OECD Economic Surveys : Japan 1979.

70 Pages·4.798 MB·English

by  OECD

ORGANISATION FOR ECONOMIC CO-OPERATION ANO DEVELOPMENT
ORGANISATION DE COOPERATION ET DE D E V E L 0 P P E M E N T ECONOMIQOES
P
21 h±.
BASIC STATISTICS OF JAPAN
THE LAND
Area (1000 sq. km) 377.6 Major cities, October 1977estimate
Cultivated agricultural land (10000 inhabitants):
(1000 sq. km, 1976) 55 Tokyo (Ku area only) 854
Forest (1000 sq. km, 1975) 245 Osaka 272
Densely inhabited districts1 Yokohama 269
(1000 sq. km, 1975) 8.3 Nagoya 208
Kyoto 146
Kobe 137
Sapporo 131
THE PEOPLE
Population, December 1978 estimate Labourforce in percent oftotal
(1000) 115367 population, Dec. 1978 47.5
No. of persons per sq. km in 1978 306 Percentage distribution of employed
Percentage of population livingin persons, Dec. 1978:
densely inhabited district in 19751 57.0 Agriculture, forestry and fishery 10.0
Net annual rate ofpopulation Manufacturing and construction 34.3
increase (per 1000 inhabitants, Other 55.7
1973-1978) 1.1
PRODUCTION
Grossnational productin 1978 Growth of real fixed investment,
(billion yen) 206303 1973-1978 average (annual rate,
Growth of real GNP, 1973-1978 per cent) 1.1
average (annual rate, per cent) 3.7 Net domestic product of agriculture,
Grossfixed investmentin 1978 forestryand fishery, atmarket
(per cent of GNP) 30.5 prices, in 1977 (billion yen) 7600
Growth of productionin
manufacturing (per manhour)
1973-1978, annual rate, per cent 4.0
THE GOVERNMENT
Public consumption in 1978 Composition of Parliament, July .1979
(in per cent of GNP) 9.5 (per cent): House of House of
Currentpublicrevenue in 1977 Repre Coun
(in per cent of GNP) 24.5 sentatives cillors
Governmentemployeesinper cent Liberal Democratic
oftotal employment, Dec. 1978 3.6 Party 51 50
Outstanding long-term national bonds Socialist Party 24 21
in per cent of current expenditure Komeito (Clean
(FY 1978) 126.1 Government Party) 11 11
Communist Party 4 6
Democratic Socialist
Party 6 4
New Liberal Club 3 2
Other 1 5
Last election: Dec. 1976 July 1977
Next election: July 1980
FOREIGN TRADE AND PAYMENTS
(1978, million US dollars)
Commodity exports, fob 95634 Percentage distribution: Exports Imports
Commodity imports, fob 71038 OECD countries 46.2 40.6
Services and transfers, net 062 of which:
Current balance 16534 North America 27.7 22.7
Long-term capital 389 South East Asia 23.7 21.8
Basic balance 4 145 Other 30.1 37.6
Exports of goods and services
Crude materials and fuels
in per cent of GNP 11.7 (S1TC 2, 3, 4) 1.5 58.9
Imports of goods and services
Semi-manufactured goods
in per cent of GNP 9.9
(5, 6) 29.0 13.1
Machinery and transport
equipment (7) 56.9 7.2
Other (0, 1, 8, 9) 12.6 20.8
THE CURRENCY
Monetary unit: Yen Currencyunits per USS,
average of daily figures'
Year 1978 210.44
May 1979 218.30
1 Areas whose population densityexceeds4000persons per sq. km.
Note An international comparison of certain basic statistics is given in an annex table.
OECD ECONOMIC SURVEYS
JAPAN
JULY 1979
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 I960, which provides that theOECD shall promote policies
designed:
to achievethe highestsustainableeconomicgrowth andemploy¬
ment and a rising standardofliving inMember countries, while
maintainingfinancialstability,andthustocontributetothedeve¬
lopment ofthe world economy;
tocontributeto soundeconomicexpansioninMemberaswellas
non-membercountries in 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, the Netherlands, NewZea¬
land,Norway,Portugal,Spain,Sweden,Switzerland,Turkey,theUnited
Kingdom and the United States.
TheSocialistFederal RepublicofYugoslavia is associated in certain
work oftheOECD, particularlythatoftheEconomicandDevelopment
Review Committee.
The annual review of Japan by the
OECD Economic and Development Review Committee
look place on iSth June 1979.
©OECD, 1979
Queriesconcerningpermissionsortranslation rightsshouldbeaddressed
to:
Director ofInformation, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16. France.
CONTENTS
Introduction 5
I Recent trends 6
Major features 6
Demand, output and employment 6
Prices, costs and incomes 16
Balance of payments 18
II Economic policies 27
Monetary policy 27
Fiscal policy 32
Labour market and sectoral policy measures 35
Energy policy 36
III Sectoral financial flows Medium-term considerations 37
Saving and investment behaviour of households 39
Corporate borrowing requirement 43
External position 44
Public sector deficit 46
IV Snort-term prospects and policy conclusions 47
Outlook to mid-1980 47
Policy conclusions 51
Addendum 54
Statistical annex 55
TABLES
Text
1 Demand and output 7
2 Recovery phase in manufacturing investment 9
3 Employment trends 13
4 Price developments 17
5 Wages, productivity and unit labour cost 18
6 Corporate profits manufacturing 19
7 Balance of payments 20
8 Breakdown of variation in the trade surplus 21
9 Current balances, international comparison 23
10 Long-term capital movements 24
OECD Economic Surveys
11 New issues of government bonds 29
12 Window guidance ceilings on bank lending 30
13 Central government general account budget 33
14 General government transactions 34
15 Household savings ratio, selected OECD countries 39
16 Purposes of saving 40
17 International comparison of living conditions 42
18 Relative prices, international comparison 45
19 Official medium-term fiscal projections 47
20 Demand and output forecast 48
Statistical annex
A Gross national product and expenditure, current prices 56
B Gross national product and expenditure, 1970 prices 57
C Net domestic product at factor cost by industry of origin 58
D Income and expenditure of households and private non-profit institutions 59
E Local government budget (plan) 60
F Foreign trade by commodities 61
G Foreign trade by area 62
H Exports to US and to Western Europe 63
DIAGRAMS
1 Production capacity and utilisation ratio manufacturing 10
2 Behaviour of stockbuilding 11
3 Producers' shipments by commodity group 12
4 Labour market trends 14
5 Exchange rate trend 26
a) External value of the yen 26
b) Effective exchange rate and relative prices 26
6 Interest rates 28
7 Money supply and GNP 31
8 Sectoral financial flows 38
INTRODUCTION
There were a number of remarkable developments in the Japanese economy
during 1978 and the early months of 1979. The recovery of activity differed
markedly from the experience of earlier years in two important respects: it was
sustained by the growth of domestic demand rather than exports; and instead of
fading out in the course of the year, as in 1976 and 1977, it gathered momentum
thanks to the important expansionary measures taken last autumn. The labour
market situation improved somewhat and business profits recovered significantly
partly as a result of higher capacity utilisation. At the same time, price increases
moderated very substantially due largely to an improvement in the terms of
trade, resulting from the sharp appreciation of the yen until the autumn and from
relatively weak prices of oil and raw materials in world markets during most
of 1978. Another remarkable feature has been the rapid adjustment of the
balance of payments. The very large current surplus of the first half of 1978
(at an annual rate of around $20 billion) virtually disappeared by the spring
of 1979, partly because of emergency import measures but mainly because of
the growth of domestic demand and the impact of the currency appreciation
on the volume of exports and imports.
In the early months of 1979, the stage was set for continued, relatively
strong expansion of activity and there were multiple signs of an autonomous
upswing in business fixed investment. Accordingly, a less expansionary budget
was approved for the fiscal year 1979 (starting on 1st April) and mild monetary
restraint decided upon in view, particularly, of the renewed upward trend in
wholesale prices. The latter was partly the result of a marked reversal in
exchange rate movements: the trade-weighted effective rate of the yen, which had
risen by some 27 per cent over the twelve months to October 1978, had lost more
than half of this gain by May 1979. In the absence of major exogenous shocks,
the forecasts were for real GDP growth of around 5$ per cent during the
twelve months to mid-1980 with a strong trend of investment, renewed expan¬
sion of the volume of exports and a higher but still relatively moderate rate of
inflation following the modest wage settlements in the Spring round of 1979.
However, as in other Member countries, recent developments in world energy
markets and the sharp increase of oil prices create great uncertainties about short-
term economic prospects.
Part I of the present Survey is devoted to a review of the main develop¬
ments in the domestic economy and the balance of payments over the last 12 to
18 months. Demand management and other policy measures are then discussed
in Part II. The following section examines the saving-investment balances of
the main sectors (households, business corporations, government and the external
sector) in a medium-term context and discusses possible implications of develop¬
ments in recent years. Part IV concludes the Survey with the assessment of
the short-term outlook and the discussion of economic policy issues.
OECD Economic Surveys
I RECENT TRENDS
Major features
The volume increase of GNP in 1978 (5.6 per cent) was only marginally
higher than in 1977 but the pattern of demand was markedly different1. The
growth of domestic demand accelerated significantly (from 4.1 to 6.9 per cent)
while the contribution of the volume of net exports to GNP growth strongly
positive during the three previous years became negative in 1978. Expansion¬
ary policies played the most important role in the strong growth of domestic
demand: rising government expenditure on goods and services (especially a
sharp increase in public investment) made a direct contribution of 2.1 percentage
points to real GNP growth; various measures were taken to promote private
expenditure; and monetary policy became clearly expansionary. In addition,
terms-of-trade gains resulting from the sharp appreciation of the yen exerted
a positive influence on domestic demand through lowering prices and raising
non-wage incomes. The terms-of-trade improvement amounted to some 1.1 per
cent of GNP last year, so that real national income grew much faster (7.1 per
cent) than real output. The reversal of the relative roles of domestic demand
and exports in the course of the year was quite sharp: in the second half of
1978, the former was rising at an annual rate of some 9 per cent while the
volume of exports in national accounts terms was declining by more than 11 per
cent per annum. This, together with an increased volume of imports, contri¬
buted to progressive reduction of the large current external surplus, which gave
way to a current deficit in March and April 1979. The marked change of the
current account in late 1978 and early this year was accompanied by a reversal
of private capital movements to large outflows, and by a considerable depre¬
ciation of the exchange rate after its earlier sharp appreciation. Until the first
quarter of 1979, consumer price increases slowed down remarkably (2.3 per
cent over the 12 months to March). But wholesale prices, after declining up
to last autumn, have since been rising significantly, thus heralding some accelera¬
tion of consumer prices in the near future.
Demand, output and employment
After virtual stagnation in the latter half of 1977, real private consumption
picked up markedly in the course of 1978. The pace of expansion gathered
momentum and reached seasonally-adjusted annual rates of 7 to 8 per cent in
the fourth quarter of 1978 and the first quarter of 1979. However, because
of a very small carry-over from the previous year, the average rise in 1978
amounted to only 4.9 per cent, compared with 4.2 per cent in 1977. The most
important factor behind this strengthening was a significant moderation in con¬
sumer price increases, which entailed an acceleration in the growth of real house¬
hold disposable income despite a slowdown in nominal terms. Purchases of
certain categories of consumer durables such as cars and air conditioners were
particularly buoyant in 1978. By occupational groups, consumption by indi¬
vidual entrepreneurs expanded rapidly, reflecting a marked improvement in their
1 The Japanese national accounts were revised last year to conform to the UN and
OECD standardised system. Consistent series have been established going back to 1965 for
the main aggregates.
Table 1 Demand and output
Percentage change from previous period at 1970 prices
1977
At current prices Annual Annual rates, seasonally adjusted
average
Trillion Percent 1975 1975 1976 1977 1978 1977 11978 1979
share
yen in GNP 1965 Q4 Ql Q2 Q3 04 Ql
Private consumption 108.12 58.0 7.9 4.2 4.5 4.2 4.9 1.8 6.9 5.5 5.9 8.0 7.1
Public consumption 18.19 9.8 5.3 6.3 3.6 4.0 6.0 7.0 8.0 6.7 3.7 2.8 8.7
Gross fixed investment 55.87 30.0 10.2 -2.1 3.2 3.9 10.9 11.3 9.1 18.1 7.3 23.5 5.5
Public 16.97 9.1 8.8 5.2 2.8 11.2 18.2 14.1 4.1 34.2 23.2 18.3 -6.5
Private residential 12.82 6.9 9.6 2.4 8.6 0.4 9.8 22.9 28.6 16.1 -16.1 5.1 -20.1
Private non-residential 26.08 14.0 11.2 -6.9 1.4 1.7 7.3 5.3 4.5 10.4 9.1 35.1 25.1
Stockbuilding1 1.23 0.6 (-0.1) (-2.3) (0.5) (0.0) (0.0) (0.7) (-0.7) (0.1) (0.3) (1.1) (1.3)
Domestic demand 183.40 98.4 8.3 -0.3 4.5 4.1 6.9 6.1 6.9 9.8 6.5 14.0 8.1
Foreign balance* 2.95 1.6 (0.8) (1.7) (2.2) (1.6) (-0.8) (0.4) (2.8) (-4.8) (-2.9) (-5.8) (-0.5)
Exports 25.56 13.7 13.6 3.9 20.0 11.4 0.8 -4.7 26.2 -13.3 -14.0 -3.5 13.7
Imports 22.61 12.1 11.8 -9.1 8.0 3.4 8.5 -10.7 14.3 22.0 2.0 53.3 22.7
GNP 186.35 100.0 8.6 1.4 6.5 5.4 5.6 6.1 9.5 4.1 3.2 7.0 7.2
Activity indices
(1975=100)
Industrial production
(mining and manufacturing) 8.5 -11.0 11.1 4.1 6.2 6.0 9.9 7.9 5.4 9.0 7.5
Tertiary sector 4.7 4.6 5.3 6.9 7.8. 11.9 7.5 0.0 5.5
1 Changesaspercent ofGNP inthe precedingperiod.
Sources:EPA,AnnualReportonNationalAccount;MITI.
OECD Economic Surveys
incomes with the recovery in domestic demand and reduction in costs. Expen¬
diture by farmers also rose steadily mainly due to a rise in non-farm incomes,
largely related to the stepping-up in public works. On the other hand, expendi¬
ture by salaried workers remained rather sluggish reflecting a small rise in their
real disposable income. The savings rate increased slightly in 1978 which might
to some extent have been related to persistence of weak labour market conditions.
Following approximate stagnation in 1977, private residential investment
picked up sharply in 1978 (10 per cent in volume), reflecting the massive expan¬
sion of public housing loans. Given, however, the timing of these loans2,
developments were very uneven in the course of the year with a 24 per cent
increase in the first half being followed by a 3.8 per cent decline in the second
(seasonally adjusted annual rates). In fact, the underlying trend in housing
demand may not have been as strong as suggested by the actual growth rate3.
According to housing starts statistics, new housing construction rose by only
2.7 per cent in 1978, of which purely privately-financed construction declined
by as much as 12 per cent in sharp contrast to a more than 40 per cent increase
in publicly-financed housebuilding. 2The weakness of privately-financed housing
construction may to some extent be attributable to substitution by public funding.
After four successive years of weakness, private non-residential investment
recovered in 1978, posting a year-on-year volume rise of 7.3 per cent4 compared
with 1.7 per cent in 1977. This upturn was essentially due to rapid expansion
of non-manufacturing investment. Investment in electric power industry, which
was stepped up through "administrative guidance" as part of the measures taken
to boost domestic demand, was particularly buoyant, expanding by nearly 30 per
cent in real terms. Reflecting the marked increase in public works and the
sustained growth of private consumption, investment in construction and services
also increased appreciably. On the other hand, manufacturing investment de¬
clined for the fifth consecutive year. However, the downward adjustment was
probably largely completed toward the end of last year as the sharp and
continuous decline in investment since early 1974 has considerably lowered the
growth of production capacity5. As a result, capacity utilisation has resumed
an upward trend since last autumn, reaching in early 1979 around 90 per cent
of its latest peak level in early 1973. Past experience suggests that such level
of capacity utilisation could, together with a marked improvement in profits,
trigger a recovery in manufacturing investment (Table 2). And indeed in the
six months to the first quarter of 1979, an upturn has taken place.
Inventory adjustment has also proceeded rapidly. Decumulation of pro¬
ducers' stocks of finished goods continued throughout most of 1978, which,
coupled with a recovery in shipments, brought down the inventory-shipments
ratio in the early months of 1979 to the level observed at the onset of the 1972
recovery. Following a steady uptrend until the Spring of 1978 a quick reduction
2 The quarterly time profile of public housing loans is indicated below. Granting of
the loans is generally reflected in housing starts with a 3 month lag.
1977 1978 1979
Q2 Q3 Q4 Ql Q2 Q3 Q4 Ql
Billion yen 213 471 634 766 646 344 885 989
3 For more detailed analysis of the underlying trend of residential construction, see
Part m.
4 Part of this increase was due to emergency imports most of which (e.g. enriched
uranium, ships and airplanes) were counted as private non-residential investment. Adjusting
for this factor, the rate of growth was around 6 per cent.
5 The Mill index of manufacturing capacity showed a year-to-year rise of only 0.4
per cent in December 1978.