Monthly Report of Prospects for Japan`s Economy May 2006

Monthly Report of Prospects for Japan's Economy
May ２００６
Macro Economic Research Centre
Economics Department
The Japan Research Institute, Limited
http://www.jri.co.jp/thinktank/research/
This report is the English version of the April 2006 issue of the original Japanese version.
Current situation of Japan’s economy – Continuing solid recovery
Japan’s economy as a whole is continuing its solid recovery, although the negative influences such as the weighing impact of higher oil
prices can be seen. The uptrend of the economy is mainly due to the following favourable cycle: "an expansion of exports and business
fixed investment" → "a rise in corporate profits" → "a recovery in wages as well as employment, an uptrend of stock prices" → "an increase in
private consumption " → "a rise in corporate profits". This cycle is also bolstered by the circumstances of dissipating structural adjustment
pressure in the corporate sector. The Industrial Production Index, which indicates the direction and the level of economic activities, is
predicted to increase in Q1 2006, its second consecutive quarterly rise.
Figure 1 Main Indicators for Japan's Economy
(CY2000=100,s.a.,3-m.m.a.)
(CY2000=100, s.a.)
115
Industrial Inventory Ratio Index
110
116
Retail Sales Index (Real)
112
105
108
Household Consumption
100
104
Expenditure Index (Real)
95
100
90
96
Industrial Production Index
85
1996
97
98
99
2000
92
01
02
03
04
05
06
1996
(Y/M)
98
99
2000
01
02
03
04
05
06
(Y/M)
06
(Y/M)
(CY2000=100,s.a.,3-m.m.a.)
140
Index for Machinery Orders (Real, Private,
excl. Electric Power and Shipbuilding)
(CY2000=100,s.a.,3-m.m.a.)
130
97
130
120
Real Imports Index
120
110
110
100
100
90
90
80
Real Exports Index
80
Index for Building Construction Starts (Floor Area, Private, Non-dwelling)
70
1996
97
98
99
2000
01
02
03
04
05
06
70
1996
(Y/M)
97
98
99
2000
01
02
03
04
05
Source: The Ministry of Economy, Trade and Industry, The Ministry of Internal Affairs and Communications, The Cabinet Office, The Ministry of Land, Infrastructure and Transport, The Bank of Japan
Note 1: Indices of Household Consumption Expenditure, Retail Sales, Machinery Orders, Building Construction Starts, Exports, and Imports are calculated as seasonally adjusted and 3-month moving averages.
2: The Industrial Production Index in March and April 2006 is based on METI forecasts. Note 3: Shaded areas indicate periods of recession according to the Cabinet Office
- 1 -
Monthly Report of Prospects for Japan's Economy May 2006
The Japan Research Institute, Limited
Business sentiment ― Showing mild improvement tendency
BOJ's Tankan Survey in March 2006 is showing a mild improvement tendency in business sentiment as a whole, albeit the results
varied among industries. The business conditions Diffusion Index (DI) on an all-enterprises basis was 5% points, the same as in the
previous survey. However, the forecast DI, which reflects the estimate at a time three months hence (June 2006) is 6% points, showing a
1% point rise against the actual result in March. This tendency including the forecast DI in the survey seems to exhibit the steady
improvement in the sentiment among enterprises, on the back of dissipating structural adjustment pressure, a solid increase in domestic
demand, an expansion of exports and an uptrend of stock prices.
Figure 2-1 Business Conditions Diffusion Index in BOJ's Tankan Survey
"Favourable" minus "Unfavourable"
(% Points) 【Manufacturing】
Large Enterprises
大企業
Small & Medium-sized Enterprises
中小企業
40
30
20
10
0
▲10
▲20
▲30
▲40
▲50
▲60
"Favourable" minus "Unfavourable", % points
93
94
95
96
97
98
99
【Nonmanufacturing】
00
01
02
03
04
05
06
Large
Enterprises
大企業
Small
& Medium-sized Enterprises
中小企業
60
50
40
30
20
10
0
▲10
▲20
▲30
▲40
▲50
10
14
38
8
37
13
Retailing
7
10
7
Services for Individuals
14
7
17
Transportation
Communications & Information
16
15
14
29
23
28
27
28
Nonmanufacturing
Iron & Steel
15
60
15
52
17
54
Chemicals
16
15
19
Petroleum & Coal Products
28
10
33
Pulp & Paper
Industrial Machinery
13
39
13
41
12
41
Services
▲7
▲6
▲2
▲4
▲3
▲2
2
▲12
3
▲11
7
▲7
6
▲9
7
▲9
9
▲8
1
2
5
8
▲3
8
▲3
12
0
4
10
▲1
【All Enterprises】All Industries
Manufacturing
Nonmanufacturing
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
(Y/Q)
28
3
21
【Small & Medium-sized Enterprises】
All Industries
Manufacturing
Nonmanufacturing
90
20
22
19
39
24
20
9
40
26
32
15
21
17
12
33
7
19
19
06/6
(Forecast)
20
20
18
49
21
25
0
39
20
38
15
16
11
15
Motor Vehicles
Construction & Real Estate
17
18
(Y/Q)
06/3
(Forecast)
(Actual)
Electrical Machinery
16
Manufacturing
92
05/12
Manufacturing
Nonmanufacturing
(% Points)
91
05/9
(Actual Result)
18
19
17
47
14
24
15
43
19
36
15
15
16
14
【Large Enterprises】All Industries
90
05/6
5
12
0
6
13
1
Source: The Bank of Japan, "Tankan"
Source: The Bank of Japan, "Tankan"
Note: An arrow indicates that the figure is 5% points more/less than the previous survey result.
Note: The marks below each line, ○ or ×, indicate the forecast DIs which had been made three
months before, showing a recent tendency that the actual DIs exceed the forecast DIs.
Monthly Report of Prospects for Japan's Economy May 2006
- 2 -
The Japan Research Institute, Limited
Exports – Slight slowdown in expansion
Japan's exports are expected to continue to expand, led mainly by those to emerging and/or resource-rich countries. Yet the pace
of the expansion is likely to slow down moderately as the US economy is projected to move into a slightly decelerating phase*, given
the weight of exports to the US, which accounts for around 20 per cent of the total, and the downside influences on the part of exports
to Asian regions.
*The US economy this year is unlikely to decelerate much in its growth rate, mainly because the expansionary trend in business fixed investment would be maintained. However,
a slowdown in the housing market would begin slowing household consumption expenditure gradually, which would bring the US economy into a slightly decelerating phase. It is
forecast that the US economy would grow in real terms at 3.5% in CY2005 and 3.4% in CY2006.
Figure 3-2 Change in Real GDP of the US
and Real Exports of Japan
Figure 3-1 Japan's Real Exports by Region
< seasonally adjusted, 3-month moving average >
180
170
160
150
140
130
120
110
100
90
80
(％)
(％)
Fixed Investment
24
5.5
Boom in China
Our Forecast 5.0
20
4.5
16
4.0
12
3.5
8
3.0
4
2.5
0
2.0
▲4
1.5
- Minor Adjustment
▲8
20 02
03
04
05
06
World <100>
世界<100>
US <23>
米国<23>
EU25
<15>
EU25ヵ国<15>
Other Asian <29>
他アジア<29>
Others <14>
その他<14>
China・HK
<20>
中国･香港<20>
(Y/M)
in IT Sector
▲ 12
Asian Currency
▲ 16
crisis
0.5
- China curbs
Domestic Demand
0.0
▲ 0.5
▲ 20
19 95
96
97
98
99 20 00
Change in Real Exports of
わが国実質輸出(左)
Source: The Ministry of Finance, The Bank of Japan
1.0
Japan (Left Scale)
01
02
03
04
05
06
(Y/M)
Change in Real GDP of
米国実質成長率(右)
the US (Right Scale)
Note 1: The figures in angle brackets in the legend indicate the share of each
region in total nominal exports of Japan (JY 65.7 trill in CY2005).
Source: The US Department of Commerce, The Bank of Japan, The Japan Research Institute, Ltd.
2: Others: Middle Eastern countries, South American countries, Russia and so on.
- 3 -
Monthly Report of Prospects for Japan's Economy May 2006
The Japan Research Institute, Limited
Corporate profits ― Looming impact of higher oil prices
Corporate profits as a whole have been staying on a positive growth trend thus far. This is because the positive effects of both the curb on
fixed costs and the acceleration of an increase in sales, reflecting an expansion in domestic and overseas demand, have absorbed the
negative impact caused by higher oil prices. Looking forward, enterprises could be forced to take the looming impact of higher oil prices into
further account in their management, given that the marginal effect of fixed cost cutting is expected to diminish, against the backdrop of the
gradually tightening labour market and the bottoming-out of interest rates. Accordingly, they might rely more on the effect of the acceleration of
the increase of sales, the contribution of which to the future change in corporate profits would end up rising.
Figure 4-2 Forecasts of Sales and Current Profits in BOJ's
Tankan Survey < all industries, year-on-year % change >
Figure 4-1 Contribution to Change in Current Profits
< all industries except financial, percentage points in total year-on-year % change >
(％)
▲
▲
▲
▲
▲
▲
70
60
50
40
30
20
10
0
10
20
30
40
50
60
【Sales】
【売上高】
( Y/Y
% Change )
(前年度比、％)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
4.0
3.8
Forecast in March in the previous year
前年度末(3月)時点計画
Actual (FY2004 ) and
実績(2005年度は見込)
Forecast (FY2005) in March 2006
1.9
1.3
1.1
FY 2004
2004年度
FY 2005
2005年度
FY 2006
2006年度
【経常利益】
【Current Profits】
( (前年度比、％)
Y/Y % Change )
2000
01
02
03
04
05
(Y/Q）
売上高要因
Sales
人件費要因
Personnel expenses
変動費要因
Variable costs
純金融費用要因
Net financial expenses
Depreciation expenses
減価償却費要因
Current profits % change
経常利益･前年比
Source: The Ministry of Finance, "Financial Statements Quarterly Statistics of Corporations by Industry"
Note: The equation for this analysis is as follows:
20
18
16
14
12
10
8
6
4
2
0
20.3
Forecast (FY2005) in March 2006
10.5
6.3
2004年度
FY 2004
Δπ/π-1 ＝ΔＳ・（1-ｖ-ｗ-ｒ-ｄ）/π-1 -Ｓ・Δｖ/π-1
-Ｓ・Δｗ/π-1 -Ｓ・Δｒ/π-1 -Ｓ・Δｄ/π-1
π… Current profits　Ｓ … Sales　ｖ … Ratio of variable costs to sales
ｗ … Ratio of personnel expenses to sales ｒ … Ratio of net financial expenses to sales
Forecast in March in the previous year
前年度末(3月)時点計画
Actual (FY2004 ) and
実績(2005年度は見込)
3.3
4.4
2005年度
FY 2005
2006年度
FY
2006
Source: The Bank of Japan, "Tankan"
ｄ … Ratio of depreciation expenses to sales　Δ… Difference from the previous year
Monthly Report of Prospects for Japan's Economy May 2006
- 4 -
The Japan Research Institute, Limited
Wages situation - No especially noticeable buoyancy
It is expected that wages will continue to recover, yet the improvement situation would show no especially visible buoyancy. This reflects
the recent tendency in corporate behaviour that Japan's enterprises are becoming more cautious about raising labour's relative share,
because their management is very aware of the strengthening power of shareholders and the increasing necessity of competitiveness. On
the other hand, the recovery in the number of employees is apparent with the gradual strengthening of the business sentiment that there is
an insufficiency of workers. Under these circumstances, as long as the labour market is not tightening rapidly, enterprises are likely to try to
control workers' total cash earnings by curbing cash earnings per employee. This seems to be shown in the trend since the beginning of this
year that the growth rate of cash earnings for scheduled working hours has slowed down, and that the wage settlements this spring will likely
result in a very modest rise in average pay increase, only about 0.2 percentage points improvement from last year.
Figure 5-1 Contribution to Change in Index of Workers' Total Cash Earnings
< percentage points in total year-on-year change >
8
7
(％)
6
5
4
3
2
1
0
▲1
▲2
▲3
▲4
▲5
Figure 5-2 Weighted Average Pay Increases
in Spring Wage Settlements
(％)
5.60
6
104
102
100
98
96
94
92
90
88
86
84
82
80
78
19 95
96
97
98
99 20 00
Scheduled Cash Earnings
所定内給与（寄与度、左)
01
02
03
04
05
Non-Scheduled Cash Earnings
(% Points Contribution, Left )
所定外給与（寄与度、左)
(% Points Contribution, Left)
Special Cash Earnings
雇用者数(労調、寄与度、左)
特別給与(寄与度、左)
(% Points Contribution, Left)
Y/Y % Change in Index of Workers'
名目雇用者所得・前年比(左)
Total Cash Earnings (Left)
Y/Y % Change in Compensation
名目雇用者報酬(GDP統計、右)
5
(Survey of Nippon Keidanren)
3.10
2.80
3
2
2.81
Preliminary Survey Result
(as of the end of March)
2.84
2.62
2.14
4.4
1.97 1.93
1.59 1.65 1.64 1.67
3.1
1
1.9
2.0
1.53
1.3
1.2
0.9
0
▲1
0.1
(Y/Q)
1.69
0.4
▲0.1 ▲0.2
Y/Y % Change in Cash Earnings
for scheduled working hours
▲1.1
▲2
▲0.7
▲0.7
▲1.4
1991 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 (FY)
Number of Employees
(% Points Contribution, Left)
Source: Nippon Keidanren, The Ministry of Health, Labour and Welfare, The Institute of Labour Administration
Index of Workers' Total Cash
名目雇用者所得・季調値(右)
Note 1: Cash earnings for scheduled working hours is at establishments with 5 employees or more.
Earnings, s.a. (Right Scale)
The Y/Y % change figure of FY2005 is calculated as the average from April 2005 to February 2006.
of Employees (in GDP, Left)
2: Preliminary Survey Result is based on the answers from the respondents of 55 enterprises
Source: The Ministry of Health, Labour and Welfare, The Ministry of Internal Affairs and Communications,
The Cabinet Office
2: The figure of Q1 2006 is calculated as the average of January and February 2006.
the Spring Wage Settlements
3.86
4
06
Note 1: Index of Workers' Total Cash Earnings = Index of Total Cash Earnings × Number of Employees
Weighted Average Pay Increase in
4.92
(Final Result is on based on 288 enterprises).
Monthly Report of Prospects for Japan's Economy May 2006
- 5 -
The Japan Research Institute, Limited
Structure of the economy - Increasing resilience
As for the prospects, the recovery of Japan’s economy is expected to be solid, and it is unlikely that the favourable cycle would be disrupted.
The cycle exhibits "a buoyancy in exports, an expansion of business fixed investment" → "a firm rise in corporate profits" → "a mild recovery in
workers' total cash earnings, an uptrend of stock prices" → "an increase in household consumption " → "a further rise in corporate profits". This
is bolstered by the following three favourable factors: (i) the recent corporate behaviour giving priority to making balance sheets more solid, as
well as abundant liquidity in the corporate sector as a whole, (ii) increasing income from direct investment abroad, which is expected to
reinforce current profits, and (iii) visibly receding deflationary pressure since the end of last year.
Figure 6-1 Main Indicators based on Financial
Statements of Corporations (MOF)
(％)
72
70
68
66
64
62
60
58
56
7.5
54 of Long-term
Ratio
7.0
長期債務
Borrowing
to
Cash Flow
6.5
対ｷｬｯｼｭﾌﾛｰ
(Right
Scale)
6.0
倍率(右)
5.5
(％)
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1985
86
87
88
89
Figure 6-2 Net Position in Financial Assets and Liabilities
of Nonfinancial Corporations
( trillion JY)
62.8(4Q)
400
900
300
800
200
700
62.7(1Q)
Labour's Relative
労働分配率(左)
Share (Left Scale)
(Times)
(倍)
( trillion JY)
8
7
4.03(4Q)
100
600
0
500
▲100
400
6
5
4
3.93(2Q)
Ratio of Current Profits
in売上高経常利益率(左)
Sales (Left Scale)
3
3.89(4Q)
2
1
1998
-1
90
91
92
93
94
95
96
97
98
992000
01
02
03
04
300
▲200
0
99
2000
05
01
02
03
04
05
(Year/at the end of each quarter)
(年/期)
(Y/Q)
Source: The Ministry of Finance, "Financial Statements Quarterly Statistics of Corporations by Industry"
Note: Labour's relative share = Personal expenses / ( Personal expenses + Depreciation
expenses + Interest expenses + Current profits )
ﾈｯﾄﾎﾟｼﾞｼｮﾝ(①-②、左)
Net Position (Left Scale)
金融資産(①、右)
Financial Assets (Right Scale)
金融負債(除く株式･出資金、②、右)
Financial Liabilities (excl. Shares and Other Equities, Right Scale)
Source: The Bank of Japan
Ratio of Long-term borrowing to Cash flow = ( Bonds + Long-term borrowing ) /
( Current profits x 0.5 + Depreciation expenses )
- 6 -
Monthly Report of Prospects for Japan's Economy May 2006
The Japan Research Institute, Limited
Favourable cycle – Spreading influences of uptrend in stock prices
It is hoped that the negative influence on private consumption of the scheduled increases in the financial burden on households such as a
half cut of the tax credit in income and local inhabitants taxes would be offset by the positive influence exerted by the uptrend in stock prices,
if the stock prices follow a steady and solid path reflecting the firm economic fundamentals. Actually, in the contribution analysis, unrealised
values in the total amount outstanding of stocks held by households have recently expanded rapidly. Under these circumstances, our
estimate shows that a rise in the Nikkei 225 stock average index from 13,561 (mean in FY2005) to 17,000 (estimated mean in FY2006) is
calculated to contribute to a 0.8 per cent rise in private consumption during FY2006. This is above the 0.6 per cent of negative impact on
private consumption of the scheduled increases in the financial burden during the same year.
Figure 7-1 Contribution to Change in Real Private Consumption Expenditure
< per cent points in total year-to-year change >
(％)
3.5
Figure 7-2 Contribution to Change in Amount Outstanding of Stocks
held by Households < difference from previous quarter >
( trillion JY)
3.0
22
20
18
16
14
12
10
8
6
4
2
0
▲2
▲4
▲6
▲8
▲ 10
▲ 12
▲ 14
2.5
2.0
1.5
1.0
0.5
0.0
▲ 0.5
▲ 1.0
▲ 1.5
▲ 2.0
1998
99
2000
01
02
Real Compensation of Employees
03
05 (Y/Q)
04
Deflator ( % Points Contribution)
デフレーター・寄与度
雇用者所得・寄与度
( % Points Contribution)
Real Net Financial Assets
純金融資産・寄与度
Real Private Consumption Expenditure
実質個人消費・前年比
( % Points Contribution)
( Y/Y % Change )
Source: The Japan Research Institute, Ltd. based on the data of the Cabinet Office, The Bank of Japan,
1999
2000
01
02
03
04
05
(Y/ at the end of Q)
Adjusted amount ( Unrealised values )
調整額（含み損益)
Net transaction amount
純取引額
and The Ministry of Internal Affairs and Communications
Note: The estimate regression equation: InC = 7.070 + 0.419＊InY + 0.196＊InA － 0.710＊InP
(6.737)
(3.831)
(9.257)
Difference in amount outstanding from the previous quarter
残高・前期差
(- 6.5946)
C: Real Private Consumption Expenditure ( in GDP ) Y: Real Compensation of Employees ( in GDP )
A: Real Net Financial Assets ( in Flow of Funds Accounts, adjusted by PCE Deflator )
Source: The Bank of Japan
P: Private Consumption Expenditure Deflator ( in GDP ) Period for Estimate: 1Q CY1994 -- 4Q CY2005
Adjusted R*R = 0.945, D.W. = 0.866, The figure in parentheses indicates t-value.
- 7 -
Monthly Report of Prospects for Japan's Economy May 2006
The Japan Research Institute, Limited
Business fixed investment – Continuing expansionary trend
According to BOJ's Tankan Survey in March 2006, business fixed investment in all industries during FY2006 is forecast to increase 0.8 per
cent over the previous year. This rate of increase, which is a projection made at the end of the previous fiscal year, is almost the same as in
FY2004 (0.9) and FY2005 (1.1). However, it seems to be a promising figure, given the "unfavourable environments" such that (i) the
boosting effects of redevelopment projects in the centre Metropolitan area are wearing off, and (ii) a wider range of investment instruments
such as direct investment abroad and domestic M&A have come to be adopted by enterprises. Accordingly, the expansionary tendency of
business fixed investment would be more noticeable from the June Survey onwards, when the forecast is expected to be revised up mainly in
small and medium-sized enterprises, judging from the usual pattern of revision in these years.
Figure 8-2 Annual Projections of Business Fixed Investment
The BOJ's Tankan March 2006 Survey
Figure 8-1 Domestic Business Fixed Investment, Domestic
M&A and Direct Investment Abroad
(％)
95
90
85
80
75
70
65
60
55
50
45
( trillion JY)
100
80
60
40
20
0
1997
98
99
2000
01
02
03
04
05
Weight
(FY2004)
【Large Enterprises】All Industries
Manufacturing
Nonmanufacturing
Manufacturing
120
(% change, on a year-on-year basis)
FY2004
Nonmanufacturing
140
(CY)
(3) Direct Investment Abroad (Left Scale)
③海外直接投資
(2) Domestic M&A (Left Scale)
②国内Ｍ＆Ａ
Basic Materials
Processing
Electrical Machinery
Motor Vehicles
Leasing
Information Communication
Electric & Gas Utilities
Retailing
【Small & Medium-sized Enterprises】
All Industries
Manufacturing
(1) Domestic Business Fixed Investment (Left Scale)
①国内設備投資
Share of (1) [ (1) / (1)+(2)+(3) ]
国内設備ｳｴｲﾄ（①÷(①+②+③)、右）
Nonmanufacturing
【All Enterprises】All Industries
Manufacturing
Source: The Japan Research Institute, Ltd. based on the data of The Cabinet Office, RECOF Corporation,
Nonmanufacturing
The Ministry of Finance, The Bank of Japan
Note: The figure of Domestic M&A is the total of "IN - IN" (Japanese capital acquirer - Japanese capital target)
transactions based on the data of RECOF Corporation and consists of Merger, Acquisition, Business
(actual)
FY2005 FY2006 FY2005
(forecast) (forecast) (forecast, as
of March 05)
68.1
22.9
45.2
6.8
16.2
6.9
4.3
16.9
8.4
4.6
3.0
3.5
15.1
▲1.6
9.0
17.8
20.5
19.9
2.6
▲5.4
▲15.9
10.0
10.9
16.8
7.9
18.8
16.0
4.7
34.5
3.0
18.0
16.9
9.3
3.5
5.3
2.5
12.9
2.0
4.1
▲0.3
0.4
2.7
3.6
2.9
2.4
4.5
1.4
7.3
3.3
▲1.3
8.5
1.5
0.4
▲0.4
5.1
15.6
12.7
11.7
▲11.9
▲8.4
4.5
11.1
29.9
7.0
5.7
14.1
▲9.4
▲12.9
▲10.6
▲7.5
100.0
32.1
67.9
5.1
16.4
0.5
11.3
14.9
9.7
0.8
2.6
▲0.2
1.1
2.1
0.7
Source: The Bank of Japan, "Tankan"
Note: The figures include Land Purchase Expenses and exclude Software Investment
transfer, Purchase of minority interest, and Additional purchase of minority interest.
- 8 -
Monthly Report of Prospects for Japan's Economy May 2006
The Japan Research Institute, Limited
Aggregate supply-demand gap - Improving steadily
As the recovery of Japan’s economy becomes solid, the aggregate supply-demand balance is expected to continue to improve
steadily. According to our projection, the annualised percentage change from the previous quarter in the GDP growth rate in real terms
would be around 2 per cent in each quarter during FY 2006, which is above Japan's potential GDP growth rate (estimated around
1.5%). As for the fiscal year, it is projected that Japan’s real GDP would grow by 3.3% in FY2005, which is the highest since FY2000,
and by 2.3% in FY2006.
Figure 9-1 Estimate of Potential GDP Growth Rate of
Japan and Aggregate Supply - Demand Gap
Figure 9-2 Contributions to Potential GDP Growth
Rate of Japan < Estimate >
(％ change against the previous quarter)
10
7
(Forecast) 6
9
8
5
7
4
6
3
5
2
4
1
3
0
1.50
2
▲1
(％)
(4Q)
1
▲2
▲1.5
0
▲3
▲1
▲4
▲2
▲5
▲3
▲6
▲4
▲7
▲5
▲8
▲6
▲9
▲7
▲10
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
(Y/Q)
GDPギャップ(左)
Estimated Aggregate Supply - Demand Gap (Left Scale)
Estimated Potential GDP Growth Rate (Right Scale)
潜在成長率(右)
Actual Real GDP Growth Rate (Right Scale)
実際の実質成長率(右)
(percentage points contribution)
(％)
Labour
労働寄与度
TFP
ＴＦＰ寄与度
Capital
資本寄与度
Potential GDP
潜在成長率
Actual GDP
実際の成長率
5
4
3
2
1
0
▲1
1986～90
91～95
96～00
2001～05
(CY, Average)
Source: The Japan Research Institute, Ltd. based on the data of The Cabinet Office, The Ministry
of Internal Affairs and Communications, The Ministry of Economy, Trade and Industry,
Source: The Japan Research Institute, Ltd. based on the data of The Cabinet Office, The Ministry of
The Ministry of Health, Labour and Welfare, The Bank of Japan.
Internal Affairs and Communications, The Ministry of Economy, Trade and Industry
Note: This analysis is based on the following equation:　lnY＝α*lnLh＋(１-α)*lnKs＋TFP
Note 1: Estimated Aggregate Supply - Demand Gap = (Actual Real GDP Growth Rate - Estimated Potential
GDP Growth Rate) / Estimated Potential GDP Growth Rate [our estimate]
Y：Real GDP、L：Numbers of Workers、h：Working Hours、K：Stock of Capital、
ｓ：Capacity Utilisation、α：Weights of Labour (0.73)
2: The figures from Q1 CY2006 to Q1 CY2007 are based on our real GDP growth rate projections,
with estimated potential GDP growth rate fixed at the level of 1.5%.
Monthly Report of Prospects for Japan's Economy May 2006
- 9 -
The Japan Research Institute, Limited
Consumer Price – Very modest rise in positive territory
The Consumer Price Index (CPI, excluding fresh food) rose 0.5 per cent on a year-on-year basis in January-February this year. The positive
growth of 0.5 per cent was actually the first since CY1998. As for the prospects, the rate of growth in the index should remain positive, although
modest, and is highly unlikely to go back to the negative. This is partly because the pricing power of processing industries has also begun to
recover and, at length, they are able to pass a part of the costs of higher energy prices to their products amid the improved circumstances of
supply - demand balances. However, all things considered, the following trend factors are expected to make a move in CPI more moderate and
stable, accordingly, making the pace of rise very limited. These factors are: (i) intense product market competition on the back of the continued
inflow of overseas products with low prices into Japan's markets, and (ii) a moderate tempo of recovery in wages, which will curb the incentive
for raising prices especially in services.
Figure 10-1 Input-Output Price Index of Manufacturing Industries
and Consumer Price Index of Industrial Products
(2000年=100)
(CY2000=100)
145
Input-Output
Price Index :
140
【素材業種(左)】
135
130
Material Industries
125
120
115
110
105
100
95
90
85
(CY2000=100)
(2000年=100)
Processing
Industries
【加工業種(右)】
124
投入物価
Input Price Index
116
112
120
産出物価
Output Price Index
108
116
104
(2000年=100)
112
(CY2000=100)
100
108
96
CPI:
Industrial
Products
【消費者物価：工業製品(左)】
92
104
88
100
84
96
80
92
76
(％)
0.6
0.5
0.4
0.3
0.2
0.1
0.0
▲ 0.1
▲ 0.2
▲ 0.3
▲ 0.4
▲ 0.5
▲ 0.6
▲ 0.7
▲ 0.8
▲ 0.9
▲ 1.0
▲ 1.1
Figure 10-2 Change in Consumer Price Index
<Year-on-Year, Excluding Fresh
F d>
2000
01
02
03
Goods ( excl. (1) (2) (3) (4) )
財（①～④を除く)
(1)
Rice
①コメ
(3)
Petroleum Products (Gasoline, Kerosene )
③石油製品(ｶﾞｿﾘﾝ･灯油)
(5)
Services related to Communication
⑤通信サービス
CPI
( excl. Fresh Food, Y/Y )
ＣＰＩ(生鮮を除く、前年比)
1991 92 93 94 95 96 97 98 992000 01 02 03 04 05 06
(年/期)
(Y/Q)
04
05
(Forecast)
(予測)
06
07
(年/期)
(Y/Q)
Services ( excl. (5) (6) )
サービス(⑤⑥を除く）
(2) Cigarettes, Other Agricultural & Aquatic Products
②たばこ・その他農水畜産物（鶏卵など)
(4)
Electricity & Gas Charges
④電気・ガス料金
(6) Fees for Medical Treatment & Care
⑥診療代･通所介護料
ＣＰＩ(生鮮･①～⑥を除く、前年比)
CPI ( excl. Fresh Food & (1)-(6), Y/Y )
Source: The Bank of Japan, The Ministry of Internal Affairs and Communications
Source: The Japan Research Institute, Ltd. based on the data of the Ministry of Internal Affairs and Communications.
Note: The figure in Q1 2006 is calculated as the average of January and February 2006.
Note: The assumed average price of imported crude oil (on a CIF base) is $54/barrel in FY 2005 and $58/barrel in FY2006.
Monthly Report of Prospects for Japan's Economy May 2006
- 10 -
The Japan Research Institute, Limited
Prospects for Japan's economy - To continue firm recovery
(1) Projection for economic growth
It is projected that Japan’s real GDP would grow by 3.3% in FY2005, which is the highest since FY2000, and by 2.3% in FY2006, as it would continue to grow at
a pace above Japan's potential GDP growth rate (estimated around 1.5%).
(2) Main positive developments to be considered
(i) Japan's economy should continue to recover. The uptrend of the economy is mainly due to the following favourable cycle: "a buoyancy in exports, an
expansion of business fixed investment" → "a firm rise in corporate profits" → "a mild recovery in workers' total cash earnings, an uptrend of stock prices" → "an
increase in household consumption " → "a further rise in corporate profits". This cycle would be maintained and make the economic situation firmer.
(ii) It is hoped that the negative influence on private consumption of the scheduled increases in the financial burden on households such as a half cut of the tax
credit would be offset by the positive influence of stock prices, given the firm fundamentals of Japan's economy being reflected in the stock market in due course.
(iii) The expansionary tendency of business fixed investment would continue, even given the trend that the weight of other investment instruments such as direct
investment abroad and domestic M&A has begun to increase gradually, reflecting abundant liquidity and highly motivated management for widening businesses.
(iv) The CPI (excluding fresh foods) growth rate would stay positive, and remain very modest, reflecting a mild narrowing of the aggregate supply-demand gap.
(3) Factors which would make the pace of recovery moderate
However, the pace of the economic recovery would be remain moderate due to these curbing factors.
(i) Exports are expected to continue to expand, led mainly by those to emerging and/or resource-rich countries. Yet the pace of the increase would be gradually
slowing down as the US economy is projected to move into a slightly decelerating phase.
(ii) Higher prices of resources such as crude oil could continue to erode corporate profits.
(iii) With enterprises trying to keep labour's relative share at an appropriate level, the growth rate of total compensation of employees is expected to remain mild,
because management is likely to try to control workers' total cash earnings by curbing cash earnings per employee, while the recovery in the number of employees
would become more noticeable.
(4) Uncertainties expected in the recovery
One of the downside risks to the central projection is the negative influence of an uptrend of interest rates on economic activities, especially corporate profits.
However, it is expected that, as long as the pace of the rise is moderate, the increase in net financial expenses of enterprises would be able to be absorbed in the
positive effect of increasing sales accompanied by the firm economic recovery.
Monthly Report of Prospects for Japan's Economy May 2006
- 11 -
The Japan Research Institute, Limited
Figure 10 Projections for GDP Growth and Main Indicators of Japan
(seasonally adjusted, annual % changes from the previous quarter)
CY2005
4～6
7～9
CY2006
10～12
1～3
4～6
( Actual )
CY2007
7～9
10～12
1～3
( Projection )
FY2004 FY2005 FY2006
( Projection )
(Actual)
5.7
0.8
5.4
1.6
2.3
2.2
2.0
1.7
1.7
3.3
2.3
3.3
1.7
3.5
1.2
2.3
2.1
2.0
1.3
1.7
2.5
2.0
▲ 7.3
6.6
8.5
▲ 2.8
2.1
2.0
1.2
1.0
1.7
▲ 0.6
2.0
9.5
6.2
1.4
9.6
8.1
6.5
6.2
5.6
5.4
7.3
6.7
1.5)
(▲ 1.8) (
0.7)
0.1) (
0.0)
(▲ 0.3) (
0.2)
Government Consumption Expenditure
1.1
1.6
1.0
1.4
1.4
1.3
1.3
1.3
1.8
1.6
1.4
Public Investment
4.1
1.2 ▲ 10.2
▲ 7.5
▲ 6.6
▲ 6.4
▲ 6.0
▲ 5.8
▲ 12.4
▲ 1.8
▲ 6.6
0.9) (
0.3) (
(▲ 0.0)
(▲ 0.1)
(▲ 0.1) (
0.2)
5.5
5.0
6.4
7.8
7.2
6.8
Real ＧＤＰ
Private Consumption Expenditure
Housing Investment
Business Fixed Investment
Private Inventories (percentage points contribution)
Net Exports (percentage points contribution)
(
(
(▲ 0.3)
2.3) (
0.1)
(▲ 0.1) (
Exports of Goods and Services
14.7
12.8
14.9
7.2
6.2
Imports of Goods and Services
9.0
13.6
▲ 3.4
8.4
8.2
(▲ 0.1)
(
0.5) (
(▲ 0.1)
0.5) (
0.3)
11.4
8.8
7.5
8.7
6.3
6.8
(% changes from the same quarter of the previous year)
Real ＧＤＰ
Nominal ＧＤＰ
Consumer Price Index (excl. fresh food)
Industrial Production Index
Unemployment Rate
Current Account Balances
Share of Nominal GDP
Exchange Rates
(％)
(trillion JY)
(％)
(JY/US$)
2.6
1.4
▲ 0.1
0.3
2.8
1.5
▲ 0.1
0.1
4.0
2.4
0.1
3.4
3.6
2.5
0.5
3.0
2.5
1.7
0.4
3.9
3.0
2.5
0.3
4.5
1.8
1.9
0.3
3.0
2.2
2.4
0.3
3.2
1.7
0.5
▲ 0.2
4.1
3.3
2.0
0.1
1.7
2.3
2.1
0.3
3.6
4.3
4.09
3.4
107.6
4.3
4.75
3.5
111.2
4.5
4.65
4.0
117.3
4.3
4.43
3.3
116.9
4.0
4.18
3.5
117.0
3.9
4.90
3.4
114.0
3.9
4.16
3.4
112.0
3.8
4.34
3.2
110.0
4.6
18.21
3.7
107.5
4.4
17.93
3.5
113.3
3.9
17.58
3.4
113.3
Source: The Cabinet Office, The Ministry of Internal Affairs and Communications, The Ministry of Economy, Trade and Industry, The Ministry of Finance.
The projection figures are based on those of The Japan Research Institute, Ltd.
Note: The projections are made based on the following assumptions;
(1) the US economy is expected to move into a slightly decelerating phase ( the projected real GDP growth rate is 3.5% in CY2005 and 3.4% in CY2006 ).
(2) the assumed average price of imported crude oil is $54/barrel in FY 2005 and $58/barrel in FY2006 ( the actual result in FY2004 was $38.70/barrel ) .
(3) the tax credit in income tax and in local inhabitants tax would be discontinued in January 2007.
- 12
-
Monthly Report of Prospects for Japan's Economy May 2006
The Japan Research Institute, Limited