotted line) are estimates based on MOF's Financial Statements Statistics of Corporations by Industry Yearbook.
Source: Nomura, based on MOF's Financial Statements Statistics of Corporations by Industry and MOF's Financial Statements Statistics of Corporations by Industry Yearbook
Capex efficiencyDeviation from long-term trend of Japanese companies' capital vintage
Capex efficiency is rapidly improving. This is consistent with the rise in the capital retirement rate and the decrease in the deviation from trend of the average age of Japanese companies‘ facilities and equipment. Moreover, returns on investment are rising, and we expect companies to step up their capital investment to boost profits
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
(CY)
(years) Nonmanufacturing
All industry
Manufacturing
Note: 1. Capital vintage = ((value of capital stock at end of previous fiscal year - value of disposals) X (previous year's capital vintage
+ 1) + capital investment X 0.5) / value of capital stock at end of current fiscal year. 2. The long-term trend (time trend) is from 1973
and beyond.
Source: Nomura, based on Economic Planning Agency's National wealth statistics and Cabinet Office's Capital Stock Statistics of
Corporate Businesses
Companies' surplus cash at record high of more than ¥20trn
33
-20
-10
0
10
20
30
40
50
60
70
80
1955 60 65 70 75 80 85 90 95 2000 05 10
(CY)
(¥trn)
Cash flow
Capex
Free cash flow
Japanese companies' cash surplus
Note: (1) Four-quarter moving average, annualized. (2) Cash flow = recurring profits / 2 + depreciation. (3) Free cash flow = (cash
flow) – (capex). (4) Companies with capital of at least ¥10mn, excluding financial and insurance sectors.
Source: Ministry of Finance (MOF) -50
0
50
100
150
200
1955 70 85 2000 (CY)
(¥trn)
Interest-bearing debt -
cash on hand
0
100
200
300
400
500
600
1955 60 65 70 75 80 85 90 95 2000 05 10
(CY)
(¥trn)
Interest-bearing debt
Cash on hand
Note: (1) Interest-bearing debt = loans + bonds. (2) Cash on hand = notes receivable, accounts payable, cash & deposits, equities,
bonds and other securities (all liquid assets).
Source: Ministry of Finance (MOF)
Interest-bearing debt/cash flow ratio
Japanese companies currently hold unprecedented levels of surplus cash. They are now in a position to channel their surplus cash, which had been set aside to pay down excess debt, into other areas. However, we are yet to see signs of them actively spending surplus cash in the domestic economy. We think this reflects poor prospects for long-term growth in Japan.
34
(as % of nominal GDP)
0
50
100
150
200
250
300
350
400
450
500
550
1980 2000 2020 2040 2060 2080 2100
(FY)
(1) No change in consumption tax
(2) 5% hike f rom FY2014
(3) 6% hike f rom FY2019
(4) 7% hike f rom FY2014
(5) (2) plus 1ppt increase in long rates
Note: (1) Assumes no increase in consumption tax. (2) Assumes
consumption tax raised by 1ppt each year for five years from 2014.
(3) Assumes consumption tax raised by 1ppt each year for six years
from 2019. (4) Assumes consumption tax raised by 1ppt each year
for seven years from 2014. (5) Assumes scenario (2) plus a 1ppt
increase in long-term interest rates from 2012.
Source: Nomura, based on MOF, Ministry of Internal Affairs and
Communications, Cabinet Office data
General government gross debt (% of GDP) Forecasts for national, local government debt
If the government takes no measures to rebuild national finances, such as by raising the consumption tax, then we estimate debt will reach almost 400% of GDP by around 2080, which would match the level in Germany during the hyperinflation of the 1920s. Conversely, if the consumption tax were raised by 1ppt each year for five years from 2014, debt/GDP would likely peak at around 250%, a level handled by the UK economy in 1946 with no significant rise in interest rates.
Simulation of consumption tax hike and government debt
0
50
100
150
200
250
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
(%)
(CY)
Japan Italy
United States United Kingdom
Germany
IMF forecasts
Source: IMF
35
Accumulation of government debt unlikely to cause long-term rates to rise
1. Source: Nomura, based on Japan Statistical Association, Ministry of Finance (MOF), Bank of Japan (BOJ), and Palgrave Macmillan‘s International Historical Statistics data
2. Source: Nomura, based on MeasuringWorth.com, UK Treasury, and NRI/AURORA data
Japan1 UK2
Data for the past 90 years or so (the extent of available data) for Japan and the UK, where government debt has risen significantly as a percentage of nominal GDP, show that long-term interest rates and government debt have tended to have a negative correlation. We think this suggests that long-term interest rates largely reflect cyclical factors such as growth expectations and inflation expectations.
Long-term rate (%)
0
2
4
6
8
10
12
14
16
0 50 100 150 200 250Government debt/nominal GDP ratio (%)
FY1921–2009
(ex FY1938–44)
FY1938–44
FY1970–89
Long-term rate (%)
0
2
4
6
8
10
12
14
16
0 50 100 150 200 250 300National debt/nominal GDP ratio (%)
1970–89
1858–1929
1930–2004
1946
36
Past experience shows that inflation rates rise sharply before
government defaultsJapan's experience of government default UK's experience of government default
Possible default of the government and an ensuing sharp rise in long-term interest rates against the backdrop of the expected default have reflected market confidence rather than the government debt level. Based on past experience, the inflation rate rises sharply in response to reduced confidence in fiscal policy before a government default. If the inflation rate rises, we would thus see an increased risk of a sharp rise in long-term interest rates in response to a government default or expectations for one.
Source: Nomura, based on BOJ data
0
50
100
150
200
250
300
350
400
450
500
1945 1946 1947
（y-y、％）
The government
decided not to pay back
debt to companies
during the war.
(1946/7/24)
Whole sale price index
0
5
10
15
20
25
30
1970 71 72 73 74 75 76 77 78 79 80
（％）
10-year government
bond yield (%)
Retail price index (y-y,%)
IMF decided to
provide emergency
financial aid to
UK.(1977/1/3)
Source: Nomura, based on Thomson data
37
Has Japan’s fertility rate begun rising?
Total fertility rate in Japan
Source: Nomura, based on Ministry of Health, Labour and Welfare and National Institute of Population and Social Security Research (IPSS)
Japan‘s total fertility rate rose three years in a row from 2006. It stayed flat in 2009, but rose again in 2010. The average number of children per married couple is still more than two. A rise in the marriage rate could lead to a higher fertility rate.
Source: Nomura, based on Ministry of Health, Labor and Welfare, and National Institute of Population and Social Security Research
Fertility within marriage
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
1.60
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Actual
Assumption used in medium-variant projection by IPSS in 2006
(CY)
(TFR)
2010
1.0
1.5
2.0
2.5
3.0
3.5
4.0
50 55 60 65 70 75 80 85 90 95 00 05 10
(fertility rate)
Total fertility rate
Average number of children per couple that has been married for 15-19 years
(CY)
38
Foreign residents growing in number
Proportion of registered foreign residents in total population
Source: Nomura, based on Ministry of Justice, Tokyo Metropolitan Government and Shinjuku City data
Proportion of foreign residents in Japan‘s total population is gradually increasing. In Shinjuku Ward, for example, foreigners account for more than 10% of the total population.
Foreign students and their job search in Japan
Source: Nomura, based on Japan Student Services Organization and Ministry of Justice data
0
2
4
6
8
10
12
55 60 65 70 75 80 85 90 95 00 05
Japan
Tokyo
Shinjuku
(%)
(CY)0
20
40
60
80
100
120
140
84 86 88 90 92 94 96 98 00 02 04 06 08
0
2
4
6
8
10
12Number of foreignstudents (lhs)
Number of foreignstudents allowed to work in Japan through status
(thousand)(thousand)
(CY)
change (rhs)
Lower House Upper House
(2010)
(2013)
DPJ 306 44 63
People‘s New Party and others
4 0 3
LDP 117 51 33
New Komeito 21 9 10
Your Party 5 10 1
Japan Communist Party 9 3 3
Social Democratic Party 6 2 2
Sunrise Party of Japan and New Party for Reform
3 2 3
Others 6 0 3
Total (excl. vacancies) 477 121 121
The DPJ came into power through a landslide victory in the Lower House election in August 2009. The ruling coalition could not maintain its majority in the Upper House election of July 2010.
Victory for opposition partiesNumber of seats by party
Source: Ministry of Internal Affairs and Communications
40
Appendix: Major economic indicators
Note:
(1) All figures other than year-on-year percentage changes, domestic wholesale prices, oil price and the yen-dollar rate are seasonally adjusted. Real retail sales, Software orders, Real ex/imports and value of public construction expenditure have been seasonally adjusted by Nomura. Real retail sales Real ex/imports have been obtained by adjusting the (nominal) figures using the corresponding price index.
(2 ) Supermarket sales and department store sales are on a same-store basis. Machinery orders are private sector, excluding shipping and electric power. Capital goods shipments exclude transport machinery. New construction starts (floor area) cover buildings for commercial, industrial and service use. Exports, imports and the balance of trade and oil price are on a trade statistics basis. The core consumer price index excludes fresh food. The figures for bank lending are the totals for the five different types of bank (city banks, regional banks (both categories), long-term credit banks and trust banks). Yen-dollar rate is the monthly average of the Tokyo interbank spot rate.
(3) ―(e)‖ indicates the estimation extrapolated from actual data.
Source: Nomura, based on various statistics
2010 2011 2010 2011
Q3 Q4 (※) Q1 (※) (e)Q2 Nov Dec Jan Feb (※) Mar (※) Apr
% p-p 0.9 -0.8 -0.9 % p-p
% y-y 5.0 2.2 -1.0 % y-y
large manu. % 8 5 6 %
small manu. % -14 -12 -10 %
coincident CI p-p CI p-p 1.6 1.0 1.7 1.3 -3.3
leading CI p-p CI p-p 2.3 0.7 1.3 2.6 -3.9
coincident chg p-p chg p-p 43.6 45.1 44.3 48.4 27.7 28.3leading chg p-p chg p-p 41.4 43.9 47.2 47.2 26.6 38.4
% p-p 1.2 -1.5 -2.4 -1.4 % p-p 0.2 -2.4 1.0 -0.2 -2.3 0.2
% y-y 0.9 -1.5 -3.5 -3.0 % y-y -0.4 -3.3 -1.0 -0.2 -8.5 -3.0
DI 41.8 41.0 40.5 33.1 DI 40.4 40.1 41.1 40.6 38.3 33.4
Supermarket sales % y-y -0.9 -0.9 0.2 % y-y -0.5 -1.6 -0.1 0.6 0.3 -1.3
% y-y -3.1 -0.6 -5.4 % y-y -0.5 -1.5 -1.1 0.7 -14.7 -1.5
% y-y 13.4 -27.2 -25.6 -40.9 % y-y -29.8 -25.5 -19.0 -13.8 -37.4 -48.5
% p-p 1.0 -4.0 -0.4 -1.2 % p-p 1.7 -3.8 4.2 0.2 -7.5 4.1
% y-y 3.8 -1.3 -3.8 4.8 % y-y 0.4 -2.9 -0.7 -0.8 -9.2 -5.2
% p-p 7.6 -4.6 3.5 % p-p 0.1 -0.2 3.9 -1.9 2.9
% y-y 13.0 4.9 6.8 % y-y 11.6 -1.6 5.9 7.6 6.8
% p-p 1.8 1.0 -2.3 % p-p -1.3 0.8 -3.0 8.2 -13.9 9.7
% y-y 31.4 25.8 7.2 % y-y 24.0 20.7 16.4 12.9 -3.1 3.4
% p-p 16.7 -16.1 11.9 20.6 % p-p -8.4 -10.1 21.3 -12.4 36.4 3.3
% y-y 21.5 2.1 -5.8 32.2 % y-y -8.4 2.3 -3.5 -18.1 3.5 30.3
% p-p -6.8 3.6 -8.8 % p-p -1.7 0.3 -1.0 -0.3 -22.0
% y-y -1.2 -1.1 -4.7 % y-y -0.5 -1.1 -0.3 -1.2 -7.6
% p-p 1.2 0.1 -0.4 -12.0 % p-p -1.3 4.3 -3.0 4.8 -8.3 -8.2
% y-y 24.1 13.7 5.0 -11.3 % y-y 12.7 15.3 5.1 10.8 0.0 -9.8
% p-p 1.4 -1.3 0.4 -0.4 % p-p -0.7 -0.5 2.1 -1.0 -1.4 0.9
% y-y 11.2 7.3 3.6 0.1 % y-y 9.4 6.1 6.5 2.0 2.1 -0.2
annlzd, yen trln 6.5 4.8 2.3 -6.0 annlzd, yen trln 4.3 4.4 1.8 5.1 0.0 -6.0
annlzd, 10thou 81.5 84.3 84.2 79.8 annlzd, 10thou 84.7 86.1 84.7 87.2 80.7 79.8
% y-y 13.8 6.9 3.2 0.3 % y-y 6.8 7.5 2.7 10.1 -2.4 0.3
% p-p -5.9 -5.3 7.7 -2.6 % p-p 2.7 -2.3 0.7 14.6 -5.4 -3.2
% y-y -12.6 -14.8 -3.2 -6.5 % y-y -6.3 -18.1 -9.9 4.2 -3.5 -11.2
% p-p 0.8 -0.2 -2.0 % p-p 0.3 0.1 -0.5 0.7 -6.3
% y-y 3.3 2.0 -0.6 % y-y 2.7 2.1 1.4 1.8 -4.5
% p-p -1.0 -0.1 -2.0 -9.5 % p-p 1.6 2.4 0.0 1.8 -15.5 1.0
% y-y 14.0 5.9 -2.4 18.3 % y-y 7.0 5.9 4.6 2.9 -13.1 -14.0
% p-p -0.8 -0.3 -1.9 -11.6 % p-p 2.9 1.3 -0.8 3.3 -14.6 -2.7
% y-y 14.4 6.4 -2.6 23.1 % y-y 8.7 5.9 3.2 3.6 -12.1 -16.2
% p-p 0.9 -0.8 4.1 -1.9 % p-p -1.7 1.6 3.9 1.5 -4.2 0.5
% y-y 2.4 3.3 5.9 1.3 % y-y 2.0 3.8 7.0 6.9 3.5 3.3
Inventory Ratio 2005=100 108.7 111.0 106.9 124.4 2005=100 108.0 108.0 107.9 104.3 108.6 124.4
% p-p 0.6 0.3 -1.3 % p-p 0.6 -0.2 -0.1 1.0 -6.0
% y-y 1.8 1.6 0.0 % y-y 2.5 1.8 1.1 2.1 -2.9
% 5.0 5.0 4.7 4.7 % 5.1 4.9 4.9 4.6 4.6 4.7
x 0.54 0.57 0.62 0.61 x 0.57 0.58 0.61 0.62 0.63 0.61
10 thou 6262 6254 6186 5969 10 thou 6241 6252 6269 6306 5983 5969
% y-y -0.0 0.1 0.1 0.2 % y-y -0.1 0.1 -0.1 0.6 -0.2 0.1
% p-p 3.9 4.4 2.6 2.0 % p-p 1.2 -0.7 2.4 4.0 -7.1 5.8
% y-y 15.1 17.3 17.2 12.2 % y-y 22.6 15.8 18.8 22.9 10.5 12.2
% p-p -0.2 -1.2 1.9 -0.6 % p-p -0.6 -4.1 5.3 -0.5 0.2 -0.6
% y-y 0.9 0.2 0.1 -0.2 % y-y 0.2 0.1 0.4 0.3 -0.1 -1.4
% p-p -0.1 0.0 -0.4 -0.3 % p-p 0.0 0.2 -0.4 0.0 -0.2 -0.2
% y-y 0.5 0.4 -0.3 -0.8 % y-y 0.3 0.5 -0.2 -0.1 -0.6 -0.9
% p-p 0.1 -0.6 1.2 -5.8 % p-p 1.0 0.5 1.3 0.6 -3.4 -3.7
% y-y 9.6 5.8 1.7 -5.1 % y-y 6.1 5.1 3.2 3.0 -1.0 -5.7
% p-p -0.3 0.4 1.1 1.2 % p-p 0.0 0.4 0.5 0.2 0.6 0.9
% y-y -0.1 1.0 1.7 2.5 % y-y 0.9 1.2 1.5 1.7 2.0 2.5
Overall % y-y -0.8 0.1 0.0 0.3 % y-y 0.1 0.0 0.0 0.0 0.0 0.3
Core % y-y -1.0 -0.5 -0.2 0.6 % y-y -0.5 -0.4 -0.2 -0.3 -0.1 0.6
Crude oil price $/bbl 76.5 82.1 97.2 115.0 $/bbl 81.1 86.4 92.1 95.8 103.8 111.3
Bank lending % y-y -1.9 -2.1 -1.9 -1.0 % y-y -2.1 -2.1 -1.9 -2.0 -1.8 -1.0
% y-y 2.8 2.6 2.4 2.7 % y-y 2.6 2.3 2.3 2.4 2.6 2.7
yen-dollar exchange rate yen/dollar 85.9 82.6 82.3 82.3 yen/dollar 82.5 83.4 82.6 82.5 81.8 83.3
Number of new job offers
Number of workers
Unemployment rate
Value of public works constructed
CPI
Fin
an
-
cia
lD
em
and t
redns
Pro
duction t
rends
Em
plo
ym
ent
/incom
eP
rice
Software orders
Overtime work
Consumer Confidence
Nominal trade balance
Tertiary industry activity
Economy watchers
Survey
Construction starts (floor area)
Machinery orders
Total cash wages (per capita)
Job offers to applicants ratio
Shipments
Money supply (M2+CD)
Regular salary (per capita)
Industrial
production
Production
CGPI
Real household spending
All industry activity
Inventory
New passenger vehicle sales
Busin
ess
conditio
n
TANKAN Business
Conditions DI
New housing starts
Capital goods shipments
Index of business
condition
Real GDP
Real retails sales
Real exports
Real imports
Department store sales
41
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