japan’s economic outlook - icrier · japan’s fiscal situation is most serious with debt to gdp...

Policy Research Institute

Ministry of Finance, JAPAN

JAPAN’S ECONOMIC OUTLOOK

Nobumitsu Hayashi

President

Policy Research Institute (PRI)

Ministry of Finance of JAPAN

3rd ICRIER-PRI Workshop, March 18, 2013



Understanding - or misunderstanding - Japan and its Economy

■ Japanese economy has stagnated and underperformed for the past

twenty years – two lost decades.

Is Japanese economy growing at all?

■ Japan’s fiscal situation is most serious with debt to GDP ratio highest in

the world.

How will aging society continue to aggravate the fiscal situation

and to affect economic growth?

■ Japan’s trade balance has turned deeply into a deficit.

Has Japan been eclipsed as the manufacturing center by China, and

has it lost the technological edge to Korea?

■ As a result, Japan no more wields positive influence to the rest of the world.

Is Japan a second-tier economy that does not merit an attention?

2



GDP Growth : Underlying trend has remained low

Source : Cabinet Office, Ministry of Internal Affairs and Communications, Japan 3

Economic Indicators Analysis

▲ 6.0

▲ 4.0

▲ 2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

(Year on Year %)

1960’s：10.0%

1970’s：4.4% 1980’s：4.1%

1990’s：1.2% 2000’s：0.9%



GDP Growth was steady until Lehman crisis and Great Tsunami hit

4 Source : Cabinet Office, Japan, IMF


（CY）

0.4 0.3 1.7

2.4

1.3 1.7

2.2

▲ 1.0

▲ 5.5

4.7

▲ 0.6

2.0

1.2

▲ 8

▲ 7

▲ 6

▲ 5

▲ 4

▲ 3

▲ 2

▲ 1

0

1

2

3

4

5

6

01 02 03 04 05 06 07 08 09 10 11 12 13

Private demand

External Demand

Public Demand

Real GDP

Projection

IMF Outlook

（2013.1）

（Change from the previous year, ％）

GOJ

For FY 2013

2.5



Growth per Working Age Population : Japan is not bad at all

5


Source : Eurostat, IMF

Source : Ministry of Internal Affairs and Communications, JAPAN

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Japan United States United Kingdom Germany Italy

1980s 1990s 2000s



Nominal vs. Real GDP : Level is the thing

6 Source : Cabinet Office, Japan


521.3

487.7

525.5 531.8

▲ 4.0

▲ 2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

300

350

400

450

500

550

Nominal GDP Real GDP GDP Deflator

（FY）

（tril. （Y-o-

Y, ％）

（Outlook）



Primary Balance : Budget deficit is surely a problem

Source : IMF WEO database 7


Dotted line represents projection

(Percent of GDP)

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

Italy Japan United States Spain

Debt to GDP Ratio

(2011)

Italy

120.10%

Spain

69.12%

United States

102.93%

Japan

229.61%



3,389 3,249

2,287 1,698

1,297 1,105

6,250

7,590

7,497

6,278

4,643 4,105

512

892

1,517

1,407

1,383

1,128

221

597 1,407

2,278

2,385

2,336

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

75～

65～

74

Demography : Japan is aging very rapidly

Aging of senior

Decreasing

of junior

Source : Ministry of Health, Labor and Welfare

Source : National Institute of Population and Social Security Research

(ten thousand)

8


(year)

Projection


Ministry of Finance, JAPAN Source : United Nations, Department of Economic and Social Affairs

Demography : So is China, and so will India in the future

Males Females

9




Key point Japan is under the rapid decline of working-age

population accompanied by aging society.

A key for revitalizing Japanese economy is to promote female worker’s employment.

Analysis M-shaped curve is not observed in other developed

countries.

If Japan can raise its Female Labor Participation (FLP) ratio to the level of the other G7 member countries, GDP per capita would increase by approximately 4%.

Japan should increase the number of female managers and board members.

Better balancing of family life and work is necessary.

Successful example –Netherlands – The hourly wage of part-time workers is now equal to that

of full-time workers.

FLP ratio in 70’s was only 30%, but it had risen up to 70% in 2011. Japanese FLP ratio was surpassed by that of Netherlands in1995.

Female workers contributed economic recovery.

Female Employment : Women can save Japan

Source : OECD Database LFS by sex and age

Source : IMF Working paper “ Can Women Save Japan? “ 10

IMF Working paper 2012


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

Sweden

United States

Japan

Netherlands

Italy

Female Labor Participation (FLP) rate by age group (2009)


Ministry of Finance, JAPAN 11


Balance of Payment :

Trade in goods turned into red, but income surplus remains high

Goods Income Services Current Transfer Current Account



Japan’s ratio of components’

number in air plane

Produced Globally : Who makes a jet fly ?

Model Ratio

Boeing 767 15%

Boeing 777 21%

Boeing 787 35%

Ex) Boeing 787 dream liner

Source : JETRO - The trade structure of East Asia and international value chain

From trade of goods of to trade of "value"

12

Japanese Competitiveness



iPhone 3G : Made in China ? Not quite

Ratio of Materials in iPhone 3G

Country Cost

（USD） Share

Japan 60.6 33.9%

Germany 30.15 16.8%

Korea 22.96 12.8%

United States 10.75 6.0%

Others 48 26.8%

Total Bill of Materials 172.46 96.4%

China (Manufacturing costs) 6.5 3.6%

Grand Total 178.96 100%



Source : Meng and Miroudot (2011)


13

(2009)



Source : © 2012 World Economic Forum

The Global Competitiveness Index 2012-2013 rankings

Category INDICATOR RANK

Infrastructure Quality of railroad infrastructure 2

Macroeconomic environment Government budget balance, % GDP 143

General government debt, % GDP 144

Health and primary education Malaria cases/ 100,000 pop 1

Life expectancy, years 1

Goods market efficiency Imports as a percentage of GDP 143

Degree of customer orientation 1

Labor market efficiency Cooperation in labor-employer relations 7

Hiring and firing practices 134

Technological readiness Firm-level technology absorption 4

Mobile broadband subscriptions/ 100 pop 3

Market size Domestic market size index, 1-7 (best) 4

Business sophistication Local supplier quantity 1

Local supplier quality 3

Control of international distribution 1

Production process sophistication 1

Innovation Capacity for innovation 1

Company spending on R&D 2

Where Japan does or does not excel

～

～

14




Technology Balance of Payments : Japan is No.2 behind U.S.

15

-10000

0

10000

20000

30000

40000

50000

United States

Japan

United Kingdom

Germany

Italy

Korea

Source : OECD Database

(million dollars)

(year)


The technology balance of payments (TBP) registers the commercial transactions related to international technology and know-how

transfers. It consists of money paid or received for the use of patents, licenses, know-how, trademarks, patterns, designs, technical

services and for industrial research and development (R&D) carried out abroad, etc.


Ministry of Finance, JAPAN 16

“Abenomics” – three-arrowed economic booster plan

Present Cabinet’s Economic Policy

Growth Strategy for Promoting Investment

Flexible Fiscal Policy

Aggressive Monetary Policy

Bank of Japan has adopted 2% inflation target

New Governor and Vice Governors of BOJ to be appointed

Supplementary budget to boost the economy and create jobs

Priority on reconstruction after tsunami and disaster resilience

Medium-term plan to halve the primary budget deficit by FY2015

Tax incentives, deregulation and other policy measures to stimulate

private investment and to spur innovation

Assisting Japanese companies operation overseas

New growth strategy to be formulated mid-2013

Source : Ministry of Finance, Japan



8000

8500

9000

9500

10000

10500

11000

11500

12000

12500

6/1/2012 7/1/2012 8/1/2012 9/1/2012 10/1/2012 11/1/2012 12/1/2012 1/1/2013 2/1/2013 3/1/2013

17

Japan is baaaaaaaaaaaaaack !!

Adoption of “Emergency Economic Measures for

The Revitalization of the Japanese Economy”

Inauguration of the Abe Cabinet

LDP’s Victory in the House of

Representatives Election

Nikkei Stock Average Price Began to Recover Reflecting Expectation for Abenomics

Source : Bloomberg

(JPY)

Present Cabinet’s Economic Policy

• Sauce: Prime Minister of Japan and his Cabinet


Ministry of Finance, JAPAN Source : BBC WORLD SERVICE

Survey of 22 tracking countries, 2011-2012 :

Japan’s influence is viewed to be most positive

18

Toward good relationship; Japan and India



Views of Japan’s Influence

Views of India’s Influence

Source : BBC WORLD SERVICE Policy Research Institute


Toward good relationship; Japan and India

19

Survey of 22 tracking countries, 2011-2012 :

But not necessary by the Japanese

Mainly positive Mainly negative

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