Japanese Economy in 2006 and Beyond: Despite Slow Growth, Record Postwar Expansion Achieved
The Japanese economy achieved high growth rates in 2006, particularly in the corporate sector in
the first half of the year. The middle of 2006 brought a slowdown, especially in consumer spending. In
general, however, corporate performance held steady, labor supply was tight and the economy overall
did not slow significantly. The economic growth phase that began in January 2002 is virtually certain to
be statistically verified as having marked its 58th consecutive month in November 2006, making it the
longest period of growth in postwar Japan. Although favorable results have been seen in the corporate
sector, there was only mild improvement in wages and consumer......
06-ERC
70L-001AA
17
Japanese Economy in 2006 and Beyond:
Despite Slow Growth, Record Postwar Expansion Achieved
February 2007
Japanese Economy Division,
Economic Research Department
JETRO
Contents
Overview .....................................................................................................................................................i
1. General Indicators: Longest Economic Expansion in Postwar Japan ............................................. 1
A. Corporate Activity Robust, Although Growth Slows in 2006 Second Half ....................................... 1
B. Characteristics of Current Economic Growth .................................................................................... 4
C. Issues and Outlook for Japanese Economy ........................................................................................ 5
2. Trade and Direct Investment: Ties with Emerging Markets Deepen............................................. 13
A. Exports and Imports Reach High Levels.......................................................................................... 13
B. Trade Trends by Geographic Area (Jan.–Nov.) ................................................................................ 13
C. Trade by Product .............................................................................................................................. 16
D. International Trade Balance ............................................................................................................. 20
E. Expectations for 2007....................................................................................................................... 20
F. Foreign Direct Investment ................................................................................................................ 21
3. Production: Mining and Manufacturing Output Remain High ..................................................... 27
A. Expansion Continues Despite Uneven Pace..................................................................................... 27
B. Rising Inventories in Electronic Components and Devices ............................................................. 31
C. Mild Growth to Continue in 2007 .................................................................................................... 32
4. Corporate Sector: Capital Expenditure Plans Still Solid ................................................................ 33
A. Corporate Earnings Continue Growing............................................................................................ 33
B. Capital Expenditure Maintains Steady Growth ................................................................................ 35
C. Slower but Sustained Growth in 2007.............................................................................................. 38
5. Employment: Wages Stagnant but Employment Improves ............................................................ 42
A. Employment and Wage Trends in 2006 ........................................................................................... 42
B. Gearing Up For Mass Retirements by Baby Boomers ..................................................................... 45
C. Outlook for 2007 .............................................................................................................................. 47
6. Personal Consumption: Spending Remains at a Standstill ............................................................. 50
A. Trends in 2006.................................................................................................................................. 50
B. Growing Expectations for Spending by Baby Boomers................................................................... 53
C. Outlook for 2007 .............................................................................................................................. 54
7. Prices: End to Deflation Put on Hold ................................................................................................ 57
A. Consumer Prices Maintain Slight Upward Movement .................................................................... 57
B. Corporate Goods Prices Peak ........................................................................................................... 58
C. Outlook for 2007: End of Deflation ................................................................................................. 59
8. Finance: Financial Environment Returns to Normality.................................................................. 62
A. BOJ Tightens Money Policy ............................................................................................................ 62
B. Demand for Funds Recovers, albeit Slowly ..................................................................................... 64
C. Banking Industry Trends .................................................................................................................. 68
D. Stock, Securities and Foreign Exchange .......................................................................................... 70
E. Increased Polarization of Real Estate Market................................................................................... 73
F. Key Points to Watch.......................................................................................................................... 74
Columns
Column 1 .................................................................................................................................................. 11
Column 2 .................................................................................................................................................. 17
Column 3 .................................................................................................................................................. 26
Column 4 .................................................................................................................................................. 40
Column 5 .................................................................................................................................................. 49
Column 6 .................................................................................................................................................. 56
Column 7 .................................................................................................................................................. 61
Column 8 .................................................................................................................................................. 67
Column 9 .................................................................................................................................................. 75
Overview
1. General Indicators: Japan's Longest Economic Expansion in the Postwar Period
The Japanese economy achieved high growth rates in 2006, particularly in the corporate sector in
the first half of the year. The middle of 2006 brought a slowdown, especially in consumer spending. In
general, however, corporate performance held steady, labor supply was tight and the economy overall
did not slow significantly. The economic growth phase that began in January 2002 is virtually certain to
be statistically verified as having marked its 58th consecutive month in November 2006, making it the
longest period of growth in postwar Japan. Although favorable results have been seen in the corporate
sector, there was only mild improvement in wages and consumer spending, so the pace of recovery was
slower than in previous phases of growth.
The United States economy is forecast to slow down in 2007. Meanwhile, Japanese companies
remain reluctant to increase wages, so the Japanese economy is also expected to lose momentum. The
labor supply will tighten as baby boomers retire en masse. It is unlikely that the economic recovery will
stall due to slowed consumer spending. Stable economic growth is expected, although actual results
could be hurt by a potential downturn in the United States economy, crude oil prices rising again, an
increase in the fiscal deficit or political events that could negatively affect consumer confidence.
2. Trade and Direct Investment: Deeper Ties with Emerging Markets
Exports increased thanks to a weaker yen and favorable conditions in the global economy. Imports
also expanded as the Japanese economy recovered and crude oil import prices stayed high. Despite
potential risks, conditions remain favorable in China and the rest of East Asia, which together accounted
for 45.7% of total Japanese exports. Exports to this region should remain brisk in 2007. Crude oil prices
appear to have stabilized since October 2006, so import growth is expected to decline.
Foreign direct investment in January to September 2006 confirmed that investment in China
continued to slow down, as in 2005. Japanese corporations, aware of the risks of intellectual property
rights violations in China, partly shifted operations to the emerging markets of India, Russia and
Vietnam. Outward M&A included several megadeals as Japanese corporations sought to expand their
core businesses. Inbound FDI was boosted by major increases in funding, resulting in the largest net
outflow since such statistics were first complied in 1996.
3. Production: Mining and Manufacturing Production Sustains High Levels
Mining and manufacturing output maintained an overall upward trend in 2006, sustained by a steady
recovery in the materials industries. Robust increases in both internal and external demand for products
such as transport equipment and electronic components and devices led to high growth in shipments
overall, although trends varied among industries. Stock buildups of certain key products, such as mobile
phones and game equipment in the electronic components and devices industry, put sporadic pressure on
the mining and manufacturing sector to reduce inventories. But the buildups were considered transitory,
so mining and manufacturing is forecast to enjoy moderate growth sustained by brisk internal and
external demand in 2007.
i
4. Corporate Sector: Appetite for Capital Investment Remains Healthy
Corporate profits continued growing, buoyed by an economic climate of high production and
stabilized oil prices. Increased profits were seen across a wide range of industries and firms (in terms of
company size), which helped to boost capital investment. The scope of capital investment expanded due
to efforts to raise global competitiveness, centering on processing industries, and the elimination of
perceived overcapacity among even small and midsized enterprises. Capital investment could see a
reactionary decline in 2007, but it is still expected to continue growing because of new overseas demand
being developed by Japanese companies seeking to reinforce their revenue bases.
5. Employment: Wages Stagnant but Employment Improves
Employment improved in 2006 as the labor supply tightened due to the start of mass retirements by
baby boomers and corporate performance rose steadily. Corporate performance is forecast to remain firm,
which would help to fuel a moderate improvement in employment. However, with non-regular workers
now accounting for 30% of all employees, this could lead to new problems in the labor market, including
broader inequalities in incomes.
Wages tended to remain static in 2006. Earnings were not passed along to employees due to
corporate reluctance to increase wages. A tightening labor supply, however, is exerting upward pressure
on wages, which are expected to increase moderately in 2007.
6. Personal Consumption: Spending Remains at a Standstill
Personal consumption (consumer spending) was stagnant in 2006, influenced by factors such as a
long rainy season and sluggish sales of winter clothing due to unusually warm weather. Spending was
hampered by sluggish wage increases. Although consumers remain uncertain about prospects due to the
scheduled elimination of tax breaks and increases in their social security burden, wages are expected to
rise as the labor supply continues to tighten. This, along with retirement payments to baby boomers
retiring en masse, should stimulate a moderate increase in personal consumption in 2007.
7. Prices: Move out of Deflation Comes to Standstill
Consumer prices turned moderately upward in 2006. However, statistical revisions to key indices
and increasingly severe price competition in digital products negated any clear upward trend in prices, so
the government did not officially declare an end to Japan’s chronic deflation. But these special factors
notwithstanding, the elimination of domestic oversupply and, on the demand side, personal consumption
will be pushed upward by moderate wage increases. As a result, the demand/supply gap is expected to
tighten and prices are likely to experience upward pressure in 2007.
8. Finance: Financial Environment Improves
The Bank of Japan lifted its easy money policy for the first time in five years in March 2006, and
then ended Japan’s era of ultra-low interest rates by raising its bank lending rate in July. Although further
increases were expected during the year, they were postponed until January 2007. The impact of the
BoJ’s tightened money policy was limited to commercial and home loans. Going forward, however,
intensified upward pressure on rates should affect households and companies, and beyond them
government finances. The financial climate moved steadily toward normality, particularly in banking
where non-performing loans were largely eliminated. The BoJ’s timing for additional rate increases must
ii
be watched, as a distinctly tighter stance is envisioned in the latter half of 2007, when the Japanese and
U.S. economies are expected to show clear signs of stable growth and rising prices.
iii
1. General Indicators: Longest Economic Expansion in Postwar Japan
A. Corporate Activity Robust, Although Growth Slows in 2006 Second Half
The Japanese economy enjoyed stable growth led by capital expenditure in 2006. The underlying
positive tone of 2005 extended into first half of the year, with high growth primarily in the corporate
sector. From midyear, however, the economy began to slow, particularly in consumer spending.
The GDP rose more than two percent in the first quarter, propelled by consumer spending, capital
expenditure and other segments of the private sector. In the second quarter, growth slowed to 0.3% over
the previous quarter (1.1% annualized) due to weakened demand from the public sector and efforts to cut
inventories. Although the GDP in the third quarter was up just 0.2% (0.8% annualized), it was the
seventh consecutive quarter of positive growth, so the economy continued to avoid any significant
decline (figs. 1-1 & 1-2). Consumer spending turned pessimistic and declined 0.9% from the second
quarter. The decline, although due to temporary factors such as inclement weather, also reflected the fact
that improved jobs and stronger corporate results had not translated into increased incomes because
companies kept a lid on personnel costs. Capital expenditure grew 1.5%. The third-quarter GDP was also
supported by external demand as exports to the U.S. and East Asia rose. Imports were sluggish.
After years of chronic deflation, the consumer price index (excluding fresh foods, 2000
[pre-revision] baseline) rose 0.5% year on year in January, which followed 0.1% growth in each of the
two previous months. Thereafter, the index grew throughout much of the year, but the GDP deflator and
special factors influencing CPI growth remained negative, so the government did not officially announce
the end of deflation (Fig. 1-3).
Fig. 1-1 Contributions to GDP Growth by Calendar Year and Quarter
Calendar Year (% YoY) Quarter
8.0 6.8 Other (annual rate, % QoQ)
Public sector demand
6.0 5.1 5.3 5.2 Net exports
Private sector capital investments 3.4 3.2
3.8 Private sector final consumption expenditure
3.0 3.4 GDP 2.8 2.1 2.7
4.0 1.10.8
1.0 2.7 1.6 2.9 2.7
0.21.1 2.0 1.9
2.0 0.3 1.4
0.2
0.0
-2.0
-0.1
-2.0
-4.0
06 -12
85
86
87
88
89
90
91
92
93
94
95
96
97
98
20 9
01
02
03
04
05
6
10 -9
6
9
00
3
-3
9
4-
4-
7-
1-
7
/1
/
05
Real values, derived from a fixed-base estimates formula up to 1994, and a chain-weighted index formula from 1995.
“Other” includes private-sector inventory growth (decrease) and private housing.
Sources: Economic and Social Research Institute, Cabinet Office and Government of Japan
1
Fig. 1-2 GDP Growth Trends
(%)
Real GDP Public Private
Private Nominal GDP
Private Housing Private sector sector
(annual rate) sector Net exports GDP deflator
sector final investment corporate demand demand
inventories Exports Imports
Calendar year (YoY)
2000 2.9 - 0.7 0.9 7.5 0.9 0.5 12.7 9.2 0.1 3.2 1.1 -1.7
2001 0.2 - 1.6 -5.3 1.3 -0.2 -0.8 -6.9 0.6 1.1 1.0 -1.0 -1.2
2002 0.3 - 1.1 -4.0 -5.2 -0.3 0.7 7.5 0.9 0.4 -0.7 -1.3 -1.5
2003 1.4 - 0.4 -1.0 4.4 0.2 0.7 9.2 3.9 -1.1 1.4 -0.2 -1.6
2004 2.7 - 1.6 1.9 5.6 0.3 0.8 13.9 8.1 -0.6 2.8 1.6 -1.1
2005 1.9 - 1.6 -1.3 6.6 -0.1 0.3 7.0 5.8 0.1 2.2 0.6 -1.3
Fiscal year (YoY)
2000 2.6 - 0.7 -0.1 7.2 0.8 0.1 9.5 9.7 0.7 3.0 0.9 -1.6
2001 -0.8 - 1.4 -7.7 -2.4 -0.5 -0.5 -7.9 -3.4 0.6 -0.5 -2.1 -1.3
2002 1.1 - 1.2 -2.2 -2.9 0.1 0.7 11.5 4.8 0.1 0.4 -0.8 -1.8
2003 2.1 - 0.6 -0.2 6.1 0.3 0.8 9.8 3.0 -0.5 1.9 0.8 -1.3
2004 2.0 - 1.3 1.7 6.2 0.1 0.5 11.4 8.4 -1.5 2.4 0.9 -1.0
2005 2.4 - 1.9 -1.0 5.8 -0.1 0.5 9.0 6.0 0.4 2.4 1.0 -1.3
Quarter (QoQ)
2005/1-3 0.8 3.4 0.8 -1.5 2.5 -0.1 0.0 -0.3 -0.3 0.8 0.9 0.1 -1.0
4-6 0.8 3.2 0.9 -1.6 1.6 0.1 0.3 3.4 1.2 -1.0 1.0 0.4 -1.0
7-9 0.7 2.8 0.6 1.0 0.9 -0.2 0.0 3.0 3.5 1.9 0.4 0.1 -1.4
10-12 0.5 2.1 0.5 1.5 -0.8 0.0 0.6 3.8 -0.2 -1.3 0.3 0.4 -1.6
2006/1-3 0.7 2.7 -0.1 0.9 3.6 0.2 0.1 2.3 1.9 -0.6 0.9 0.4 -1.3
4-6 0.3 1.1 0.5 -2.1 3.2 -0.2 -0.1 0.7 1.3 -0.9 0.7 0.0 -1.1
7-9 0.2 0.8 -0.9 -0.3 1.5 0.2 0.4 2.5 -0.5 -0.4 -0.2 0.0 -0.7
Levels of contribution to overall GDP by private-sector inventories and net exports. Quarterly GDP deflator figures
show annual change.
Sources: Economic and Social Research Institute, Cabinet Office and Government of Japan
Fig. 1-3 Consumer and Wholesale Price Trends
The current economic
expansion, which began in January (% Y oY ) (% Y oY )
2002 and reached 58 months as of 8.0 C orp orate goods (sem i-finished, right ax is) 40.0
November 2006, almost certainly C orp orate goods (finished goods)
6.0 C onsum er Price Index (ex cep t fresh foods) 30.0
will be declared the longest postwar G D P deflator
1
growth period , surpassing the 4.0
C orp orate goods (raw m aterials, right ax is)
20.0
57-month Izanagi boom in
1965–1970. The economic 2.0 10.0
sentiment diffusion index (DI,
0.0 0.0
coincident indicators), which shows
the economy’s current direction, fell -2.0 -10.0
below the 50 midpoint in both
February and March, but then -4.0 -20.0
trended above 50 for the rest of the
year. The coincident indicators, -6.0 -30.0
95/01
96/01
97/01
98/01
99/01
00/01
01/01
02/01
03/01
04/01
05/01
06/01
which indicate the value of the
economy, rose to 113.0 in October
and thereby bested the previous Impact of sales tax increase not reflected in corporate goods index or CPI.
record of 112.2 set in October 1990. Sources: Statistics Bureau, Ministry of Internal Affairs and Communications; Bank of
Nevertheless, the leading indicator Japan; Economic and Social Research Institute; Cabinet Office and Government of
Japan
1
It has not yet been precisely determined that a new record has been set because the Cabinet Office council that researches economic
indicators issues its analysis of business cycles (economic peaks and troughs) retroactively. The current cycle’s trough, for example,
which occurred in January 2001, was tentatively proclaimed in June 2003 and officially confirmed in November 2004.
2
DI was below 50 from July to September, and the coincident indicators also fell after peaking in May, so
the data2 could be taken as suggesting an impending economic correction.
Fig. 1-4 D.I. Trends
100
50
Leading
Coincident
0 Lagging
88 -3
89 -3
90 -3
91 -3
92 -3
93 -3
94 -3
95 -3
96 -3
97 -3
98 -3
99 -3
00 -3
01 -3
02 -3
03 -3
04 -3
05 -3
06 -3
-3
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
87
Fig. 1-5 C.I. Trends
130
120
110
100
90
80
Leading
70
Coincident
60
Lagging
50
74 4
76 0
77 4
79 0
80 4
82 0
83 4
85 0
86 4
88 0
89 4
91 0
92 4
94 0
95 4
97 0
98 4
00 0
01 4
03 0
04 4
06 0
4
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
/1
/0
73
Shaded areas indicate recession. D.I. plots average quarterly values, but data for October 2005 is monthly value.
Source: Cabinet Office
Fig. 1-6 Business Cycles in Japanese Economy
Period
Trough Peak Trough
Expansion Recession Entire cycle
1st cycle - 1951/06 1951/10 - 4 months -
2nd cycle 1951/10 1954/01 1954/11 27 months 10 months 37 months
3rd cycle 1954/11 1957/06 1958/06 31 months 12 months 43 months
4th cycle 1958/06 1961/12 1962/10 42 months 10 months 52 months
5th cycle 1962/10 1964/10 1965/10 24 months 12 months 36 months
6th cycle 1965/10 1970/07 1971/12 57 months 17 months 74 months
7th cycle 1971/12 1973/11 1975/03 23 months 16 months 39 months
8th cycle 1975/03 1977/01 1977/10 22 months 9 months 31 months
9th cycle 1977/10 1980/02 1983/02 28 months 36 months 64 months
10th cycle 1983/02 1985/06 1986/11 28 months 17 months 45 months
11th cycle 1986/11 1991/02 1993/10 51 months 32 months 83 months
12th cycle 1993/10 1997/05 1999/01 43 months 20 months 63 months
13th cycle 1999/01 2000/11 2002/01 22 months 14 months 36 months
Average 33.2 17.1 50.3
Current cycle continued for 60 months as of January 2007.
Source: Cabinet Office
2
Seen by past patterns, leading (coincident) indicators peak around a half year ahead of the economy’s peak.
3
B. Characteristics of Current Economic Growth
In the current economic growth Fig. 1-7 C.I. Trends for Previous and Current Business Cycles
phase, as well as in the period from the
collapse of the economic bubble to 135
around 2001, external demand in the (Business cycle trough = 0
corporate sector has led the way. The 130 months)
current phase has also benefited from a
virtuous cycle of corporate profits 125
boosting employment and consumer
sentiment, which in turn spurred 120
consumer spending. But companies 115
have yet to raise wages, especially
contractually obligated payments, so 110
consumer spending has remained fragile
March 1975~January 1977
and the recovery has been relatively 105 September 1977~February 1980
sluggish compared to previous periods February 1983~June 1985
of economic growth (Fig. 1-7). The 100 November 1986~March 1991
October 1993~May 1975
private sector has worked to eliminate 95 January 1999~October 2000
the so-called “three excesses,” i.e., January 2002~
excess debt, employment and facilities,
m hs
m s
m hs
m hs
m hs
m hs
m hs
m hs
m hs
m hs
m hs
m hs
m hs
m hs
s
8 th
th
t
12 ont
20 ont
16 ont
24 ont
28 ont
32 ont
36 ont
40 ont
44 ont
48 ont
52 ont
56 ont
on
on
on
so perceptions of oversupply in
m
0
4
employment and facilities have been
mostly eliminated (Fig. 1-8), while Source: Cabinet Office
banks nationwide have reduced bad
debts by more than 60% from the peak. With the three excesses now behind Japan, deflation also has
nearly been eliminated.
Foreign countries also had a hand in the elimination of the three excesses. In the 1990s, following
the collapse of the Soviet bloc, China and other former socialist countries leveraged their low-cost labor
to rapidly increase their presence on the supply side, which at first increased the breadth of direct and
Fig. 1-8 Sentiment on Three Excesses Fig. 1-9 Growth in Exports, Imports and Industrial
(Points) (%)
Production Index from 1990
30.0 50.0
35.0
48.0 (%)
20.0 30.0
46.0
10.0 25.0
44.0
0.0 20.0
42.0
15.0
-10.0 40.0
38.0 10.0
-20.0
Recession 36.0 5.0
-30.0 Over-staffing sentiment (excess – shortage)
Excess facilities sentiment (excess – shortage) 34.0 0.0
Interest-bearing debt to total assets ratio (right axis) 1991 - 1995
-40.0
32.0 -5.0 1996 - 2000
2001 - November 2006
-50.0 30.0 -10.0
Export volume Import volume Industrial
06 1-3
-3
/ 3
/1 3
/ 3
/ 3
/1 3
/ 3
/ 3
/ 3
/1 3
/ 3
/ 3
/1 3
05 - 3
/ 3
94 1-
97 1-
00 1-
01 1-
92 1-
93 1-
95 -
96 1-
98 -
99 1-
02 -
03 1-
04 1-
index index production index
/1
/
/
91
Sources: Ministry of Economy, Trade and Industry, and Ministry
BoJ Tankan survey’s employment D.I. is used for employment of Finance
and manufacturing plant D.I. is used for facilities.
Sources: Bank of Japan and Ministry of Finance
4
indirect supply-side pressure on Japan. But as some of these countries developed their consumer markets
and other demand-side economies in the 2000s, they then eased supply-side pressures on the Japanese
economy by ameliorating their exports to Japan while purchasing increased exports from Japan (Fig.
1-9).
Another characteristic of the recovery has been sustained growth despite substantial cuts in
government expenditure. Public demand (total government expenditure, public fixed-capital formation
and increased public inventories) as a share of GDP reached more than 24% between 2001 and 2002, but
fell to 21% in the second quarter of 2006 and contributed negatively to economic growth (figs. 1-10 &
1-11).
Following the inauguration of the Koizumi administration in April 2001, the government designated
the following three years to fiscal 2004 as a period of structural reform. Measures included stepped-up
efforts to eliminate non-performing assets, resolution of bad debts through the Financial Revitalization
Program and economic stimulation through regulatory reform, such as specially deregulated zones and
reduced taxation of R&D and capital expenditure. The effect was reduced downward pressure on the
economy and stronger stimulation of the private sector. On the other hand, rapidly retrenched
employment and declining government expenditure, as well as changes in industrial structure, led to
widening disparities in income, consumer spending and household assets. Moreover, reduced public
works led to widening regional disparities (see Column 1). The Abe administration, after taking in
September 2006, has made the promotion of new opportunities one of its main policies. Specifically, it
has encouraged steady employment for job-hopping “freeters,” offered assistance to families headed by
single mothers to help them become more independent, banned multiple consumer loans, and provided
support for entrepreneurs and people restarting their careers.
Fig. 1-10 Public Demand’s Share of GDP Fig. 1-11 Increase/Decrease in Contribution to GDP
by Demand Line Item
25 1.8
2.0 (Annual rate, %)
(%)
1.5
0.0 0.7
24 1.5
1.0 0.9
23
0.5 1.2
0.5
0.2
22 0.6 0.2
0.0 0.1
External demand -0.2
Public demand
21
-0.5 Private demand
95 - 3
96 - 3
97 - 3
98 - 3
99 - 3
00 - 3
01 - 3
02 - 3
03 - 3
04 - 3
05 - 3
06 - 3
-3
1991-1995 1996-2001 2002-2006/3Q
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
94
Real values, derived from a fixed-base estimates formula up to
Sources: Economic and Social Research Institute, 1995, and a chain-weighted index formula from 1996.
Cabinet Office and Government of Japan Source: Economic and Social Research Institute, Cabinet Office
and Government of Japan
C. Issues and Outlook for Japanese Economy
1) Population decline and need for higher productivity in services
The Japanese population decreased by 21,266 to mark its first postwar decline in 2005, according to
5
official statistics released on November 30, Fig. 1-12 Japanese Population Estimates
2006. The forecast is for the population to fall
below 100 million by 2046 and 90 million by 140
2055, a faster decline than previously (million people)
anticipated (Fig. 1-12). This will have an
adverse effect on the economy owing to the Population peak in
2005 (127,768,000)
diminishing stock of capital due to declining 100
labor inputs, while aging will put downward
pressure on the overall economy due to Population growth (actual)
Old estimate (January 02)
reduced levels of personal savings. An aging New estimate (January 07)
population will also have an impact on social 60
guarantees such as pensions and medical care,
19 0
19 5
19 0
19 5
19 0
19 5
19 0
19 5
19 0
20 5
20 0
20 5
20 0
20 5
20 0
20 5
20 0
20 5
20 0
20 5
20 0
55
leading to pressure to revise the entire social
5
5
6
6
7
7
8
8
9
9
0
0
1
1
2
2
3
3
4
4
5
19
security system. To ease such pressures and Source: National Institute of Population and Social
achieve sustainable economic growth, Security Research
measures will be needed to halt declining
births, and bring women and older citizens Fig. 1-13 TFP Growth Rate
more fully into the labor force. Although Japan
experienced a lengthy economic downturn
from the mid-90s to 2001, overall productivity 1.2
was not impaired and growth was at levels not 1.0 (%)
substantially lower than those of other major 0.8
developed nations (figs. 1-13 & 1-14). But 0.6
while manufacturing maintained high
0.4
productivity compared to other nations, the
services sector was weak (Fig. 1-15). Since the 0.2
service sector’s share of the economy is 0.0
increasing, improved productivity is vital. The 95 96 97 98 99 00 01 02 03 04 05
new economic growth strategies announced in
May 2006 contain specific measures to boost Source: Council on Economic and Fiscal Policy
competitiveness and productivity, such as
promoting new business models, deregulation, training, IT and foreign direct investment entering Japan.
Fig. 1-14 Breakdown of Economic Growth in Major Fig. 1-15 Productivity Contributions in Major
Nations Nations, by Industry
3.5 2.8 3.2 2.5
3.2 (%)
3.0 Manufacturing
0.7 1.2
2.5 1.0
0.5 2.0 Enterprise services
2.1 Other services
2.0 0.9 0.9 0.2 Other industries
1.5 0.7 1.0 1.3 1.5
0.6
1.0 0.3
1.5 1.4
0.5 1.1 1.0 1.0 1.1 1.0
0.0
-0.5 -0.8 -0.2 0.5
-1.0 TFP Capital input volume Labor input volume
-1.5 0.0
Japan U.S. Canada U.K. Germany France
-0.5
(95-04) (95-05) (95-05) (95-03) (95-05) (95-05)
U.K. Japan U.S. Germany Canada France
Source: OECD Source: OECD
6
2) Fiscal restructuring
Japan’s government finances are the worst among developed nations, so fiscal restructuring is
required (Fig 1-16). In the January 2002 Structural Reform and Medium-Term Economic and Fiscal
Perspectives, the government announced it would turn the deficit into a surplus by the early 2010s by
reducing spending through structural reforms. In fact, some anticipate that a surplus might be possible
even sooner, due to increased corporate tax revenues in conjunction with the economic upswing. In fact,
improvements proceeded faster than expected at the start of 2006, with the primary balance for FY2006
estimated at ¥11.2 trillion (2.2% of GDP) and ¥4.4 trillion (0.8% of GDP) for FY2007 under the
proposed budget (Fig. 1-17). Government debt issued under the draft FY2007 budget would be reduced
to ¥25.4 trillion, down from ¥29.97 trillion in FY2006, with the aim of further reductions for the next
three years. Assuming steady progress in fiscal restructuring, dependence on government bonds would
drop to 30.7%, down from a peak of 41.8% (real) in FY2003.
Fig. 1-16 Government Debt as % of GDP in Major Fig. 1-17 Government Basic Expenditure as %
Nations of GDP
(%)
200 0.0
Japan U.S.
Actual
180 U.K. Germany -0.5 Outlook as of January 06
France Italy
160 -1.0
Canada
140 ％
-1.5
120
-2.0
100
-2.5
80
-3.0
60
-3.5
40
-4.0
20
-4.5
0
03 04 05 06 07 08 09 10 11
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
(e) (e) (e) (Annual rate)
Source: OECD Sources: Ministry of Finance and Council on
Economic and Fiscal Policy
3) Robust economic growth, but weak consumer spending
Ensuring that Japan’s economic expansion continues in 2007 will require prudent action. Although
companies have steadily improved their finances and profits, they have remained cautious about raising
wages, especially contractually obligated payments (figs. 1-18 & 1-19). Companies still believe that in
light of intense international competition, stronger earnings should be passed along to employees only as
bonuses or one-time payments3. Consumer spending through 2006 did not exhibit a clear growth trend
due to the lag in wages, and it is unlikely that improved employment will boost consumer spending in
2007. However, it is also difficult to conceive this might lead to a correction in the economy.
Manufacturers and other leading corporations have nearly completed their financial restructuring by
putting lean financial structures into place. In employment, baby boomers born between 1947 and 1949
will begin to retire in 2007, so the real issue will be how to ensure sufficient staffing. In fact, perceptions
of a tighter labor supply in light of increasing demand are expected to grow. Despite low expectations of
wage increases, substantially lower wages are very unlikely.
3
In the Nihon Keizai Shimbun’s Survey of 100 Company Presidents, just 26% said they would increase wage levels in 2007.
7
Fig. 1-18 Labor Share Trends Fig. 1-19 Real Growth in Capital Expenditure and
Wages
56
(%) 20.0 4.0
55 (% YoY)
3.0
54
10.0 2.0
53
1.0
52
0.0 0.0
51
50 -1.0
49 -10.0 -2.0
48 Capital expenditure -3.0
Wages (right axis)
-20.0 -4.0
/1 3
96 - 3
/1 3
/ 3
99 1- 3
/1 3
01 - 3
/ 3
/ 3
04 1- 3
/1 3
06 - 3
-3
95 1-
97 1-
98 -
00 1-
02 1-
03 1-
05 1-
/1
/
/
/
/
/
94
96 - 3
97 - 3
98 - 3
99 - 3
00 - 3
01 - 3
02 - 3
03 - 3
04 - 3
05 - 3
06 - 3
-3
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
/1
95
Labor share = wages/GDP
Sources: Economic and Social Research Institute, Sources: Economic and Social Research Institute, Cabinet
Cabinet Office and Government of Japan Office and Government of Japan
The corporate sector, after supporting the Fig. 1-20 IMF Country/Region Forecasts
economy in 2006, should again enjoy strong
profits in the first half, especially among 11.0 10.0 10.1 10.2 10.0 10.0
(% YoY)
exporters, given that the yen weakened 9.1
unexpectedly to ¥119 to the U.S. dollar as of the 9.0 8.3 U.S. Japan
4
2006 yearend . While a temporary lull in capital Euro zone Asia NIEs
ASEAN 4 China
expenditure is expected, if only as a backlash to 7.0
5.9 5.6
aggressive expenditure through 2006, the 5.3 4.9
5.1
possibility of a large downturn is limited because 5.0 5.5 5.8
3.9
4.4
producers don’t yet feel they have excess 4.7 3.2 4.5 5.0
2.9
3.2 3.4
capacity. Corporate profitability will remain 3.0 2.5 2.5 2.3 2.7
1.6 1.8
strong. 1.9 1.1 2.6
2.4
2.0
2.1
In external demand, the U.S. economy 1.0 0.8 0.9
2.1
1.3
0.4 0.8
should slow until around mid-2007 and Asian
0.1
NIEs also appear headed for a slight downturn. -1.0
Exports to these countries and regions will be 2001 2002 2003 2004 2005 2006 2007
(forecast) (forecast)
affected, but the breadth of decelerated exports
will remain limited due to high growth in China
and the ASEAN region (Fig. 1-20). Forecasts for 2006 and 2007
Since domestic oversupply has nearly been Source: IMF
resolved, demand is expected to remain generally firm, except for somewhat fragile consumer spending,
and will exert upward pressure on consumer prices. Crude oil prices (West Texas Intermediate)
continued to fall nearly across the board after hitting an all-time high of $77 in July 2006. Falling petrol
prices will affect consumer prices. Aside from such market factors, however, prices are forecast to
remain stable and deflation will be virtually eliminated in 2007.
4
According to the BoJ’s December 2006 Tankan quarterly survey, manufacturers and leading corporations had expected a rate of
¥113.40 to the dollar in the latter half of 2006.
8
To sum up, capital expenditure, consumer spending and external demand are all expected to grow at
slowed rates in the first half of 2007, but the economy should grow stably, underpinned by solid
corporate earnings. External demand and the corporate sector will steadily pick up speed from midyear,
when signs of a recovery will begin to appear in the U.S. economy. But the pace of the recovery in
consumer spending will be sluggish, so economic growth will lack strength overall. There is a slight
possibility of the economy faltering due to stalled consumer spending resulting from a tightened labor
supply. Nevertheless, stable growth is forecast, although it will lack the strength of economic activity
from 2005 to mid-2006. Of 19 private think tanks, nine have predicted a slowdown in fiscal 2007,
although the forecasts vary widely from 1.2% to 2.5%. All but one predict the deflator will revert to
positive, anticipating an end to the trend of nominal growth exceeding real growth (figs. 1-21 & 1-22).
Fig. 1-21 Private and Government Growth-Rate Fig. 1-22 Real/Nominal Growth Rates (Fiscal Years)
Forecasts
(%)
Real GDP Nominal GDP
Company FY 2006FY 2007FY 2006FY 2007 (% YoY)
Goldman Sachs Japan 1.9 2.5 1.3 2.6 4.0
Nikko Citigroup 1.8 2.4 1.3 2.6 2.9 Real growth rate Nominal growth rate
The Japan Research Institute 1.8 2.3 1.2 2.5 3.0 2.5 Deflator
Nomura Securities Financial & Economic Research Cente 1.8 2.2 1.4 2.5 2.4 2.6 2.1 2.0 2.4 1.9 2.02.2
Morgan Stanley 2.0 2.2 1.3 2.8 1.9
2.0 1.5
Meiji Yasuda Life Insurance 1.9 2.1 1.1 2.4
1.0 1.1 1.0
Daiwa Institute of Research 1.9 2.0 1.2 2.3
1.0 0.7 0.9 0.8 0.9
Mitsubishi Research Institute 2.0 1.9 1.4 2.2
Dai-Ichi Life Research Institute 1.9 1.9 1.3 2.2 0.0
Shinko Research Institute 1.8 1.9 1.3 2.1 0.0
Mizuho Research Institute 1.9 1.8 1.6 2.5
Norinchukin Research Institute 2.0 1.7 1.2 2.1 -1.0 -0.7 -0.8 -0.8
Japan Center for Economic Research 1.8 1.7 1.2 1.8
BNP Paribas 1.7 1.6 1.0 1.5
-2.0 -1.5
NLI Research Institute 1.8 1.6 1.3 1.9
-1.9 -2.1
Mitsubishi UFJ Securities 1.8 1.6 1.3 1.8
Daiwa Securities SMBC 1.8 1.4 1.0 1.6 -3.0
Mitsubishi UFJ Research & Consulting 2.0 1.2 1.4 1.4 95 96 97 98 99 00 01 02 03 04 05 06 07
Bank of Tokyo-Mitsubishi UFJ 1.9 1.2 1.8 2.0
Average 1.9 1.8 1.3 2.1
(f) (f)
Median 1.9 1.9 1.3 2.2
Government forecast 1.9 2.0 1.5 2.2 Source: Cabinet Office
Sources: Above companies and Cabinet Office
4) Main risk factors are overseas economies and impaired sentiment
A potential risk in 2007 is the possibility of the U.S. economy growing slowly. Many anticipate it
difficult to hope for the U.S. to achieve more than its potential growth rate of around 3% (annualized)
basis in the first half, particularly if consumer spending were curbed by falling home prices and rising
costs of mortgages. If the U.S. economy were to come under even stronger downward pressure, the
effect would be felt in Japan after a lag of around half a year. Under this scenario, the Japanese economy
would be more turbulent in the second half of 2007.
Energy prices rose until midyear 2006, but by the end of the year crude prices (WTI) had fallen
more than 20% from their peak, diminishing anxieties. But in the future, if high prices were coupled
with a weaker yen (which began declining in December 2006), corporate profits would be hurt and fears
of rising consumer prices would increase. Even in this case, however, damage to the overall economy
would be limited so long as energy prices did not match previous highs5.
Domestic factors that may affect consumer sentiment include increased burdens on households and fears
5
Kyoto University Professor Akira Maeda, a research fellow with the Cabinet Office’s Economic and Social Research Institute,
estimates that an effect equal to the 1973 oil shock are inconceivable unless the price of crude were to exceed $125 per barrel.
9
of future tax increases due to the abolition of uniform tax breaks and increases in national pension
premiums, along with local elections in April and upper house elections in July. Many believe that the
long-term political stability of the Koizumi administration contributed significantly to stabile consumer
sentiment, so political developments under the Abe administration bear watching.
10
Column 1: Intensifying Debate on Inequalities
Many countries have experienced growing economic inequalities due to advancing globalization, the
spread of information technologies and intensifying competition. In Japan, the debate over inequalities
began when the country entered recession 1998 and has continued to intensify despite the advent of
economic recovery in 2002.
In February 2006, then-Prime Minister Koizumi answered questions in parliament concerning
income and asset inequalities. In July, the Cabinet Office issued its Annual Report on the Japanese
Economy and Public Finance 2006, which addressed and analyzed the issue. Public opinion polls have
revealed that perceptions of inequalities have been spreading. The OECD Economic Survey of Japan
2006 pointed out that the Gini coefficient6 has risen above the OECD average, making relative poverty
in Japan one of the highest among the OECD countries7. Economists engaged in the debate include
Professor Toshiaki Tachibanaki of Kyoto University, who published Nihon no keizai kakusa (Economic
Inequality in Japan) in 1998 and Kakusa shakai--nani ga mondai nano ka (Social Disparity and the
Nature of the Problem) in 2006, and Professor Fumio Ohtake of Osaka University, who published Nihon
no fubyodo--kakusa shakai no genso to mirai (Inequality in Japan: An Illusion of an Unequal Society
and the Future) in 2005. The Japanese public has grown increasingly concerned about the issue. There is
also the issue of inequalities between Tokyo area and other regions of Japan. Yubari, a town on the
northern island of Hokkaido that suffered a financial collapse, exemplifies the struggles of Japan’s
depressed regional economies.
The mass media in other countries have aired reports about the debate in Japan. Such reports show
that Japan had a well-established reputation as a middle-class country with minor income inequalities
compared to the high-income countries of Europe and North America.
Has income inequality been growing in Japan? Moreover, is the magnitude of the problem
comparatively large in international terms?
Public opinion polls consistently indicate that the Japanese have developed heightened perceptions of
economic disparities and inequalities 8 . This is true among households headed by non-regular
wage-earners, whose presence has grown amid corporate restructuring and downsizing. The growing
population of “freeters” and NEETs 9 is due in part to severe employment conditions faced by
young-adult Japanese. Economists are paying attention to the growing inequality of their incomes, a key
point in the debate.
The Gini coefficient, which is based on published statistical data, confirms that income inequality
slowly increased from the 1980s. According to the Japanese government, the major cause was the
growing number of households comprising elderly people. From 1999, however, there was a distinct
upward trend in the Gini coefficient among the younger population. No doubt, the future will bring calls
for further measures to diversify employment patterns and address related problems of young adults.
There is also the issue of international comparisons, wherein the Gini coefficient for Japan is about
the average for other OECD countries (see figure). In fact, income inequality is smaller in Japan than in
the United Kingdom and the United States. Comparisons introduce the problem of whether to work from
relative or absolute poverty levels. In OECD statistics, figures vary greatly depending on how they are
prepared, which makes simple comparisons impossible.
6
This is a numerical indicator of unequal versus perfect income distribution. The coefficient is 0 for perfect equality, and around 1 for
total inequality (Appended Table 3-4, Annual Report on the Japanese Economy and Public Finance 2006)
7
The Ministry of Internal Affairs and Communications announced in November 2006 that it had calculated Gini coefficients on the basis
of disposable income in the National Survey of Family Income and Expenditure 2004 and found that Japan ranked twelfth among the 24
OECD countries with which comparisons were possible.
8
Appended Table 3-10, Annual Report on the Japanese Economy and Public Finance 2006
9
Freeters are people of ages 15 to 34 who choose to work on a part-time or temporary basis. “NEETs” (Not in Employment, Education
or Training) are people of the same age group who are counted as unemployed.
11
In terms of inequalities between executive and non-executive wages, U.S. executives earn
compensation and benefits that are extremely high compared to those in Japan. Some reports have called
for corrections in this inequality10. Even here, however, it is difficult to conclude that income inequality
in Japan is greater than that in Europe or North America. In any event, inequalities tend to be linked with
growing social unrest and crime worldwide, so the need for solutions is universal.
Fig 1 International Comparison of Gini Coefficients for 27 OECD Countries
50 48.0
45 Average of 27 countries=30.7% 43.9
40
36.7
35.6 35.7
34.5 34.7
35 32.6 32.9 33.7
31.4
29.3 30.1 30.4 30.5
30 27.7
27.2 27.3
26.1 26.1 26.1 26.7
25.2 26.0
24.3 25.1
25 22.5
20
15
10
om
Fr m
G d
A ds
Fi r g
he en
m c
Be nd
Po es
Sw rk
H a ny
e
Tu d
o
N d
A land
M ey
itz ay
G ce
Ca ry
Po l y
d al
Ze in
R ia
Ire a
lia
in n
xe bli
ec
an
an
d
n
ic
pa
iu
ni rtug
h str
u
at
Ita
a
a
n
ga
ed
an
Sw orw
rk
la
na
la
tra
gd
ex
m
Sp
bo
re
rla
al
m
nl
Lu epu
lg
St
te Ja
er
ec u
un
en
us
er
K
D
te
et
ew
d
N
N
U
ni
Cz
U
Calculations based on household disposable income after adjustment for number of households. Data as of 1995 for
Belgium and Spain; 1999 for Australia, Austria and Greece; 2001 for Germany, Luxembourg and New Zealand; 2002 for
Czech Republic, Mexico and Turkey; and 2000 for all others.
Source: OECD
10
Christian Science Monitor, January 4, 2007
12
2. Trade and Direct Investment: Ties with Emerging Markets Deepen
A. Exports and Imports Reach High Levels
Fig. 2-1 Japanese Exports and Imports
Japanese exports during (US$ billions, %)
January to November 2006 rose 2006 2006
2005
7.8% over the same period in (Jan-Nov) I II III
2005 to $587.7 billion (Fig. Exports 598.3 587.7 151.2 158.2 166.3
YoY change 5.9 7.8 4.8 7.3 10.4
2-1). The yen’s depreciation Imports 518.0 527.6 137.9 142.0 148.5
and a buoyant world economy YoY change 13.9 11.5 13.5 11.0 11.4
helped exports achieve Trade with Balance of payments 80.3 60.1 133.6 161.6 177.6
quarterly year-on-year World YoY change -27.3 -11.8 -9.5 -3.3 0.4
increases of 4.8%, 7.3% and Export volume index 114.3 122.6 119.2 122.5 125.7
YoY change 0.8 8.1 11.2 8.7 8.4
10.4% in the first three quarters, Import volume undex 117.6 122.8 121.0 121.9 122.5
respectively. YoY change 2.7 4.5 5.4 4.5 2.9
Imports rose 11.5% to Exchange Average 110.2 116.2 116.9 114.4 116.2
$527.6 billion, maintaining Rate (yen/$) YoY change -1.8 -5.9 -10.6 -5.9 -4.3
double-digit growth since 2003. Oil Import $/barrel 51.1 64.6 59.5 64.9 70.7
Price YoY change 40.5 27.5 46.1 30.5 26.0
The trade balance over the Volume compared with 2000. Exchange rates are Interbank averages. Data as of December 28, 2006.
same period was $60.1 billion, Sources: Ministry of Finance and Bank of Japan
down $11.8 billion from 2005.
Import value rose as the Fig. 2-2 Trade Trends by Geographic Area
Japanese economy recovered (US$ billions, %)
2006 2006
and crude oil prices soared. 2005
(Jan-Nov) Q1 Q2 Q3
By volume, exports Exports 134.9 132.9 34.4 35.5 37.3
increased 11.2%, 8.7% and YoY change 6.3 8.1 5.0 6.7 12.5
Imports 64.5 62.6 16.4 17.0 17.4
8.4% in the first three quarters, U.S.
YoY change 3.3 6.2 7.1 2.1 5.3
respectively. Yet export growth Export volume YoY change 2.1 9.1 9.3 8.4 9.7
Import volume YoY change 1.6 1.5 0.2 -3.7 0.9
for all of 2005 was just 0.8%. Exports 88.0 84.7 22.6 23.1 23.1
Export volume was solid for all YoY change 0.7 5.7 0.0 7.0 9.1
regions except the ASEAN4 EU25
Imports 59.1 54.5 14.9 14.6 14.8
YoY change 3.0 0.0 -1.8 -2.1 2.1
nations. Import volume grew Export volume increase -5.2 3.9 3.8 5.4 5.0
4.5%, exceeding the 2.9% rate Import volume increase 0.2 0.3 1.8 -1.1 0.8
of 2005. Exports 279.4 268.3 67.9 72.9 76.6
YoY change 5.5 5.3 2.7 4.9 7.0
East Asia 9
Imports 219.3 218.1 56.8 58.3 60.4
YoY change 11.9 8.7 7.2 7.0 9.2
B. Trade Trends by Exports 145.5 136.8 35.3 37.6 38.6
YoY change 4.3 3.0 0.4 3.5 4.5
Geographic Area Imports 51.0 51.6 13.9 13.9 14.1
Asia NIEs
YoY change 9.5 10.6 13.3 9.3 10.3
(Jan.–Nov.) Export volume increase -5.5 8.0 5.1 12.2 8.9
Import volume increase 5.8 20.9 28.8 32.9 15.8
Exports 53.6 47.8 12.3 12.7 13.9
YoY change 4.2 -2.8 -5.5 -8.7 2.3
The largest contributions to ASEAN 4
Imports 59.2 58.7 15.3 15.7 16.5
export growth were China (2.0 YoY change 7.4 8.2 4.5 6.3 9.9
Export volume increase 1.4 0.3 3.4 -1.0 0.3
points), the U.S. (1.8 points) Import volume increase -1.6 3.8 -1.9 5.5 5.0
and South Korea (0.5 point). Exports 80.3 83.7 20.3 22.5 24.0
YoY change 8.8 15.1 13.0 17.4 14.3
Imports 109.1 107.8 27.6 28.7 29.8
1) Double-Digit Exports to China
YoY change 15.8 8.0 5.9 6.2 8.3
China Export volume increase 2.4 14.8 19.0 18.4 11.7
Import volume increase 11.2 7.9 8.8 6.4 6.5
Asia NIEs are South Korea, Taiwan, Hong Kong and Singapore. ASEAN 4 are Indonesia, Thailand,
Philippines and Malaysia. ASEAN 10 export/import volume increases cover ASEAN 4 only. Data
as of December 28, 2006.
Source: Ministry of Finance
13
Exports to China
Fig. 2-3 Changes in Exports to China by Product
climbed 15.1% to (% QoQ)
$83.7 billion, 70
following growth of Others
60
8.8% in 2005. Metal products
Chemical products
Precision equipment
Double-digit growth 50 Electrical equipment
General machinery
was maintained in each 40
Transport equipment
Total export volume
Total export value
of the first three
quarters: 19.0%, 18.4% 30
and 11.7%, 20
respectively. Electrical
machinery, including 10
semiconductors and 0
electronic components,
jumped 19.8% to $22.5 -10
billion (Fig. 2-3). The -20
main factor was
-3
2
-3
-3
-3
2
-3
2
2
2
-3
6
9
6
9
6
9
6
9
6
9
6
9
-1
-1
-1
-1
-1
4-
7-
4-
7-
4-
7-
4-
7-
4-
7-
4-
7-
/1
/1
/1
/1
/1
/1
10
10
10
10
10
electrical machinery
01
02
03
04
05
06
Source: Ministry of Finance
exports, which
continued to rise as companies in Japan increasingly supplied parts to Japanese-owned companies in
China, which then assembled and exported finished products back to Japan. Exports of machinery, such
as engines, grew 12.2% to $17.3 billion. Local orders grew nicely as China’s increased needs for energy
drove up demand for plant construction.
2) Automobiles Boost Exports to U.S.
Exports to the
United States rose
Fig. 2-4 Contributions to Changes in Exports to the U.S., by Commodity
8.1% to $132.9 billion. (% QoQ)
Volume climbed 9.3%, 15
8.4% and 9.7% in the
10
first three quarters,
respectively. 5
Transport
equipment exports 0
were strong, rising -5
18.2% to $53.4 billion,
Others
which included -10 Precision equipment
automobiles growing Electrical equipment
General machinery
-15
25% to $41.2 billion Transport equipment
Total export volume
(Fig. 2-4). The U.S. -20 Total export value
accounted for 1.8
points of the increase -25
in Japan’s total exports,
-3
6
9
-3
6
9
-3
6
9
-3
6
9
-3
6
9
-3
6
9
2
2
2
2
2
4-
7-
4-
7-
4-
7-
4-
7-
4-
7-
4-
7-
-1
-1
-1
-1
-1
/1
/1
/1
/1
/1
/1
10
10
10
10
10
01
02
03
04
05
06
with 1.5 points coming Source: Ministry of Finance
from automobiles. In
addition to increased demand for smaller vehicles due to soaring gasoline prices, Japanese exports
benefited from a lag in the U.S. production of popular Japanese compact cars, hybrids and diesel
vehicles. The depreciation of the yen also drove up export value as models from Japan enjoyed strong
demand (Fig. 2-5). After growing 7.3% to 1.93 million vehicles in 2005, exports skyrocketed 29.9% to
2.28 million vehicles during January to November 2006.
14
