Japan

79 Pages·1975·5.314 MB·English

by  OECD

OECD
ECONOMIC SURVEYS
JAPAN
JULY 1975
BASIC STATISTICS OF JAPAN1
THE LAND
Area(1000sq.km) 377.4 Majorcities,October 1974estimate
Cultivated agricultural land (10000inhabitants):
(1000sq.km, 1972) 57 Tokyo(Ku area only) 868
Forest(1 000sq. km, 1974) 252 Osaka 280
Densely inhabited districts' Yokohama 256
(1000sq. km, 1970) 6.4 Nagoya 208
Kyoto 144
Kobe 135
Sapporo 115
THE PEOPLE
Population,October1974estimate Labourforceinpercentoftotal
(1000) 110050 population, 1974 47.9
Numberofpersonspersq.kmin 1974 292 Percentagedistributionofemployed
Percentage of population Jiving in persons(1973) :
denselyinhabiteddistrictin 1970* 53.5 Agriculture, forestryand fishery 13.4
Netannua]rateofpopulationincrease Manufacturingandconstruction 36.6
(per1 000inhabitants,1968-73) 14.2 Other 49.9
PRODUCTION
Gross national product in 1974 Growthofrealfixedinvestment,
(billion yen) 131 682 1969-74average (annual rate, per
Growth ofreal GNP, 1969-1974 cent) 6.7
average(annualrate, percent) Gross domestic product ofagricul¬
Grossfixed investment in 1974 ture,atmarketprices,in 1973
(percentofGNP) 34.2 (billionyen) 4307
Growth ofproduction in manufac¬
turing(permanday) 1969-74
annualrate,percent
THE GOVERNMENT
Public consumption in 1974 Composition ofParliament (per cent):
(inpercentofGNP) 10.1
Current public revenue in FY 1973 House of House of
(inpercentofGNP) 23.8 Repre- Coun-
Governmentemployeesinpercentof senlatives cillors
totalemployment, 1973 3.4 LiberalDemocraticParty 57 50
Outstandinglong-termcentralbondsin Socialist Party 24 25
percentofcurrentreceipts(FY 1973) 30.3 Komeito(CleanGovern¬
ment Party) 6 10
Communist Party 8 8
DemocraticSocialist Parly 4 4
Other 1 3
Last Election: Dec. 1972 June1974
Next Election: June 1977
FOREIGN TRADE AND PAYMENTS
(1974, million US dollars)
Commodity exports, fob 54506 Percentage distribution:
Commodity imports, fob 52878
Services net -5888 Exports Imports
Transfers net -289 OECD countries 46.2 40.7
Current balance -4549 ofwhich:
Long-term capita] -3953 North America 26.1 24.8
Basic balance -8502 South East Asia 22.8 20.1
Exportsofgoodsandservicesinper Other 31.0 39.2
cent of GNP 14.8
Importsofgoodsandservicesinper Crudematerialsandfuels
cent of GNP 15.7 (S1TC2,3,4) 2.6 63.2
Semi-manufacturedgoods
(5, 6) 41.1 12.6
Machineryandtransport
equipment(7) 45.4 6.9
Other(0,1,8,9) 10.9 17.3
CURRENCY
Monetaryunit:Yen Currency unit:
a) CentralrateestablishedinDecember
1971: 0.003247 dollarperyen
*) Since 14thFebruary, 1973:floating
Spot rate on 30th June, 1975: 0.003374
1 Ryukyu islands were returned on 15 May, 1972. Their population was 955000 and GNP
was 370 million in FY 1972. Production figures for 1972 do not include, however,thoseofRyukyu
islands.
2 Areas whose population density exceeds 4000 persons per sq. km.
Note An internationalcomparison ofcertain basicstatisticsisgiven inanannextable.
OECD ECONOMIC SURVEYS
JAPAN
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and
Development {OECD) was set up under a Convention signed
in Paris on 14th December, 1960, which provides that the
OECD shallpromotepolicies designed:
to achieve the highest sustainable economic growth
and employment and a rising standard of living in
Member countries, while maintaining financial sta¬
bility, and thus to contribute to the development of
the world economy;
to contribute tosoundeconomicexpansion in Member
as well as non-member countries in the process of
economicdevelopment;
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accordance
with international obligations.
The Members ofOECD are Australia, Austria, Belgium,
Canada, Denmark, Finland, France, the Federal Republic of
Germany, Greece, Iceland, Ireland, Italy, Japan, Luxem¬
bourg, the Netherlands, New Zealand, Norway, Portugal,
Spain, Sweden, Switzerland, Turkey, the United Kingdom
and the United States.
The Socialist Federal Republic of Yugoslavia is
associated in certain work of the OECD, particularly that
of the Economic and Development Review Committee.
*
The annual review of Japan
bytheOECDEconomicandDevelopmentReviewCommittee
took place on 20th June 1975
The present Survey has been updated subsequently.
© Organisation for Economic Co-operation and Development, 1975.
Queries concerning permissions or translation rights should be
addressed to:
Director of Information, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction 5
I Striking features of the current recession 5
The exceptional length and depth of the business downturn 5
The atypical behaviour of demand and output 7
The deterioration of the labour market situation 16
The response of prices and wages 20
The worsening trade offbetween prices and real growth 20
The trend of wages and other incomes 27
The remarkable improvement of the balance of payments 29
Overall developments 29
Trade balance 31
Invisibles, current balance, and capital movements 33
II The stance of economic policy 36
Monetary policy 37
Fiscal policy 44
Other policy measures 46
Energy Policy 46
Employment Policy 47
HI Some medium-term problems 47
IV Prospects and policy issues 54
Short-term prospects 54
Policy issues and conclusions 57
TABLES
1 Business cycle turning points 7
2 Demand and output 10
3 Workers' households income and expenditure by income groups 11
4 Private equipment investment in recession periods 13
5 Production trends by industry 15
6 Price trends in Japan and abroad 20
7 Price developments 22
8 Estimated contributions to the rise in wholesale prices 23
9 Estimated contributions to the rise in consumer prices 25
10 Trends in wages, actual and predicted 28
11 Balance of payments 30
12 Trade balance 31
OECD Economic Surveys
13 Capital movements 34
14 Outstanding direct investment abroad by sectors and regions 36
15 Factors affecting money supply 40
16 Indicators of enterprises' financial position 42
17 Public finance 45
18 Medium-term forecasts 48
19 Medium and long-term plans: forecasts and results 48
20 Population density and land occupation 49
21 Demand and output forecasts 56
Statistical annex :
A Gross national product and expenditure, current prices 62
B Gross national product and expenditure, 1970 prices 63
C Net domestic product at factor cost by industry of origin 64
D Income and expenditure of householdsandprivatenon-profitinstitutions 65
E-l Central government budget 66
E-2 Local government budget 67
F Interest rates and money supply 68
G Financial position of the economy 69
H Foreign trade by commodities 70
I Foreign trade by area 71
J Total exports and exports to US 72
DIAGRAMS
1 General business cycle indicators 6
2 Contribution of the main components of demand to changes in GNP 8
3 Behaviour of stockbuilding 12
4 Production trends by main category of products 14
5 GNP, industrial production, rate of capacity utilisation in manufacturing 17
6 Labour market trends 18
7 Labour market adjustment in various recession phases 19
8 Trade off between prices and real growth 21
9 Pressure of demand, wage cost and prices 24
10 Consumer prices and wholesale prices 26
11 Relative prices 27
12 Basic wages and bonus payments 29
13 Effective exchange rates 35
14 Interest rates 38
15 Money supply and GNP 39
16 Flow of funds 43
17 Recent business indicators 55
INTRODUCTION
The current recession in the Japanese economy has been exceptional in terms
ofboth duration and intensity reflectingmainly restrictive demand management and
the direct and indirect effects ofthe oil crisis. In spite ofthe emergence ofa consi¬
derablemarginofeconomicslack,theupwardmovementofpricesandwagesremain¬
ed exceptionally rapid in 1974, and it was not until the beginning of 1975 that there
was an important reduction in inflationary pressure. Unemployment has been
edging upwards to a level well above that generally prevailing in the past, although
comparedwithmostotherMembercountriestherateofunemploymenthasremained
very low; in Japan the adjustment in the labour market has mainly taken the form
of shorter working hours and lower participation rates. The current account of
the balance of payments, which deteriorated sharply in the first half of 1974 due
chieflyto the steep increase in oil and othercommodity prices, showed a spectacular
inprovement in the second halfdue both to the fall in imports and a steady growth
in exports. Only very recently have Japanese exports fallen back significantly.
The restrictive stance of demand management policy was strengthened until
the third quarter of 1974, but was subsequently gradually and moderately relaxed.
Thepresentdegreeofrelaxationremainscautiousgiventheconcernoftheauthorities
to avoid any upsurge in inflationary pressures. Various indicators suggest that
the fall in activity has bottomed out and some signs of a recovery have appeared.
On the basis of present trends and policies, the upturn in activity which startedin
the second quarter of 1975 is forecast to continue over the next twelve months, but
the recovery may not be strongenoughto reduce the margin ofslack. The upward
movements ofprices and wages should remain at the present more moderate rates
untiltheend of1975,butthereisarisk ofa slightaccelerationin 1976iftherecovery
gathers momentum.
Part I of this Survey discusses the specific features of the present recession as
reflected in its length and intensity and in the behaviour of prices and wages.
Balance ofpayments developments during the period underreview are also analysed
in thispart. The stance andtheimpact ofdemandmanagementpolicy are analysed
in Part II of the Survey. Part III deals with some medium-term issues, notably
in the light of the studies now being made in Japan. Part IV sets out the current
prospects for the coming year and discusses certain economic policy issues.
I STRIKING FEATURES OF THE CURRENT RECESSION
The exceptional length and depth of the business downturn
Despite difficulties ofstatistical measurements in partresultingfromtheimport¬
ant structural changes that have taken place, it seems quite clear that both in terms
ofduration and depth, the last recession ofthe Japanese economy has been one of
the worst experienced since the early fifties1. By the first quarter of 1975 the con-
1 Comparison with the early post-World War II years up to 1952-1953 may not be very
meaningful given the specific characteristics of that period.
OECD Economic Surveys
tractionary phase had lasted for five quartersmuch longer than in previous reces¬
sions, except in 1970-71; and the fall in real GNP was greater than during previous
downturns. In 1974, for the first time since the early fifties, real GNP fell (by
1.8 per cent). Other striking features of the present recession were, as in most
Member countries, the greater deterioration ofthe labour market situation and the
worsening of the trade-off between prices and real growth.
Diagram 1 General business cycle indicators
PtlL.JILl Perconl
TOO Diffusionindex(Dl) -77 100
(:o:alindicator)
GNPGap
.n.ni.-il_firjp po!<--r.:;.i:GUP
|io:ciili;iiGNP
1Û70 if.... 1970"103
100 ~^- ICO
Capacityutilizationralio
< 1 : " I I !
1960 1962 1964 1966 1968 1970 1972 1974
Source: EPA, Japanese Economic Indicators; Secretariat's estimates.
Japan
Table 1 Business cycle turning points
Duration (months)
Trough Peak Trough
Whole
Expansion tion cycle
1st cycle June 1951 October 1951 (4)
2ndcycle October 1951 January 1954 November 1954 27 10 37
3rd cycle November 1954 June 1957 June 1958 31 12 43
4th cycle June 1958 December 1961 October 1962 42 10 52
5th cycle October 1962 October 1964 October 1965 24 12 36
6th cycle October 1965 July 1970 December 1971 57 17 74
7th cycle December 1971 (Dec. 1973) (Mar. 1975) (24) (15) (39)
Sources: EPA, Diffusion Index; Secretariat's Estimates.
The atypical behaviour ofdemandandoutput
In earlier recessions, restrictive policies typically led to a stock adjustment that
was followed by a reduction in business fixed investment and, finally, by amoderate
deceleration in the growth ofpersonalconsumption;therelativestrengthofconsum¬
er spending was an importantfactor limiting the weakening of aggregate demand.
Bycontrast the current downturn has been led by private consumption and residen¬
tial construction; and the sharp weakening ofbusiness equipment demand preceded
the adjustment ofinventories. Moreover, alsoincontrastto the past, publicinvest¬
ment has had a pro-cyclical impact. This unprecedented behaviour of important
demand components not only resulted in a much longer and greater setback of
industrial production, as well as in wider margins ofidle capacity, but the trend of
output by main categories of products and by industries differed alsosignificantly
from earlier patterns of recessions. The following paragraphs analyse in more
detail the main features and causal factors of the present recession.
In the first quarter of 1974, private consumption in real terms fell by as much
as4.1 percentfromthepreviousquartermainlyduetotheslowergrowthofnominal
wage earnings and to the deflationary impact on real disposable income of soaring
prices in the wake of the oil crisis. Moreover, consumers adopted more cautious
spending attitudes probably reflecting uncertainties caused by the oil crisis, the fall
in financial assets prices, and growingresistance to rising goods and services prices.
There was also a technical weakening ofconsumers' demand following the specul¬
ative buying spreeforcertain goods atthe endof1973. Acertainrallytookplacein
the second and third quarters in connection with the strong advance in basic wage
rates after the general wage negotiations of the spring and the substantial rise in
summer bonus payments2. But the trend weakened again in the fourth quarter,
reflecting mainly a slower progression of households real disposable income3, and
an increase in the propensity to save. In 1974, as a whole, on a national accounts
basis, the saving ratio is estimated to have exceeded 25 per cent as against 24.1 per
2 Basic wage rates increased by 32.9 per cent over the corresponding period in 1973, and
on the same basis in July 1974, bonus payments rose by 47.0 per cent.
3 From last autumn onwards, the wage bill paid by the private non-agricultural sector
advancedmoreslowlybecauseofreducedemploymentandovertimework,andlessgenerousbonus
payments at the end oftheyear. Thiswas partly offset by a substantial rise in salary and wage
payments to government employees and a boost to farmers' income resulting from the increase
intheproducerpriceforrice. Butinthefourthquarter,thetemporaryupsurgeofconsumerprices
broughtaboutbytheadjustment ofvariousgovernment-controlledpricesresultedin asizeablecut
in real disposable income. Since the beginning of 1975 however, the marked moderation in the
trend of price increases has contributed to shore up households' real income.
OECD Economic Surveys
Diagram 2 Contribution of the main components of demand to changes in GNP
At 1970 prices
Pertent 1971 Recession 1965 Recession Perluit
4 4
"ïf
70II 70IN 70IV 71I 71II 71 III 71 I b-lill i;jiv 651 (,;,m (,~i:;
Trough
Cfi-privateconsumption Ig publicinvestment
Cg-publicconsumption J -stocki
lp -businessli»cdinvestment X-M-cmtrnalhalanc*
Ih -residentialconstruelion -ijuailerlychangesinGNP
1974 Recession
,^
73IV
1962 Recession 74i 1957 Recession
-.4 61III 61IV 621 62II 62III 621V 57[ 5711 57III 57IV E3I 5°II _,
Ptdk Trough Peak Trough
Source: EPA; National Income Statistics.
cent in 1973; in previous recessions the saving ratio usually declined due to lower
bonus payments4.
4 Theexceptionaltrendofsavingandhenceofprivateconsumptionin1974canalsobeillus¬
tratedbyeconometricresults. EquationA, based on quarterly datacoveringtheperiod 1958Ql-
1972Qlhasagoodstatisticalfitovertheestimationperiod,butcompletelyfailstopredicttheactual
trendofrealprivateconsumptionin 1974. Itisinterestingtonotethatwhentheestimationperiod
isextendedtocoverthetwofollowingyears,namely 1973and1974,thecoefficientsoftheequation
undergosignificantchangesandtheoverallresultsbecomelesssignificantassuggested bythelower