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OECD Economic Surveys : Japan 1978. PDF

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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 r- r- r" 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

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