OECD Economic Surveys : Japan 1970.

92 Pages·5.228 MB·English

by  OECD

1.
OECD
ECONOMIC SURVEYS
JAPAN
JULY 1970
BASIC STATISTICS OF JAPAN
THE COUNTRY
Area (1000 sq. km.) 370.0 Major cities, October 1969 estimates
Cultivatedagriculturalland (1000 inhabitants)
(1000 St), km. 1968) 59.0 Tokyo (Ku area only) 9005
Forest (1000 sq. km. 1965) 244.9 Osaka 3018
Densely inhabited districts1 Yokohama 2 144
(1 000 sq. km. 1965) 4.6 Nagoya 2014
Kyoto 1421
THE PEOPLE
Population, October 1969 estimate Labourforcein percentoftotalpopula¬
(1 000) 102650 tion, 1969
Numberofpersonspersq.km.in 1969 277 Percentage distribution of employed
Percentage of population living persons:
densely inhabited districts1 in 1965 48.1 Agriculture, forestry and fishery 18.8
Netannualrateofpopulationincrease Manufacturing and construction 34.0
(per 1000 inhabitants, 1965-1969) Others 47.2
PRODUCTION
Grossnationalproductin 1969(billion Growth of real fixed investment 1965-
yen) 59902 1969 average (annual rate, per cent) 17.4
Growth of real GNP, 1965-1969 ave¬ Gross value of agricultural production
rage (annual rate, per cent) 12.5 in 1968 (billion yen) 4257
Gross fixed investment in 1969 (in Growthofproductionin manufacturing
per cent of GNP) 35.2 (per man-day) 1965-1969 average
annual rale, per cent 14.7
THE GOVERNMENT
Publicconsumption in 1969 (in per cent Government employees in per cent of
of GNP) 8.2 total employment in 1969 3.1
Publicworksin1969(inpercentofGNP) 8.5 Outstanding long-term central bonds in
Currentpublicrevenuein1969(inpercent per cent ofcurrentreceipts (FY 1969) 45.2
of GNP) 20.6
LIVING STANDARDS
Gross national product per capita in Number ofpersons per 100 dwellings in
1969 (US dollars) 1965 408
Growth of real GNP per capita 1965- Number ofhospital beds per 1000 inha¬
1969 (annual rate, per cent) 11.3 bitants in 1969 10
Averagemonthlycashearningsofregu¬ Numberofpassengercarsper I 000inha¬
lar male manufacturing workers in bitants in March 1969 87
establishments ofmore than 30 wor¬ Number oftelephones per 1 000 inhabi¬
kers, 1969 (US dollars) 210 tants in October 1969 121
NumberofTV sets per 1000inhabitants
in October 1969 212
FOREIGN TRADE AND PAYMENTS
(1969 million US dollars)
Commodity exports fob 15728 Percentage distribution:
Commodity imports fob 11976 Exports Imports
Services, net -1 382
Transfers, net -185 to/from OECD countries 47.2 41.6
Current balance 2 185 ofwhich: North America 34.4 31.7
Long-term capital -165 Far East Asia 25.9 15.2
Basic balance 2020 Others 26.9 43.2
Exports of goods and services in per Crude materials and fuels
cent of GNP 11.4 (S1TC 2, 3, 4) 2.2 56.2
Imports of goods and services in per Semi-manufactured goods (5,
cent of GNP 10.0 6) 40.5 16.1
Machinery (7) 38.6 10.0
Others (0, 1. 8, 9) 18.7 17.7
THE CURRENCY
Currency unit: 1 yen ^0.00278 US dollar.
1 Area! whose population density exceeds 4,000 persons per sq.km.
OECD ECONOMIC SURVEYS
JAPAN
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and
Development wassetup undera ConventionsignedinParison
14th December 1960by the Membercountries ofthe Organis¬
ation for European Economic Co-operation and by Canada
and the United States. This Convention provides that the
OECD shall promote policies designed:
to achieve the highest sustainable economic growth
and employment and a rising standard of living in
Member countries, while maintainingfinancial stabi¬
lity, 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
economic development;
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accordance
with international obligations.
The legalpersonality possessed by the Organisationfor
European Economic Co-operation continues in the OECD,
which came into being on 30th September 1961.
The members ofOECD are: Austria, Belgium, Canada,
Denmark, Finland, France, the FederalRepublic ofGermany,
Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland,
Turkey, the United Kingdom and the United States.
The Socialist Federal Republic ofYugoslavia is associat¬
ed in certain work of the OECD, particularly that of the
Economic and Development Review Committee.
The annual review of Japan by the OECD
Economic and Development Review Committee
took place on 18th and 19th June, 1970.
CONTENTS
Introduction 5
I Recent economic performance and the 1967-1971 Plan 6
Recent trends 6
The 1967-1971 Plan and actual developments 1966-1969 9
II Short-term prospects and current policies 20
Short-term prospects 20
Recent policy measures 25
Public finance 25
Monetary policy 27
Foreign trade and payments policies 31
III The Economic and Social Development Plan 1970-1975 32
General features 32
Quantitative aspects of the Plan 34
Main points of uncertainty 38
IV Conclusions 46
Annex I : Problems and experience of fiscal policy in Japan 53
Annex II : The recommendations by the expert group on the use of
fiscal policy 65
LIST OF TEXT TABLES
(a) In text:
1 Main economic indicators 7
2(a,b) Projections of the plan for FY 1967-1971 and outcome
FY 1966-1969 11-12
3 Comparative trends in major OECD countries 17
4 Short-term prospects 22
5 Public finance 26
6 Money and credit 28
7(a,b, c) New economic and social development plan
FY 1970-1975 35-37
(b) Statistical Annex
A Gross national product and expenditure in current prices 74
B Gross national product and expenditure in 1965 prices 74
C Origin of net domestic product at factor cost 75
D Gross domestic fixed asset formation 76
E Income and expenditure of households and private non-profit
institutions 77
F Production, employment and other business indicators 78
G Labour force 79
H Prices 80
I Central government budget 81
J Interest rates and money supply 82
K Borrowing and lending 83
L Foreign trade by area 84
M Foreign trade by commodities 85
N Trends in foreign trade and payments 86
O Long-term capital balance 87
DIAGRAMS
1 Prices 8
2 Foreign trade 9
3 Gross national product and price deflator 13
4 Components of price increases 14
5 Wages and productivity 15
6 Actual and predicted volume development of imports 19
7 Relative price performance 21
8 Interest rates 30
9 Growth of GNPPlan and outcome 39
10 Saving and domestic asset formation 41
11 Raw material consumption and industrial production 44
INTRODUCTION
The radical strengthening of Japan's external position which was
noted in last year's OECD Survey has been confirmed by more recent
developments. Up to the early months of 1970, rapid economic
expansion has been associated with a large and growing surplus of the
current balance of payments. In the absence of the external constraints
which, in earlier periods of business upswing, had required strong
measures to cool-off the economy, the present boom has lasted lon¬
ger than any of its post-war predecessors nearly 4£ years so far.
However, the acceleration of price rises from the spring of 1969 onwards
prompted some shift to policies of restraint last autumn the first
undertaken for purely domestic reasons since the war. The progressive
tightening of domestic liquidity conditions may be expected to weaken
the investment boom in coming months, but it is uncertain how soon
price increases can be brought down to more moderate rates.
Important divergencies between earlier official forecasts and actual
developments in the last few years, together with Japan's greatly
expanded role in international trade and payments, have led to basic revi¬
sions of previous projections and to a reconsideration of broad policy
objectives. The 1967-1971 Plan has been replaced by a new Plan for
Social and Economic Development, approved in May 1970 and covering
the six fiscal years to March 1976. lie plan postulates a slower though
still impressive rate of growth (10 J per cent per annum in real terms)
and foresees a steady increase of the current external surplus. On the
domestic side, it lays particular emphasis on the improvement of social
amenities, on welfare objectives and on reducing the unfavourable side-
effects of rapid growth and urbanization thereby implying more active
government policies concerning resource allocation. With respect to
external economic relations, the plan sets forth the aims of increased
liberalization of current and capital transactions and of a higher volume
of aid to less developped countries.
Part I of the present Survey outlines economic trends in recent
years and compares them with certain projections of the 1967-1971
Plan. Part II discusses short-term prospects and describes both cur¬
rent demand management policies and recent measures of liberalization
in the field of foreign trade and payments. The main features of the
new Plan for 1970-1975 are summarized in Part III, where some of the
OECD Economic Surveys
principal quantitative forecasts and policy objectives are examined Part
IV draws certain conclusions concerning the problems and policy impli¬
cations now facing Japan, both in the field of internal and external
financial equilibrium and in that of preserving and improving living
conditions.
I RECENT ECONOMIC PERFORMANCE
AND THE 1967-1971 PLAN
Recent trends
Despite some tightening of policies since last September Japan's
longest post-war business upswing continued virtually unabated in the
year to March 1970 (fiscal year 1969)1. The expansion of GNP in real
terms amounting to some 13 per cent fell only little below the record rate
of 13.8 per cent registered in FY 1968. The rate of growth ofindustrial
production remained impressive 17.2 per cent in FY 1968 and 17.7
per cent last year. Private investment and exports remained the most
powerful expansionary forces. Investment in machinery and equipment
increased by as much as 25 per cent in volume, while the vigorous
growth of exports slowed down only little because of a short-lived
hesitation in the autumn of last year. The rate of growth of imports
recovered from its low level in FY 1968, reflecting a sharp upward
tendency of import prices, a stronger trend of industrial production, but
also some return to more normal elasticities of consumption of imported
raw materials to industrial production.
The uninterrupted business upswing has been accompanied by a
marked deterioration of the price-cost situation. The acceleration of
price increases which became manifest in the spring of last year (notably
in the iron, steel, non-ferrous metals and food markets) has progressively
spread over the whole economy. During FY 1969, wholesale prices rose
by 5 per cent, compared with only 0.5 per cent during the preceding
twelve months period. About a third of the increase was due to the
upsurge of import prices. Over the same periods, the increase of
consumer prices steepened from 3.9 to 8.3 per cent, but " seasonal
products" accounted for most of the acceleration ; excluding fish, vege-
1 Since the official projections and some other relevant statistical material are
based onfiscal years(1stAprilto 31st March) most oftheanalysis ofthisreportisalso
related to fiscal years. For the convenience of international comparisons, the tables
in the Statistical annex are based on calendar years.
Japan
Table 1 Main Economic Indicators
Percentage change from previous year and US S billion
Fiscal years
1965 1966 1967 1968 1969*
Demand (current prices)
Business investment -8.3 25.4 28.6 22.5 29.3
Merchandise exports 21.4 14.1 8.2 26.9 23.1
Change in private stocks1 0 1.6 1.7 0.5 0.8
Change in foreign balance1 1.3 0 -1.2 1.5 0.4
Supply (Volume)
GNP 5.4 11.4 13.0 13.8 13.5
Industrial production index 3.2 17.1 18.7 17.2 17.7
Merchandise imports* 7.4 17.4 20.9 10.5 16.0
Prices and wages
GNP deflator 4.9 4.8 3.9 3.6 4.8
Cost of living 6.4 4.7 4.2 4.9 6.4
Wholesale prices 1.0 2.7 1.5 0.6 3.2
Compensation per employee 10.2 11.3 13.1 13.7 15.8
Cash earnings in manufacturing 8.1 12.3 13.5 14.5 17.5
Foreign trade and payments
(US S billion)
Trade balance fob 2.1 2.1 1.1 3.0 3.7
Current balance 1.0 1.0 -0.3 1.5 2.1
Basic balance1 0.5 0.2 -1.1 1.5 1.7
Balance on non-monetary transactions' 0.4 0.1 -0.5 1.7 2.2
Official reserves* 2.2 2.1 2.0 3.1 4.0
1 Contribution to nominal growth ofGNP.
2 Importsoncustom»basis deflatedbyBank ofJapanimportpriceindex.
3 Excluding specialtransactions.
4 Endofperiod (March 31, followingyear), grotsreserves.
5 Provisional Secretariat Estimates.
Source: National Statistics.
tables and fruit, tha rate of increase went up from 4.8 per cent to 5.7 per
cent. Because of a steeper trend of regular pay increases and important
bonus payments in June and December of last year, average monthly
earnings of regular workers in manufacturing went up by as much as
17.1 per cent in FY 1969 after a rise of 14.5 per cent a year earlier.
FY 1969 saw an increase in unit labour costs in manufacturing of about
2 per cent which did not, however, cancel the cost reductions which
occurred during the early years of the upswing.
OECD Economic Surveys
The emergence of inflationary pressures in FY 1969 did not lead
to a weakening of the balance of payments. On the contrary, even
with a significant slowing down of exports and an acceleration of imports,
the trade surplus, fob, rose from $ 3 billion in FY 1968 to $3.7 billion.
The increase of the trade surplus was only partly offset by a further
worsening of the deficit on invisibles and current transfers. The surplus
on private long-term capital account doubled in FY 1969 despite some
net outflow in January-March 1970. On the other hand, official long-
term capital exports were stepped up importantly, in particular through
a number of special transactions designed to moderate the accumulation
of reserves. Nevertheless, whith a growing net inflow of short-term
and unrecorded capital, the balance of non-monetary transactions
(excluding special transactions) closed with a surplus of as much as
$ 2.2 billion in FY 1969 after a surplus of $ 1.7 billion in FY 1968
and a deficit of $ 0.5 billion in FY 1967.
Diagram 1 Prices
1965 = 100
Sem/«/o<7,mcale
130
^ Consumerprices(cotlurban)
120 |-
- Wholesaleprices(Industrialproduct»)
. ExportpTicts IConsumerprices
no
. - Importprices #
\ Importpnees ^WWhhoolleessaalleepprriicceess.. S?
t^-' - r'.sr"zy~"
103
ry"" tExportprices
70L ,
I II [I!IV I II III IVI II III IV I II III IVI II IIIIVI II III IV I II IIIIV I II III IV1 II IIIIVI II IIIIV I II
19E0 15C1 1962 1963 1964 1965 1966 1967 1968 1969 1970
Source: Prime Ministers' Office and Bank of Japan.
8