OECD Economic Surveys : Japan 1978.

74 Pages·4.931 MB·English

by  OECD

OECD
ECONOMIC SURVEYS
JAPAN
JULY 1978
BASIC STATISTICS OF JAPAN
THE LAND
Area (1 000 sq. km) 377.* Major cities, October 1977 estimate
Cultivated agricultural land (10000 inhabitants):
(I 000 sq. km, 1974) 57 Tokyo (Ku area only) 854
Forest (I 000 sq. km, 1973) 253 Osaka 272
Densely inhabited districts1 Yokohama 269
(1 000 sq. km, 1970) 6.4 Nagoya 208
Kyoto 146
Kobe 137
Sapporo 131
THE PEOPLE
Population, December 1977 estimate Labour force in per cent oftotal
(I 000) 114340 population, 1977 47.5
No. of persons |>er sq. km in 1977- 303 Pcrcenlage distribution of employed
Percentage of population living in persons (1977):
densely inhabited district in I9701 53.5 Agriculture, forestry and fishery 9.8
Nel annua! rate of population Manufacturing and construction 35.0
increase (per I 000 inhabitants, Other 55.2
1972-1977) 1.2
PRODUCTION
Gross national product in 1977 Growlh or real fixed investment,
(billion yen) 183620 1972-1977 average (annual rate,
Growlh of real GNP, 1972-1977 per tent) 1.3
average (annual rale, per cent) 4.4 Net domestic product of agriculture,
Gross lixed investment in 1977 forestry and lisherv, at market
(per cent of GNP) 28.9 prices, in 1976 (billion yen) 8680
Growlh ol production in
manufacturing (per man hour)
1971-1976, anniiiil rate, per cent 7.7
THE GOVERNMENT
Public consumption in 1977 Composition of Parliament, April 1977
(in per cent ol GNP) 11.0 (lier cent):
Current public revenue in 1976 Houseof Houseof
(in ix:r cent of GNP) 22.2 Repre- Coun
Government employees in per cent senlativcs cillors
of total employment, 1977 3.3 Liberal IX-mocratic
Outstanding long-term national bonds Parly 51 50
in per cent of current expenditure Socialist Parly 24 21
(FY 1977) 13.3 komeito (Clean
Government Party) 11 11
Communisl Party 4 6
IX-mocratic Socialist
Party- fi 4
New Liberal Club 3 2
Other 1 5
l.asl election: Dec. 1976 July 1977
Next election: July 1980
FOREIGN TRADE AND PAYMENTS
(1977, million US dollars)
Commodity cxporls, fob 79333 Percentage distribution: F.xports Imports
Commodily imports, fob 62022 OKCD countries 46.7 37.9
Services and transfers, net 6393 of which:
Current balance 10918 Norlh America 26.9 21.6
Long-term capital 3 184 South hast Asia 21.3 21.3
Basic balance 7734 Other 32.0 40.8
Exports of goods and services
in per cent of GNP 13.9 Crude materials and fuels
Imports of goods and services (SITC 2. 3, 4) 1.5 64.5
in per cent of GNP 12.3 Semi-manufactured goods
(5, 6) 31.0 10.8
Machinery and transport
equipment (7) 55.6 6.1
Oilier (0, 1, 8, 9) 11.9 18.6
THE CURRENCY
Monetary unit: Yen Currency units perUS$,
average of daily figures:
Year 1977 268.4B
Mjiv 1978 226.33
1 Areas whosepopulation densityexceeds 4000 persons per sq. km.
Note An international comparison of certain basic statistics is given in an annex table.
i. : t -V
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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 thattheOECD shall promote policies
designed;
to achievethe highestsustainableeconomicgrowthandemploy¬
ment and a rising standard ofliving inMember countries, while
maintainingfinancialstability,andthustocontributetothedeve¬
lopment ofthe world economy;
tocontributetosoundeconomicexpansioninMemberaswellas
non-membercountriesin the process ofeconomic development;
to contribute to the expansion ofworld 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 ofGermany, Greece,
Iceland, Ireland, Italy,Japan, Luxembourg, theNetherlands, NewZea¬
land,Norway,Portugal,Spain,Sweden,Switzerland,Turkey,theUnited
Kingdom and the United States.
TheSocialistFederalRepublicofYugoslaviaisassociatedincertain
work oftheOECD,particularlythatoftheEconomic andDevelopment
Review Committee.
The annual review ofJapan by the
OECD Economic andDevelopmentReview Committee
tookplace on 19thJune, 1978.
©OECD, 1978
Queriesconcerningpermissionsortranslationrightsshouldbeaddressed
to:
Director ofInformation, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction
I Domesticeconomictrends 5
Demand components 8
Outputandemployment 12
Prices and wages 18
Corporatefinancial situation 21
II Balanceofpaymentsdevelopments 22
Short-termtrends 22
Longer-term considerations 30
HI Economicpolicies 39
Monetarypolicy 39
Fiscalpolicy 44
Labourmarketand sectoralpolicymeasures 50
Balanceofpayments adjustmentmeasures 50
IV Short-termprospectsandpolicyissues 51
Short-term outlook 51
Policy conclusions 55
Statisticalannex 60
TABLES
Text
1 Demand and output 6
2 Pattern ofrecoveryin selected countries 8
3 Working hours,international comparison 17
4 Trend ofprices 19
5 Wages, productivity and unitlabourcosts 20
6 Corporateprofits 21
7 Trend ofexternaltrade 23
8 Balanceofpayments 25
9 Currentbalances,international comparison 27
10 Long-term capitalmovements 28
11 Japan'sshareinworldtrade 32
12 Exportstructureby commodity 34
13 Exportelasticities 34
14 Importelasticities 35
15 Windowguidanceceilingsonbank lending 41
OECD Economic Surveys
16 Money supply 42
17 Centralgovernmentgeneral accountbudget 45
18 Fiscal investmentandloan programme 47
19 Generalgovernmenttransactions 48
20 Demand and outputforecast 52
StatisticalAnnex
A Gross nationalproduct and expenditure, currentprices 60
B Grossnationalproductand expenditure, 1970prices 61
C Netnationalproductatfactorcostbyindustryoforigin 62
D Incomeandexpenditureofhouseholds andprivatenon-profitinstitutions 63
E Localgovernmentbudget(plan) 64
F Foreigntradebycommodities 65
G Foreigntradeby area 66
H ExportstoUS andtoWesternEurope 67
DIAGRAMS
1 QuarterlytimeprofileofGNP andindustrialproduction 7
2 Behaviourofstockbuilding 11
3 Industrialproduction andproducers shipments 13
4 Patternofrecoverybyindustry 14
5 Labourmarkettrends 16
6 Exchangeratedevelopments 29
a) Externalvalueoftheyen 29
b) Effectiveexchangerateandrelativepriceand costdevelopments 29
7 Structureofthebalanceofpayments 31
8 Percentageincreasein exports and contributionbyregionalmarket 33
9 Composition ofimports 36
10 Currentbalancebyregion 38
11 Interestrates 40
12 Money supply andGNP 43
INTRODUCTION
For the third year ofrecovery, the rate ofexpansion of economic activity was
quite strong in the early months of 1977 but slowed down considerably in the course
of the year as the growth of exports decelerated and inventories were adjusted
downwards. Real GNP growth for the year as a whole was about 5 per cent, com¬
pared with 6 per cent in 1976, despite a much stronger contribution ofpublic sector
demand and a continuing large positive impact ofthe foreign balance. With large un¬
used capacities in industry, persisting slack in the labour market and a very small in¬
crease in real wages, the growth of real domestic private demand slowed down
significantly. The more striking new development was a very marked deceleration of
inflation since the middleoflastyear, due largely tothesharp appreciation oftheYen,
by 28 per cent in effective terms from the end of 1976 to May 1978. Thus, over the
twelve months toMay 1978, wholesale prices declined by 2 per cent and the increase
in consumer prices was brought down to less than 4 per cent. The appreciation ofthe
currency has not had sofarvery importanteffects on the volume offoreign trade, but
its initial effects on the terms of trade have contributed to the large increase ofthe
current external surplus to$ 11 billion in 1977 and some$8.5 billion (seasonally ad¬
justed) for the first five months of 1978.
Demand management has now become distinctly more expansionary, with
historically low interest rates and further significant increases in public investment.
The official target is a 7 per centreal growth ofGNP in thefiscal year April 1978 to
March 1979 with a reduction in the very large external surplus, to be partly sought
through specific action to promote the growth of imports and to restrain certain
categories ofexports. In fact, outputrecovered strongly in the early months of 1978,
sustained by the favourable effect oflower price rises on the volume ofprivate con¬
sumption and a highlevelofpublicinvestment,butalsotoalargeextentby a sharpin¬
crease of exports. On the assumption that export growth will be very modest from
now on, and taking account of the recent marked deceleration ofnominal wage in¬
creases, theSecretariat's forecasts suggestthatfurtherpolicy measuresmay beneeded
in the course ofthis year ifthe momentum ofexpansion is to be maintained over the
next twelve months and the current external surplus to be reduced appreciably.
Part I of this Survey dealing with recent domestic economic trends covers the
behaviour ofdemand and output, the labour market situation, the trend ofprices and
wages and the corporate financial situation. Balance ofpayments developments are
analysed in PartII. The following section reviews monetary andfiscal policies as well
as certain sectoral policies and various specific measures directed at facilitating the
balance ofpayments adjustment process. Part IV examines the short-term economic
outlook and discusses certain economic policy issues.
I DOMESTIC ECONOMIC TRENDS
Following the marked slowdown ofreal GNP growth in the latter halfof 1976,
activity picked up sharply in thefirst halfof 1977, largely due to the rapid expansion
of exports, but also supported by a temporary strengthening ofhouseholds' demand
Table 1 Demand and output
Percentage changes from previous period, at 1970 prices
At curr1e9n7t6prices Annual Annual rates, seasonally adjusted
average
1973 1974 1975 1976 1977
Trillion 1976 1977 1978
yen in GNP 1963 CM Ql Q2 Q3 Q4 Ql
Private consumption 93.45 56.8 8.7 1.5 6.2 4.4 3.3 2.5 3.1 4.1 2.0 3.8 8.8
Public consumption 17.94 10.9 5.9 4.4 7.4 3.8 3.7 4.6 2.0 3.1 7.4 7.9 3.5
Gross fixed investment 48.76 29.7 13.4 -10.2 -2.7 3.6 4.2 -3.0 10.5 8.6 4.0 4.4 11.0
Private dwellings 12.13 7.4 15.1 -12.9 7.3 6.9 -0.3 -16.8 16.8 8.1 -14.4 16.8 30.6
Other private 22.10 13.4 14.0 -10.8 -13.1 3.4 2.7 9.5 5.4 -6.7 -0.3 2.0 3.7
Public 14.52 8.8 11.2 -6.7 11.5 1.7 10.2 -11.4 15.2 39.0 26.0 0.4 9.9
Stockbuilding1 3.09 1.9 (0.6) (0.2) (-2.1) (0.5) (0.2) (1-3) (-0.7) (1.3) (-2.4) (1.1) (-1-9)
Domestic demand 163.24 99.3 10.1 -2.5 0.8 4.5 3.8 2.2 4.6 6.8 0.5 5.5 6.7
Foreign balance' 1.18 0.7 (0.3) (1.2) (1-7) (1-7) (1-5) (1.3) (4.4) (0.4) (1.3) (-0.7) (3.3)
Exports 23.84 14.5 15.2 21.2 4.4 16.8 10.4 15.2 20.7 6.6 3.9 -12.2 33.7
Imports 22.66 13.8 13.8 12.4 -8.2 8.0 2.0 9.5 -7.5 6.5 -4.6 -13.5 18.9
GNP 164.42 100.0 10.2 -1.3 2.5 6.0 5.1 3.4 8.8 6.8 1.8 4.5 9.7
Index of activity by sector Per cent
weight
in 1910»
Agriculture, forestry and fishery 6.1 0.7 -0.4 2.4 -2.3 5.0
Mining and manufacturing 34.9 12.2 -3.1 -11.0 11.1 4.1 4.7 4.6 -0.3 -0.7 6.0 12.2
Construction3 6.9 -16.8 2.3 3.2 3.7
Tertiary sector3 52.1 -0.5 1.9 4.5 4.0 1
..
1 Changes in per cent ofGNP in the preceding period.
2 "Weights by gross domestic products.
3 Tentative estimates by MIT).
Sources : EPÂ, National Income Statistics; Ministry of Agriculture and Forestry; M1TI.
Japan
and strong public investment. The recovery lost momentum again in the third quarter
as private demand weakened and, in spite ofsome acceleration, growth in the fourth
quarter remained modest reflecting a reduced contribution of public works and a
decline in exports. As a result, year on year, real GNP growth decelerated from 6.0
per cent in 1976 to 5.1 per cent in 1977; all components ofprivate domestic demand
weakened, while public expenditure accelerated significantly, and the contribution of
the net external balance remained substantial (around one third of the growth of
GNP). Exports rebounded sharply again in the first quarter of 1978 which, coupled
with a stepping up of public works, a strengthening of private consumption and
progress made in inventory adjustment led to a significant acceleration in the pace of
activity, with real GNP expanding at an annual rate ofaround 10 per cent according
to provisional estimates, the sharpest quarterly increase since early 1973.
Compared with previous cycles, a striking feature ofthe current recovery, which
started in the second quarter of 1975, has been the sluggish rate ofexpansion in the
volume of final domestic demand, reflecting the moderate growth of private con¬
sumption and thepersistentunderlyingweaknessofprivatenon-residential investment,
largely linked to low rates ofcapacity utilisation, slow recovery ofprofits and lack of
business confidence. The downward adjustment of excessive inventories also con¬
tributed significantly to depress the trend of activity. As in some other Member
countries, phases ofrapid export growth and relatively strongfiscal stimulus produced
temporary accelerations in the pace ofactivity whichfailedtodevelopinto asustained
Diagram 1 Quarterly time profile ofGNP and industrial production
/\
-Growthrateolindustrial production1
_ 3
\ RealgrowthraleolGNP1
S\
. 1
- 0
- 1 .-1
Publicinvestmmnt* _-2
Exports*
y
ButirfMMfixedinwstmmnt*
.-6
7L
I II II III IV II III IV
1975 1976 1977 1978
1 Percentage change over the previous quarter at an actual rate, seasonally adjusted.
2 HistogramreferstothecontributionsofdemandcomponentstothegrowthofGNP(at1970
prices) as measured by changes as a percentage ofGNP in the previous period.
Sources: EPA, NationalIncome Statistics; MITI, IndustrialStatistics.
OECD Economic Surveys
and broadly based recovery. Consequently, over the threeyears tothefirstquarter of
1978, realGNP grew at an average annual rate ofapproximately 5% compared with
much higher rates in previous upturns1. Similarly, the growth ofindustrial production
was much weaker than in the past (the pre-recession peak ofJanuary 1974 was only
attained again in March 1978) and its pattern much more erratic with wider
divergencies between the trends of the various industries.
Table 2 Pattern of recovery in selected countries
Percentage changes over a year earlier
Japan USntaitteesd Germany France Italy KUinngidteodm
GNP at constant prices1 1974 -1.3 -1.4 0.4 3.9 3.4 -0.8
1975 2.5 -1.3 -3.4 -2.4 -3.7 -1.5
1976 6.0 6.0 5.7 5.2 5.7 2.3
1977 5.1 4.9 2.4 2.8 1.7 0.7
Consumer prices 1974 24.5 11.0 7.0 13.7 19.1 16.0
1975 11.8 9.1 6.0 11.7 17.0 24.2
1976 9.3 5.8 4.5 9.6 16.8 16.6
1977 8.1 6.5 3.9 9.8 17.0 15.8
April 1978 3.9 6.5 2.9 9.0 12.6 7.9
Current balance* 1974 -4.7 -5.0 9.7 -6.0 -8.0 -8.1
1975 -0.7 11.6 3.8 -0.1 -0.7 -3.7
1976 3.7 -1.4 3.8 -6.1 -2.8 -2.0
1977 11.1 -20.2 3.8 -3.2 2.1 -0.1
Effective exchange rate 1974 -6.7 1.2 4.3 -7.3 -10.4 -4.1
1975 -2.7 -0.7 0.6 8.4 -5.0 -7.8
1976 4.2 4.3 4.4 -4.9 -17.4 -14.6
1977 10.7 -0.7 6.9 -6.5 -9.1 -4.8
Last week of May 1978 20.2 -7.1 4.1 -2.0 -6.5 -0.8
GDP atmarketprices (compromise), for the UnitedKingdom.
Level in $ bn.ion.
Source: OECD Secretariat.
Demand components
Following sluggish growth in the last three quarters of 1976, personal con¬
sumption expenditure in real terms strengthened moderately in the first halfof 1977,
butweakened again inthe second half. Forthe yearas awhole,itroseby only3.3 per
cent, compared with 4.4 per cent in 1976. Behind this weak development was a
marked deceleration of compensation of employees in the second half of last year,
mainly reflecting a stagnant trend of overtime and bonus payments. Furthermore,
consumption by independent enterpreneurs slowed down substantially in 1977,
notably in the second half, probably duetothe sluggish trend ofproduction and trade
during the period. Consumption by farmers' households expanded steadily, however,
as income was boosted by good harvests. The tax rebate granted in the summer of
1 TheaverageannualpercentagerateofgrowthofrealGNPinselectedrecoveryperiodswasthe
following:
1971 Q41973 Q4 8.3
1965 Q41968 Q4 13.5
1962 Q41964 Q4 12.4