Current State and Future of Japanese Economy (with Appendix)

Transcription

Current State and Future of Japanese Economy
August 31st, 2016
Mitsumaru Kumagai
Senior Managing Director
Deputy Head of Research Division
Chief Economist
Daiwa Institute of Research Ltd.
Japanese Economic Research
Talking Points
I. How will Brexit Effect Japan’s Economy?
Ⅱ. Understanding risk of China’s bubble bursting: Optimistic in short-term, pessimistic in long-term
III. Main Economic Scenario for Japan: Moderate Recovery Seen
・Our main economic scenario sees a moderate recovery for Japan’s economy, however, risk of a
downturn due to overseas factors remains.
－Domestic economy: Positive factors include ① Growth in real wages, ② Low price of crude oil and
improvement in terms of trade, and ③ The Abe administration’s economic policies. However,
danger of a downturn in the overseas economy remains, especially for China.
Ⅳ. Fruits of Abenomics and Challenges Remaining: Labor Market Reform Especially Key
・Fundamental Reform of Social Security System and Strengthening the Third Arrow (Growth
Strategy)
・ Distribution of Benefits of Abenomics: more detailed attention needs to be given to nonmanufacturing industry, small business, residents of regional areas, and younger people of childrearing age.
Ⅴ.Risk Factors Facing Japanese Economy
① China’s economic downturn
② Turmoil in emerging markets associated with U.S. exit strategy
③ Progression of risk-off behaviors (strengthening of yen / stock price lows) due to geopolitical risk
④ UK withdrawal from the EU and deleveraging by EU financial institutions
Ⅵ. Outlook for Financial Markets
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
1
Real Growth: 0.9% for FY16, 0.9％ for FY17
Japan's Economic Outlook (latest figures available; y/y %)
FY14
FY15
FY16 (E)
FY17 (E)
FY14
1H
Real GDP
Domestic demand*
-0.9
0.8
FY15
2H
1H
FY16
2H
0.9
0.9
-0.9
-1.0
1.3
0.4
FY17
1H (E)
2H (E)
1H (E)
2H (E)
0.5
1.3
1.2
0.5
-1.6
0.8
1.0
0.6
-1.0
-2.1
1.0
0.4
0.5
1.5
1.0
0.2
Foreign demand*
0.6
0.1
-0.1
0.2
0.3
1.3
0.3
-0.1
-0.0
-0.2
0.1
0.2
Private consumption
-2.9
-0.2
0.6
0.6
-2.6
-3.1
0.2
-0.6
0.3
0.8
0.5
0.6
-11.7
2.4
4.9
-3.0
-7.6
-15.5
1.3
3.4
6.1
3.7
-4.4
-1.7
Private non-housing investment
0.1
2.1
0.1
1.1
1.0
-0.8
2.0
2.1
0.5
-0.3
1.0
1.3
Government consumption
0.1
1.6
1.9
1.7
-0.2
0.4
1.2
1.9
2.3
1.6
1.5
1.9
-2.6
-2.7
7.9
-3.3
-1.5
-3.3
0.6
-5.0
-1.6
15.1
11.5
-12.8
Exports of goods and services
7.9
0.4
0.1
4.6
6.5
9.2
2.5
-1.7
-0.8
0.9
4.4
4.8
Imports of goods and services
3.4
-0.0
0.7
4.0
5.5
1.4
1.2
-1.2
-0.7
2.1
4.2
3.8
1.5
2.2
1.6
1.3
1.2
1.8
2.9
1.6
1.2
2.0
1.8
0.9
-0.8
-0.4
0.1
0.9
-0.1
-1.6
0.1
-0.9
-0.4
0.6
0.9
0.9
1.5
2.5
-0.3
2.2
2.5
0.7
3.1
2.0
-0.5
-0.1
2.1
2.3
Index of All Industry Activity
-1.1
0.9
0.6
1.1
-0.9
-1.2
1.4
0.1
0.2
0.9
1.1
1.2
Index of Industrial Production
-0.5
-1.0
0.0
2.0
1.2
-2.0
-0.6
-2.2
-1.0
1.0
2.0
2.1
Index of Tertiary Industry Activity
-1.1
1.3
0.7
0.9
-1.4
-0.8
1.9
0.7
0.5
0.9
0.9
0.9
Consumer Price Index (excl. fresh foods)
2.8
-0.0
-0.1
0.8
3.2
2.4
0.0
-0.0
-0.4
0.1
0.7
0.9
Corporate Goods Price Index
2.8
-3.2
-2.2
0.6
4.2
1.4
-2.9
-3.6
-3.6
-0.7
0.7
0.5
GDP Deflator
2.4
1.4
0.7
0.5
2.2
2.7
1.6
1.2
0.7
0.7
0.6
0.3
109.9
120.1
103.2
101.5
103.0
116.8
121.8
118.4
104.8
101.5
101.5
101.5
80.5
45.0
44.8
44.5
100.1
60.9
52.2
37.9
45.1
44.5
44.5
44.5
Private housing investment
Public investment
Nominal GDP
Private consumption
Private non-housing investment
Y/$
Crude oil price ($/bbl; WTI）
Source: Cabinet Office. E: DIR estimates. * contribution to real GDP growth; % pt.
2
Estimation of Brexit’s Effects on Japan’s Economy
Case (1) Repercussions in Same Class as Global Financial Crisis of 2008
Case (2) Using IMF Estimates
Rate of Decrease in TOPIX
0％
Rate of Decrease in TOPIX
-5％
-10％
-15％
-20％
-25％
-0.85％
-0.88％
-0.91％
-0.94％
-0.96％
-0.99％
5％
-0.90％
-0.92％
-0.95％
-0.98％
-1.01％
-1.04％
10％
-0.94％
-0.97％
-1.00％
-1.03％
-1.06％
-1.09％
15％
-0.99％
-1.02％
-1.05％
-1.08％
-1.11％
-1.14％
20％
-1.05％
-1.08％
-1.11％
-1.14％
-1.17％
-1.20％
Yen-Dollar Rate of Increase
Yen-Dollar Rate of Increase
0％
0％
-5％
-10％
-15％
-20％
-25％
0％
-0.07％
-0.09％
-0.12％
-0.15％
-0.18％
-0.21％
5％
-0.12％
-0.15％
-0.17％
-0.20％
-0.23％
-0.26％
10％
-0.17％
-0.20％
-0.23％
-0.26％
-0.28％
-0.31％
15％
-0.23％
-0.26％
-0.28％
-0.31％
-0.34％
-0.37％
20％
-0.29％
-0.32％
-0.35％
-0.38％
-0.41％
-0.44％
Source: Simulation using DIR short-term macro model.
Notes: 1) Figures show extent to which Japan’s real GDP would be forced downwards in comparison to the benchmark (average values of four quarters after occurrence).
2) Case (1) Repercussions in the same class as the global financial crisis of 2008 (worldwide real GDP declines by -1.3%)
Case (2) Case using IMF estimates (worldwide real GDP declines by -0.04%).
3) Figures in red frames represent cases in which all financial markets experience the same extent of effects felt immediately after the beginning of the global financial crisis of
2008 (Oct-Dec period of 2008 recorded yen appreciation of 14% against the dollar and a 21% decline of the TOPIX index).
3
Effects of Brexit and Non-Performing Loans in Italy are Minor
Effect on World Economy via Financial Markets if UK Real Estate Prices Collapse due to Brexit
Amount Changed in UK Bank Lending
Deleverage
Ratio
UK Real Estate Prices Plunge Due to Brexit
(Outbreak of Deleveraging at UK Banks)
30%
50%
100%
Total
Domestic
Overseas
Bil.EUR
Bil.EUR
Bil.EUR
-35
-58
-114
-19
-32
-64
Percentage
Changed in
UK GDP
Percentage
Changed in
World GDP
Percentage
Changed in
Japan's GDP
%
%
%
-15
-25
-50
-0.25
-0.41
-0.81
-0.03
-0.05
-0.10
-0.02
-0.04
-0.07
Source: EBA, BOE, BIS; Compiled by DIR.
Note 1: Lending amount consists of the amount in foreign and domestic claims according to BIS consolidated banking statistics.
Note 2: This is a hypothetical case in w hich it is assumed that a collapse in real estate prices along the same lines as the global economic crisis of 2008 occurs in the UK as a result of Brexit.
Estimated values show the result of deleveraging w hich occurs after the crisis according to our assumptions as a means of improving the equity ratio.
Effect on World Economy via Financial Markets if Large-Scale Disposal of Non-Performing Loans Occurs in Italy
Amount Changed in Italian Bank Lending
Deleverage
Ratio
Italian Real Estate Prices Plunge Due to Disposal
of Non-Performing Loans
(Outbreak of Deleveraging at Italian Banks)
30%
50%
100%
Total
Domestic
Overseas
Percentage
Changed in
Italian GDP
Bil.EUR
Bil.EUR
Bil.EUR
%
-73
-117
-224
-56
-90
-172
-17
-27
-52
Percentage
Changed in
World GDP
Percentage
Changed in
Japan's GDP
%
%
-0.64
-1.02
-1.95
-0.04
-0.07
-0.13
-0.03
-0.05
-0.09
Source: EBA, BOE, BIS; Compiled by DIR.
Note 1: Lending amount consists of the amount in foreign claims and domestic debt according to BIS consolidated banking statistics.
Note 2: This chart assumes that disposal of non-performing loans takes place in Italy, causing damage to net w orth.
Estimated values show the result of deleveraging w hich occurs after the crisis according to our assumptions
as a means of improving the CET 1 ratio so that it w ill reach the level of other countries.
4
A Financial Crisis in the EU Could Cause
a Decline of 2.7% in World GDP and 1.9% in Japan’s GDP
Effects of Overload Experienced by EU Financial Institutions on World Economy Via Financial Markets
Amount Changed in Lending
Deleverage Ratio
Total
Bil.EUR
Case in w hich EU Financial
Institutions
Experience Overload
(Adverse Scenario According to
EBA Stress Test)
Scenario ①
Equity Ratio Recovers
to End-2015 Level
Scenario ②
Equity Ratio Improves
Half as Much as in Scenario①
Scenario ③
Equity Ratio Improves
a Quarter as Much as in
Scenario ①
Domestic
Bil.EUR
Overseas
Bil.EUR
Percentage
Changed in
World GDP
Percentage
Changed in
Japan's GDP
%
%
100%
-3,453
-2,310
-1,142
-2.7
-1.9
50%
30%
100%
50%
30%
100%
50%
30%
-1,882
-1,224
-2,034
-1,068
-671
-1,118
-573
-353
-1,259
-818
-1,361
-714
-448
-747
-383
-236
-623
-405
-674
-354
-222
-370
-190
-117
-1.5
-1.0
-1.6
-0.8
-0.5
-0.9
-0.4
-0.3
-1.0
-0.7
-1.1
-0.6
-0.4
-0.6
-0.3
-0.2
Source: EBA, BIS; Compiled by DIR.
Note 1: Lending amount is the amount in foreign and domestic claims according to BIS consolidated banking statistics.
Note 2: EBA stress test 2016 lists follow ing stress items: ① Unw inding of risk premium expansion on global capital markets,
② Earnings deteriorate in banking and insurance industry due to continuation of low -grow th, low -interest environment,
③ Amplification of concerns regarding debts held by public institutions and non-financial private sector corporations,
④ Problem spreads to rapidly expanding shadow banking sector.
Note 3: Scenario ① assumes adverse scenario according to EBA stress test 2016 in w hich the equity ratio as of end FY2018 improves to around the level seen around end 2015.
Scenario ② assumes that CET 1 ratio improves about half as much as in Scenario ①, and Scenario ③ assumes that it improves about a quarter as much.
5
Environment Surrounding China’s Economy (image)
◎ Financial Excess:１０００ tril yen ?
◎ Capital Stock Excess: ５５０ tril yen?
◎ Fiscal Stimulus Margin: ６００-８００
tril yen ?
6
China Has 1000 Tril Yen in Excessive Lending
China’s Total Social Financing (% of GDP)
(％)
220
214％
200
4 tril yuan package
of emergency measures
in the wake of the global
financial crisis
180
160
963tril yen
140
120
2002-2008 Trendline
100
80
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
(CY)
Source: People’s Bank of China, National Bureau of Statistics of China; compiled by DIR.
Assumption: Outstanding balance of total social financing as of end-Dec 2001 to be 1.1 times
bank lending.
7
China Has Over 550 Tril Yen in Excess Capital Stock
Changes in China’s Capital Coefficient
3.8
3.4
3.2
1996-2013 Average
= 2.78
1979-89 Average
= 2.67
3.6
1952-66 Average
= 1.93
3.0
1990-95 Average
= 2.64
1967-78 Average
= 2.50
2.8
2.6
2.4
Amount in Real Capital Stock
Surplus
27 tril yuan
2.2
2.0
1.8
1.6
1979 Reform
and OpeningUp Policy
1966 Cultural
Revolution
1.4
1989 Tiananmen
1995
Globalization
Square Massacre
1.2
52
56
60
64
68
72
76
80
84
88
92
96
00
04
08
12
(CY)
Source: National Bureau of Statistics of China, CEIC, Haver Analytics, World Bank; compiled by DIR.
Notes: 1) Capital coefficient = real capital stock / real GDP
2) Figures from the year 2010 are used for both real capital stock and real GDP.
8
China Has a Fiscal Stimulus Margin of 600-800 Tril Yen
General Government Debt-to-GDP Ratio (2014)
(%)
300
250
246
200
177
150
G5 (Minus Japan)
90％
100
GIIPS (Minus Greece)
118％
132
105
90
50
95
109
130
98
41
73
90％
Case
China2
China1
China
Spain
Portugal
Ireland
Italy
Greece
France
Germany
United Kingdom
Japan
United States
0
Total
Debt
Total
43 tril
Debt
yuan
32 tril Increase
yuan
Increase
118％
Case
Source: IMF; compiled by DIR.
9
Economic Scenarios for China
Outlook for China's GDP Growth Rate
(Y/y, %)
2015
2016
2017
2018
2019
2020
① S tandard S cenario
7.0
6.8
6.6
6.5
6.5
6.3
② C apitalS tock A djustm ent S cenario
6.8
2.8
0.7
0.9
1.2
3.2
③ M eltdow n S cenario
6.8
0.0
-4.4
-8.4
-3.6
-1.7
S ource:C om piled by D IR
10
③ Meltdown Scenario: Potential Growth Rate Falls to 1.6%
China: Factors Contributing to Real GDP Growth (annualized)
(Real GDP Growth Rate: Annual Rate %)
14
Reform and
Opening-Up
Policy
12
Globalization
Dependence
on Excessive
Capital
Investment
10
Cultural
Revolution
8
6
Meltdown (Est)
4
2
0
-2
1953-66
1967-78
Technology
1979-89
Capital
1990-95
Labor
1996-2011
2012-15
2020
Real GDP Growth Rate
Source: CEIC, World Bank; compiled by DIR.
Note: Major events: 1966 – The Cultural Revolution, 1978 - Reform and Opening-Up Policy, 1989 – Tiananmen Square
Massacre
11
Can Policy Measures Prop Up China’s Economy in the Short-Term?
China: Business Cycle Signal Index
⑫ (% )
⑩⑪⑬
25
(Points)
①
160
Overhea ting
140
② ③
Business Cycle
Sig na l Index (left)
⑤⑥
④
⑧
⑦
⑨
Som ewhat overheating
120
100
80
Stabilizing
⑰
⑱
Som ewha t
sta g na ting
10
⑲
Sta g na ting
Basic loan rate (right)
20
⑯
15
60
40
⑭
⑮
5
Deposit reserve ra te (rig ht)
20
0
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
(CY)
1. Apr 2004: Restrictions on aggregate loans strengthened
2. Oct 2007: Restrictions on aggregate loans strengthened
3. Oct 2008: Restrictions on aggregate loans eased
4. Nov 2008: Stimulus package of 4 tril yuan announced
5. Apr 2010: Real estate regulations strengthened
6. Jun 2010: More flexible regime for control of yuan exchange rate
7. Oct 2010-Jul 2011: Period of loan rate hikes
8. From Dec 2011: A series of deposit reserve rate low ering moves
began
9. From Jun 2012: A series of loan rate cuts began
10. Nov 2014: Loan rate cuts
11.Feb 2015: A series of deposit reserve rate lowering moves began
12.Mar 2015: Loan rate cuts
13.Apr 2015: A series of deposit reserve rate low ering moves began
14.May 2015: Loan rate cuts
15.Jun 2015: Loan rate cuts
A series of deposit reserve rate low ering moves began
16. Jul 2015: Price keeping operation
17. Aug 2015: Reserve deposit rate cut, interest rates low ered
18. Oct 2015: Reserve deposit rate cut, interest rates low ered
19. Feb 2016: Reserve deposit rate cut,
Source: National Bureau of Statistics of China, People’s Bank of China, CEIC Data; compiled by DIR.
12
China’s Housing Prices Showing Signs of Bottoming Out
China’s 70-City New Home Price Index
200
(Number of Cities)
(y/y, %)
20
70-City New Home Price Index
150
10
？
100
0
50
-10
0
-20
-50
-30
Number of Cities Rising – Number of Cities Falling
on housing price index (m/m)
-100
10
11
12
13
14
-40
15
Source: National Bureau of Statistics of China; compiled by DIR.
Note: The 70-City New Home Price Index is the simple average value of home prices in 70 cities.
16
(CY)
13
Sign of Recovery in Production
Real Exports and Industrial Production
（ 2010＝100）
110
Indices of Industrial Production
105
100
95
90
Real Export Index
85
80
2010
11
12
13
14
15
16
(CY)
Note: Shaded areas represent periods of economic decline. Most recent two months of industrial
production uses values from METI’s production forecast survey.
Source: BOJ and METI; compiled by DIR.
14
Positive Factor ①: Wages making a comeback
Wages: Macro vs Per Capita, Nominal vs Real
(y/y, % )
5. 0
＋3.8％
4. 0
＋3.2％
3. 0
2. 0
1. 0
0. 0
-1 . 0
-2 . 0
(Per Capita)*(Employment Number) (Nominal)
-3 . 0
(Per Capita) (Nominal)
-4 . 0
(Per Capita)*(Employment Number) (Real)
＋1.8％
＋1.3％
(Per Capita) (Real)
-5 . 0
10
11
12
13
14
15
16
(CY )
Source: M inistry of Health, Labour and W elfare; com plied by DIR.
15
Regular employees versus non-regular employees
Regular employees versus non-regular employees
(y/y change, in 10, 000s)
150
100
50
0
-50
-100
03
04
05
06
07
08
09
Regular
10
11
12
13
14
15
Non-regular
16
(Year)
Source: Compiled by DIR from Ministry of Internal Affairs and Communications statistics.
16
Positive Factor ②: Low Price of Crude Oil Providing
Japan’s Economy with Underlying Support
Effects of Fluctuations in Crude Oil Price on Japan’s Economy
Real GDP
%
Difference from Scenario
in Which Crude Oil Price
Remains High
Difference from Previous
Estimate's Assumptions
Difference from Scenario
in Which Crude Oil Price
Remains High
Difference from Previous
Estimate's Assumptions
FY2015
FY2016
FY2017
FY2015
FY2016
FY2017
FY2015
FY2016
FY2017
FY2015
FY2016
FY2017
0.69
0.85
0.90
0.34
0.51
0.56
Personal
Housing
Capital
Consumption Investment Expenditure
%
%
%
1.11
2.64
2.88
1.28
2.98
4.04
1.32
3.35
4.66
0.59
1.32
1.15
0.84
1.72
2.07
0.88
1.96
2.57
Current
Account
Balance /
Import Price Export Price
Nominal
GDP
%pt
%
%
2.87
-19.21
-2.27
3.90
-24.17
-3.11
4.38
-25.81
-3.45
1.13
-9.07
-1.14
1.97
-14.55
-1.99
2.35
-16.41
-2.34
Exports
Imports
%
%
0.47
0.66
0.73
0.24
0.42
0.49
3.51
4.43
4.78
1.72
2.66
2.97
CGPI
Core CPI
Industrial
Production
%
%
%
-3.18
-4.39
-4.95
-1.57
-2.76
-3.29
-1.30
-1.65
-1.70
-0.72
-1.11
-1.20
Nominal
GDP
%
3.16
4.23
4.77
1.22
2.09
2.50
Tertiary
All Industry
Industry
Activity Index
Activity Index
%
1.37
1.75
1.91
0.65
1.02
1.15
GDP
GDP Growth
Deflator
Rate
%
%
2.45
0.49
3.35
0.16
3.84
0.05
0.88
0.27
1.57
0.18
1.93
0.05
%
0.71
0.93
1.04
0.32
0.52
0.61
0.79
1.01
1.13
0.37
0.58
0.67
Source: Compiled by DIR.
Notes: 1) Simulation run using the DIR short-term macro model. Values show rate of deviation from normal solution.
2) WTI = Difference from $105 Scenario assumes most recent WTI peak of June 2014 and beyond to be flat at $105/bbl.
WTI = Difference from $70 Scenario assumes the 2014 and 2015 Jan-Mar period and beyond to be flat at $70/bbl.
17
Japan’s Major Trade Partners Mostly
Non-Resource-Rich Countries
Countries Most Effected by China's Economy and Price of Natural Resources
Countries Highly Susceptible to
Effects of China's Economic
Slowdown
(Exports to China/GDP, %)
35
30
Non-Resource-Rich
Countries Dependent
on China
Resource-Rich Countries
Dependent on China
Oman
25
20
Singapore
15
10
Vietnam
Malaysia
Chile
5
Iran
Australia
Thailand
India
Indonesia
Columbia
0
Canada Austria
US
Russia
United Arab Emirates
Saudi Arabia
Venezuela
Kuwait
Norway
-5
-2 0
-1 0
0
10
20
Countries Highly Resistant to
Effects of China's Economic
Slowdown
30
40
50
60
Countries Highly Susceptible to
Effects of Low Price of Natural
Resources
Countries Highly Resistant to
Effects of Low Price of Natural
Resources
Korea
(Net Exports of Natural Resources/GDP, %)
Source: IMF, UN, Ministry of Finance; compiled by DIR.
Note: Net exports of natural resources from Saudi Arabia and Venezuela are from the year 2013. Net exports of natural resources from Iran are from
the year 2011. All the rest are from 2014.
18
Positive Factor ③: Economic Measures Expected
to Increase FY2016 GDP by 0.2%
Economic Measures for Realization of Investment in Future and Extent of Budget
National &
Regional
Budgets
Fiscal
Investment &
Loans
3.4
2.5
0.9
10.7
6.2
1.7
4.4
10.9
1.3
0.6
0.7
3
2.7
2.7
0
28.1
13.5
7.5
6
Project Scale
Fiscal Measures
3.5
II. Developing a 21st Century Infrastructure
III. Handling Risks Such as Uncertainty Associated with UK Exit
from EU, and Support for Small & Medium Sized Enterprises and
Local Regions
I. Realization & Acceleration of Promoting Dynamic Engagement
of All Citizens
IV. Recovery from damage due to the Kumamoto & Great East
Japan Earthquakes, Safety & Security, and Strengthening of
Disaster Preparedness & Emergency Response
Total
(Tril Yen)
Source: Cabinet Office; Compiled by DIR.
Note: Amount yet to be determined, since supplementary budget has not yet taken shape.
Outlook for FY2016 Supplementary Budget and Boost to GDP
FY 2016
Extent of Boost to
Supplementary
GDP
Budget
I. Realization & Acceleration of Promoting Dynamic Engagement
of All Citizens
0.5 Tril Yen
0.0％
II. Developing a 21st Century Infrastructure
III. Handling Risks Such as Uncertainty Associated with UK Exit
from EU, and Support for Small & Medium Sized Enterprises and
Local Regions
IV. Recovery from damage due to the Kumamoto & Great East
Japan Earthquakes, Safety & Security, and Strengthening of
Disaster Preparedness & Emergency Response
1.5 Tril Yen
0.1％
0.5 Tril Yen
0.0％
2 Tril Yen
0.1％
Total
4.5 Tril Yen
0.2%
Note: Amount yet to be determined, since supplementary budget has not yet taken shape.
19
World Economic Cycle (1)
W o rld E con om ic C ycle w ith F ocus o n th e F e d
Financial
Market Route
Weak Dollar / Capital
Inflow
Em erging
Econom ies Grow
Fed Monetary Policy
(Monetary Easing)
Exports/Production
Real Economy
Route
US & Other
Advanced Nation
Economies Grow
Commodities
Market Up
Economic
Boom in
Resource-Rich
Countries
Inflation Rate Increase
Inflation Rate Decrease
Resource-Rich
Countries in
Crisis
Commodities
Market Dow n
US & Other
Advanced Nation
Economies Decline
Exports/Production
Fed Monetary Policy
(Exit Strategy)
Em erging
Econom ies Decline
Strong Dollar /
Capital Ouflow
Source: Produced by DIR .
20
World Economic Cycle (2)
Leading Indices for World Production: Leading Economic Index for China, and the ISM
(y/y, 3MA, %)
▲5
10
①
8
09/12
6
▲10
99/08
4
▲9
② 96/04
①
-4
-6
20
①
09/01
③03/02
-5
-10
②
98/10
③
96/04
②
00/06 ④
②
11/02
13/12
0
②
12/03
10/03
01/10 ③
98/12
-20
②
-40
③
Production in Emerging
Nations of Asia
④ 10/05
②
③
13/10
14/04 ④
②
09/02
03/06
③
④
0
③
-5
World Production (Right Axis)
-10
④
09/04
96
97
98
99
00
01
02
03
5
12/10
01/12
95
10
12/09
03/0604/06
③
03/02
②
20
③
①
③
04/06
③
96/08
97/10 ④
0
08/11 ①
①
97/08
④
①
03/05
③
5
40
US ISM Manufacturing
Index (Right Axis)
01/02
00/01
10
①
04/05
02/06
98/12
95/11
15
②
60
▲8
▲5
②
01/02
③
①
13/07
②
99/12
97/02
▲9
10/02
03/06
①
98/08
②
①
04/05
▲10
①
-2
▲1
①
▲4
0
▲1
02/02
97/03 ②
2
80
Leading Economic Index for China
▲12
①
▲８
04
05
06
07
08
09
10
-15
11
12
13
14
15 16
(CY)
Source: Haver Analytics; compiled by DIR.
21
The Seven Sorrows of Japanese Corporations
① Yen Appreciation
② Behind in Free Trade
③ Environmental Regulation Set of “five fetters”
④ Labor Regulations
⑤ High Corporate Tax Rate
⑥ Electrical Power Shortage
and Increasing Price of Electrical Power
⑦ Deteriorating Relationship with China
22
The Original Three Arrows of Abenomics
(1) Bold monetary policy: already yielding results:
(2) Flexible fiscal policy: uncertainty remains:
Issue: maintaining fiscal discipline
―Strengthening resilience of nation’s infrastructure: risk of public
spending bloating under guise of protecting lives and assets of citizens
―Risk of expanding budget deficit leading to triple weakness in form of
plunge in JGBs (rise in long-term interest rate), weaker yen, and lower
stock prices
(3) Growth strategy to spur investment by private sector: uncertainty
remains
Issue: improving/restructuring economic structure over
medium/long term
―Need to work toward easing of “bedrock regulations” and lowering of
effective corporate tax rate
23
Introduction of Negative Interest
Interest Paid on Reserve
Amount to guarantee
overnight rates fixed at
-0.1%, “Y10-30tn?”
To be announced at next
MPC (Mar 15)
Basically just buffer
Y210tn, fixed after this
change
⇔240 in end-2015,
and expected to rise
⇒At least Y30bn
opportunity cost annually
Source: BOJ “Quantitative and Qualitative Monetary Easing (QQE) with a Negative Interest Rate” (Jan 29, 2016 ), DIR
24
Japan: Banks Suffer Few Losses Due to Negative Interest Rate
Estimated Annual Losses of Banks from Deposits in Central Bank with
Negative Interest Rate
500
(%)
(Yen 100 Mil)
0.50
0.46
0.03
0
0.00
▲500
▲1,000
▲656
▲1,500
▲2,000
Annual Losses of Banks
▲2,500
Ratio of Balance of Deposits
(Right Axis)
▲3,000
▲3,143
▲3,500
Eurozone
Japan
25
Japan: Effects of Negative Interest
Effects of Negative Interest on Financial Institutions, Corporations, and Households
Financial Institutions
Corporations
Households
Estimated Annual Losses of Financial Institutions from Deposits in Central Bank (Y100 Mil)
-656
-
-
25,408
-
-
Bank Gains on Sale of Government Bonds to BOJ (Y100 Mil)
Decline in Interest on Savings (Y100 Mil)
1,212
-555
-675
-11,552
4,107
8,419
14,412
3,553
7,761
Decline in Lending Rate and Interest on Housing Loans (Y100 Mil)
Overall Effect (Y100 Mil)
Note 1:
Financial institution gains on sale of government bonds to BOJ show n w ith change in price in comparison to w hat it w ould have been if negative
interest had not been introduced. Estimates are for figures w ith one year of influence from new rate. Estimate results are hypothetical.
Note 2:
Calculated value of effects during first year. Calculation results are hypothetical.
Note 3:
Effects of decline in interest on savings, interest on loans, and interest on housing Loans: Calculation of extent of change since January 28 in comparison to
balance as of end March, 2016.
Assum ptions:
Interest on Savings　Corporations -0.03%, Households -0.02%, Lending Rate　-0.15%
Interest on Housing Loans: Variable Interest -0.79%, Variable and Fixed Combination -0.34%
Source: BOJ etc.; compiled by DIR.
26
Mid to Long-Term Challenges for Abenomics
1.Failure to maintain fiscal discipline could invite simultaneous risks of a weak
bond market, weak yen, and weak stock market (the Triple Weaknesses).
2. Medium to long-term improvements in economic health and structural
reform insufficient?
3. Room for improvement in household income?
27
Why Are Wages Stagnant?
Breakdown of Real Hourly Wage
Annual growth (CY00-09 avg; %)
Real hourly wages
Japan
US
Germany
-0.5
1.3
0.2
0.7
2.0
1.2
Corporate Competitivity
-1.0
-0.3
-0.7
Labor's share
-0.3
-0.4
-0.3
Labor productivity
Source: Cabinet Office, US Bureau of Economic Analysis, Bundesbank, EU KLEMS; compiled by DIR.
Note: TFP=total factor productivity.
28
Problem areas for Japan’s labor system
＜Labor market polarization＞
- Overwork
- Employee health
issues
Strong authority
over personnel
(1) Regular employees (like
permanent members)
Employment
security
- Industrial structure
change gridlock
- Impedes utilization of
seniors
Diminishing international
competitiveness
Poor labor productivity
Inadequate vocational
training
(2) Insecure non-regular
employment
Uncertainty
about future
- Employment
problems/disparities become
entrenched
- ”Black” (exploitative)
companies
- Weak consumer
spending
- Low fertility
29
Overall picture of labor system reform
Strong authority
over personnel
Working-hours regulation
Work-life balance
-=>
Overwork
- Employee health
issues
(1) Regular employees (like
permanent members)
Employment
security
Equal pay for equal work
principle
=> diverse work styles
- Industrial structure
- Reform
termination rules
change
gridlock
- End mandatory
- Impedes
utilizationretirement
of
seniors
Labor
productivity↑
Diminishing international
International
competitiveness
competitiveness ↑
Poor labor productivity
Inadequate
vocational
Enhance
vocational
training
training
(2) Insecure non-regular
employment
- Employment
problems/disparities
become
Break cycle of poverty
entrenched
with safety net
- ”Black” (exploitative)
companies
Uncertainty
Alleviate uncertainty
about
about future
future
Personal consumption
↑
- Weak consumer
Birth
rate
↑
spending
- Low fertility
Support for educational and other expenses, tax &
social security system reform
＜Labor market polarization＞
Peace of mind
Security
30
The Pros and Cons of Abenomics
Effects of Weak Yen Brought on by Abenomics and Number of Employees by Scale of
Business
(Change in personnel expenses due to weak yen; yen tril)
3.0
Large Manufacturer
2.5
2.0
Small Manufacturer
1.5
Small Non-manufacturer
1.0
0.5
Large Non-Manufacturer
0.0
0.0
0.5
1.0
1.5
2.0
2.5
(Change in recurring profits due to weak yen; yen tril)
Note: Cumulative value of effects between Jan-Mar, 2013 and Oct-Dec, 2014.
Size of circles represents size of sector as of Oct-Dec, 2014 period.
Source: Ministry of Finance, BOJ, METI, Ministry of Internal Affairs and Communications, and Cabinet
Office; compiled by DIR.
31
Effects of Weak Yen on Corporate Sector
Calculating the Effects of Cheap Yen Brought on by Abenomics on the Corporate Sector
A llB usiness S izes /A llIndustries
M anufacturing
R ecurring P rofits
D irectE ffects
R ipple E ffect
P ersonnelE xpenses
capex
A m ountC hange (Y en B il)
S hare ofR ecurring P rofits (% )
S hare ofP ersonnelE xpenses (% )
S hare ofcapex (% )
Large
S m all
N on-M anufacturing
Large
S m all
Large
S m all
C orporations
B usinesses
812
C orporations
B usinesses
C orporations
B usinesses
4,283
3,088
2,823
265
1,194
647
547
3,471
3.4
6.7
7.2
3.7
1.5
1.3
2.0
3.8
2.3
-1,296
1,294
1,406
-112
-2,590
-2,026
-564
-620
-676
-1.0
2.8
3.6
-1.6
-3.3
-4.0
-2.0
-0.7
-1.9
5,578
1,794
1,417
377
3,784
2,673
1,111
4,090
1,488
4.5
3.9
3.6
5.2
4.8
5.2
4.0
4.5
4.2
6,178
3,846
3,075
771
2,332
723
1,609
3,798
2,380
1.9
3.7
4.7
2.0
1.0
0.8
1.2
2.4
1.4
1,118
779
697
81
339
197
142
894
224
1.6
3.2
3.6
1.5
0.7
0.6
1.0
1.7
1.2
Source: Ministry of Finance, BOJ, METI, Ministry of Internal Affairs and Communications, and Cabinet Office; compiled by DIR.
Notes: 1) Calculated values found using a macro model. Cumulative value of effects between Jan-Mar, 2013 and Oct-Dec, 2014.
2) Direct effect is the total of increase in exports and increase in import price due to weak yen. Ripple effect is the effect of increase in transactions
between corporations including increase in final demand associated with weak yen and price pass-through.
3) Influence of personnel expenses and capex use constant and hypothetical calculated values for labor's relative share and capex/cash flow ratio.
32
Risk Factors Facing Japan’s Economy
① China’s economic downturn
② Turmoil in emerging markets associated with U.S. exit
strategy
③ Progression of risk-off behaviors (strengthening of yen /
stock price lows) due to geopolitical risk
④ UK withdrawal from the EU and deleveraging by EU
financial institutions
Effects on Real GDP
(percentage-point change from standard scenario)
FY16
FY17
0.0
-0.1
-0.1
-0.1
-0.2
-0.2
-0.2
-0.3
-0.3
-0.3
-0.4
-0.4
-0.5
Y10 appreciation against $
20% rise in crude oil prices
-0.6
-0.5
1% contraction in world GDP level
1% pt rise in long-term interest rate
-0.7
Note: Extent of influence in cases where the standard scenario shifts to a risk scenario.
33
Japan’s Stock Market Currently in “Reverse Bubble” Correction Phase
TOPIX (pt) and Nominal GDP (Y100 bil)
10000
GDP (8 months)
25 Aug 1304.27
Dec 1989
3339
GDP (4 months)
1670
1000
835
Mar 2003
TOPIX
Jun 1961
12 Mar 2009: 700.93
Oct 1974
100
4 Jun 2012: 695.51
GDP (2 months)
10
1956
1961
1966
1971
1976
1981
1986
1991
Source: Cabinet Office, Tokyo Stock Exchange; compiled by DIR.
1996
2001
2006
2011
2016
(CY)
34
Relationship between government debt & long term
interest rates
OECD countries: General government debt & short/long-term interest
spreads (2015)
(Long-term interest - short-term interest, percentage points)
4. 5
Ireland Norway
4
Spain
3. 5
3
Italy
Trend line excluding Japan
y = 0. 0205x + 0. 3862
R ² = 0. 6261
UK
2. 5
US
2
1. 5
1
G erm any
0. 5
Japan
France
Iceland
0
0
50
10 0
15 0
20 0
25 0
(General government debt/nominal GDP,%)
Source: Compiled by DIR from OECD statistics.
35
Changes in Japan’s Economic Environment
Japan's Economic and Financial Environment:
Current Situation
Japan's Economic and Financial Environment:
Future Outlook
Current deficit
Current surplus
Sluggish
credit demand
(money glut)
Savings being
consumed
reflecting
aging society
Strong yen
and deflation
Interest rates
remaining low
Fiscal deficit
growth
restrained
Weak yen
and inflation
(stagflation)
Long-term interest
rate rising
Fiscal deficit
growth
widening
“Slow-Boiling Frog” Structure ⇒ Hard Landing
36
Worsening Current Account Balance Means Risk of Collapse in
Government Bond Market
UK Current Account and Spread Between Short and LongTerm Interest Rates
US Current Account and Spread Between Short and
Long-Term Interest Rates
(%pt)
10%
-1.5
Deficit in Current Account →
Spread Betw een Short and LongTerm Interest Rates Widens
5%
(%pt)
2%
-0.5
-4
Trade Balance/Nominal GDP
-1.0
Current Account Balance/Nominal GDP
-3
1%
-2
0.0
0%
0%
1.0
-5%
-10%
-1
0.5
-1%
0
1.5
2.0
Short/Long-Term Interest Spread
(Right Axis, Inverse Scale)
2
2.5
Current Account Balance/Nominal GDP
-15%
1870
90
1900
10
20
30
40
50
60
70
(CY)
Note: Long-term interest rate expressed in terms of 3-qtr moving average.
Source: International Historic Statistics, by Brian R. Mitchell (Palgrave Macmillan), A History of
Interest Rates; compiled by DIR.
Deficit in Current Account →
Spread Betw een Short and LongTerm Interest Rates Widens
Short/Long-Term
Interest Spread
(Right Axis,
Inverse Scale)
-3%
3.0
3.5
80
1
-2%
-4%
1946
1951
1956
3
4
1961
1966
1971
1976
1981
1986 (CY)
Source: Historical Statistics of the United States; compiled by DIR.
◎ Comparing EU Sovereign Risk and Japan’s Fiscal Deficit Problem
(1) EU: Twin Deficits （fiscal deficit & current account deficit）⇔ cf. Japan’s current account is in the black
(2) EU: High ratio of foreign holdings of govt. bonds ⇔ cf. Japan’s ratio of foreign holdings of govt. bonds is
around 10%
37
Appendix
38
Political Schedule
Key political events
Japan
2016 May
June
Jul Upper house election
Nov
Dec
US
Europe/China and Others
G7 summit
"Brexit" referendum
Presidential election
Congress to ratify TPP?
Xi Jinping administration
established for second term?
2017 Dec
End of term for FRB Chair Janet
Yellen
2018 Feb
End of term for BOJ governor
Haruhiko Kuroda
Election of LDP president
Sep
(Shinzo Abe steps down)
Nov
End of term for upper house
Dec
representatives
Apr
2019 Oct
Mid-term elections
Sales tax to be hiked again?
End of term for ECB president
Mario Draghi
Source: Various materials; compiled by DIR.
39
Trends in major economic indicators
Corporate earnings
(Ordinary profit)
Wage hike
(announced by Rengo, Japanese
Trade Union Confederation)
Number of
employees
Employment
Situation
Unemployment
Rate
Active Job
Openings-toApplication Ratio
Nominal GDP
Nikkei Stock Average
Before inauguration
of Abe
Administration
12.4 trillion yen
Current indicators
17.9 trillion yen
(Oct.-Dec. 2012)
(Jul.-Sep. 2015)
0.82%
2.2%
(2012)
(2015)
62.8 million
64.0 million
(Oct.- Dec. 2012)
(Oct.-Dec. 2015)
4.1%
3.3%
(Nov. 2012)
(Dec. 2015)
0.82
1.27
(Nov. 2012)
(Dec. 2015)
472.7 trillion yen
499.4 trillion yen
(Oct.-Dec. 2012)
(Oct.-Dec. 2015)
8,665 yen
16,052 yen
(Nov. 14, 2012)
(Feb. 23, 2016)
Note
Record high
Highest level in 17
years
Increased by
more than 1.1 million
Lower 3% range,
lowest in 18 years
Highest level in 24
years
Recovering to the level
before the global
financial crisis in 2008.
Highest level in 19
years
(Average between Jan.- Dec.
2015: 19,213 yen)
40
The new three arrows of Abenomics
(1) A robust economy that
gives rise to hope
Growth
strategy
(2) Dream-weaving childcare
support
Redistribution
policy
(3) Social security that
provides reassurance
41
“Active involvement of women” is the key
to reviving Japan’s economy
Gender Equality and Real GDP Per Person in OECD Member Nations
(Purchasing Power Parity Basis)
(2012 Real GDP Per Person, Purchasing Power Parity Basis)
90,000
80,000
Germany
y = -778.14x + 48239
R² = 0.5232
70,000
US
Iceland
Norway
Netherlands
Czech Republic
60,000
50,000
Korea
Japan
Switzerland
UK
Italy
40,000
30,000
Denmark
20,000
France
10,000
Turkey
Sweden
Finland
Hungary
0
35
30
25
20
15
10
5
0
(In Order of Gender Equality Index, 2014 Survey)
Women's Empowerment →
Source: World Economic Forum and OECD; compiled by DIR.
42
Japan: Effects of Negative Interest
Possible Negative Effects on Economy & Prices due to Negative Interest Rate
Negative Interest Rate Introduced
Real Economy
International interest
spread increases
Financial Markets
＜
Price of Crude
Oil Rises
Turmoil in global
financial markets
Yield on govt. bonds declines
Cost of procuring
funds decreases
Interest on bank
deposits declines
Interest on loans declines
②
Interest on
housing loans
declines
Corporations
capex stagnates
①
Stock prices fall
Negative wealth effect
Upward
pressure
on prices
decreases
Import prices
fall
Households
Housing investment &
consumption stagnate
Corporate business
performance:
Expections of improvement
subside
Sluggish growth
in w ages
Cost of
＜ Dem and for
procuring funds
capital declines
decreases
Yen appreciation
Interest income declines
Confidence worsens
③
＋
Downward
pressure
on prices
Economic
stagnation
43
Is fiscal adjustment possible if there is economic
growth?
Domar’s condition: Nominal GDP growth rate>long-term interest rate
Ratio of Major OECD Nations That Meet Domar's Condition
Japan:Nominal GDP, Long-term Interest Rate, Interest Payments
(%; % pt)
25
(a) Nominal GDP growth (left)
8
1971-2010 1981-2010 1991-2010 2001-2010
20
Avg. of
(a - b)
0.20　-1.15　-1.58　-1.50　15
Probability
of (a > b)
38.6　23.5　16.7　21.4　10
(%)
100
(%)
US IT bubble
7
6
80
5
5
4
0
3
Growing global
excess liquidity
70
60
(b) Long-term interest rate (left)
US housing bubble
90
Financial deregulation
(higher inflation)
50
40
30
20
-5
2
(a - b; left)
-10
1
66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source:Cabinet Office, IMF; compiled by DIR.
Note:General government interest payments:FY basis; other:CY basis.
0
71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
General government interest payments (% of GDP; right)
-15
10
0
(CY)
Note: OECD, IMF; compiled by DIR.
Note: Major OECD nations are 16 nations for which interest rate (in terms of 10-yr sovereign
bond yields) and nominal GDP growth rate since 1971 are available, namely, Australia, Austria,
Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Japan, Luxemburg, Netherlands,
Norway, Sweden, UK, and US.
44
Growing Social Security Costs Main Cause of deteriorating
Fiscal Balance
Comparison of FY90 and FY14 General Government Revenue and Expenditure (Central government)
(Y tril)
Other 2.6
FY90
Tax
58.0
Revenue
Expenditure
＋29.6
Expenditure
6.2
Local
allocation
11.6
(17.5％) tax grants
34.1
14.3
Social
security
Other
Debt
servicing
+18.9
▲0.2
+2.0
Social security
30.5
(29.2％)
Revenue
Construction bonds 5.6
Local allocation
tax grants
6.0
+8.9
Other
Debt servicing
36.1
23.3
Tax
50.0
Deficit-financing bonds
35.2
Other 4.6
FY14
Construction bonds 6.0
Source: Ministry of Finance; compiled by DIR.
Note: FY90: original budget; FY14: government draft.
45
The Shift From Mid-Range Benefits for Low Burden to High
Benefits for Low Burden
OECD Nations: National Burden and Social Security (2010)
Social security expenditure (General government; % of GDP)
30
1993
25
Larger
benefit
20
2010
2010
2010
15
1995
Greece
Sweden
10
1980
5
Japan
Larger burden
y = 0.47 x + 1.06
R² = 0.57
0
15
20
25
30
35
40
Source: OECD; compiled by DIR.
45
50
55
National burden (% of GDP)
46
Simulation of Long-Term Interest Rate
Japan’s Theoretical Long-term Interest Rate Implied by Other Nations’ Interest Rate (%)
10
9
8
7
6
5.0
Theoretical interest rate
5
4
3
2
1
Actual interest rate
0
1980 82
84
86
88
90
92
94
96
98 2000 02
04
06
08
10
12
14
(CY)
Source: OECD; compiled by DIR.
Estimating equation for theoretical interest rate:
Long-term interest rate = 1.07 + 0.76 x short-term interest rate + 0.02 x outstanding balance of general government debt (% of nominal GDP) + 0.06 x GDP deflator (y/y).
Estimation period 1981-2013; Significance of coefficients: 5%; Adjusted R2: 0.87; Coefficients derived from estimation results of long-term interest rates of OECD 21
nations (excl. Japan).
47
Consumption Tax(1)
Central/local Government Primary Balance
(% of GDP)
300
(% of GDP)
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
DIR estimate
DIR estimate
250
200
150
Radical reform scenario
Structural reform scenario
Base scenario
（FY）
Radical reform scenario
Structural reform scenario
Base scenario
2040
2035
2030
2025
2020
2015
2010
2005
2000
50
1995
36-40
31-35
26-30
21-25
16-20
11-15
06-10
2001-05
100
96-00
1991-95
Outstanding Balance of Central/local Government Debt
（end-FY）
Source: Compiled by DIR based on various statistics.
48
Consumption Tax(2)
Tax Revenue Simulation
(Y Tril)
(Y Tril)
12
10
8
2.0
Amount of divergence from
hypothetical case where 2014
and 2017 consumption tax hikes
do not take place.
1.0
Amount of increase in tax revenue if
recession caused by tax increase is
avoided.
0.0
6
-1.0
4
2
-2.0
Amount of divergence from case where
2017 consumption tax increase takes place.
0
-3.0
-2
Decline in tax revenue due to recession caused by tax increase
-4
12
13
14
Consumption Tax Revenue
Income Tax Revenue
15
16
Corporate Tax Revenue
17
(FY)
Source: Produced by DIR
Notes: 1) Simulation results using DIR short-term macro model.
2) FY2017 revenue from consumption tax takes into consideration the amount of decline in tax
revenue due to the reduced tax rate.
-4.0
15
Consumption Tax Revenue
Income Tax Revenue
16
17
(FY)
Corporate Tax Revenue
Source: Produced by DIR
Notes: 1) Simulation results using DIR short-term macro model.
2) FY2017 revenue from consumption tax takes into consideration the amount of decline in tax
revenue due to the reduced tax rate.
49
Consumption Tax(3)
S im ulation of F iscal Balance (Left: G e neral G overnm ent F iscal Ba lance, R ight: G eneral G overnment D ebt)
(Y Tril)
(Y Tril)
-16
0
-19
-1
-22
1,500
(Y Tril)
(Y Tril)
30
1,450
24
1,400
18
1,350
12
1,300
6
-2
-25
-3
-28
-4
1,250
2017
2018
2019
2020
2021
2022
2023
Amount of Difference (Right Axis)
Tax Increased
Postponed Indefinitely
Source: Estimates using DIR Midterm Macro Model.
2024
0
2017
2018
2025
2019
2020
2021
2022
2023
Amount of Difference (Right Axis)
Tax Increased
Postponed Indefinitely
(CY)
2024
2025
(CY)
Source: Estimates using DIR Midterm Macro Model.
50
Capex(1)
C a p ital Investment a nd C ash F low
20
Capex: Actual and Projection
Y Tril
(Y tril)
90
(% change from previous survey )
10
Cash Flow
18
Nominal capex (right)
Capital Expenditure
8
80
16
70
6
14
60
4
12
50
10
2
8
0
6
-2
40
4
2
30
20
-4
Depreciation Expenses
10
Revision rate to capex projection* (one year previous; left)
90
92
94
96
98
00
02
04
Source: Ministry of Finance; compiled by DIR
Notes: 1) Seasonally adjusted figures for depreciation expenses calculated by DIR.
2) Cash flow = recurring profits / 2 + depreciation expenses.
06
08
10
12
14
16
(CY)
-6
0
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Source: Bank of Japan (BOJ), Cabinet Office; compiled by DIR.
*BOJ Tankan survey of corporate sentiment; bold line=4Q MA.
(CY)
51
Capex(2)
Capex Breakdown by Motive of Investment (All Industry)
20
(y/y,%)
15
10
5
0
-5
-10
-15
-20
91
93
95
97
99
01
03
Capacity Increase
Rationalization & Labor-Saving
Maintenance & repair
Capex
05
07
09
11
13
15
(CY)
New products & Product Upgrade
Research & Development
Others
Source: Development Bank of Japan, compiled by DIR.
52
Capex(3)
Factor Analysis of Corporate Earnings
(Reference Point=100)
(Deviation Amount from Reference Point, Y Tril)
130
5
125
4
120
3
115
2
110
1
105
0
100
-1
95
-2
90
-3
85
Ⅳ
12
Ⅰ
Ⅱ
Ⅲ
Ⅳ
Ⅰ
13
Ⅱ
Ⅲ
(Reference Point=100)
(Deviation Amount from Reference Point, Y Tril)
6
Ⅳ
Ⅰ
14
Domestic Output Price
Export Output Price
Variable Expenses
Recurring Profits
Ⅱ
15
Ⅲ
Ⅳ
Ⅰ
16
6
130
5
125
4
120
3
115
2
110
1
105
0
100
-1
95
-2
90
(Quarter) -3
(Year)
85
Ⅰ
Ⅱ
Ⅲ
Ⅳ
Ⅰ
02
Ⅱ
Ⅲ
03
Ⅳ
Ⅰ
Ⅱ
Ⅲ
04
Ⅳ
Ⅰ
05
(Quarter)
(Year)
Domestic Sales Volume
Export Sales Volume
Fixed Expenses
Real Capital Expenditure in Manufacturing Industry (Right Axis)
Source: Ministry of Finance, Bank of Japan; compiled by DIR.
53
Capex(4)
Correlation Coefficient of Capital Investment and Corporate Earnings Components
1.0
0.9
0.8
Driving Force Until Global Financial
Crisis of 2008
0.7
Driving Force in Current
Economic Recovery Phase
0.6
0.5
0.4
0.3
0.2
0.1
0.0
Domestic Sales
Volume
Export Sales
Volume
Volume
Domestic Output
Price
Export Output
Price
Variable
Fixed Expenses
Expenses
(Reversed Sign)
(Reversed Sign)
Price
Expenses
Source: Ministry of Finance, Ministry of Economy, Trade and Industry; compiled by DIR.
Note: Coefficient with the greatest absolute value out of 4-quarter time-difference correlation is displayed.
54
Capex(5)
R e a l Anticipated Growth Rate of Demand, and Amount of Capital Expenditure/Cash Flow Ratio
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
（％）
85
87
（％）
89
91
93
95
97
99
01
03
05
07
09
11
13
Real Anticipated Growth Rate of Demand (Leads by 3 Qtrs)
140
130
120
110
100
90
80
70
60
50
40
15
(CY)
Amount of Capital Expenditure/Cash Flow Ratio(Right Axis)
Source: Ministry of Fina nce, Ca binet Office; com piled by D IR .
N ote: R ea l a nticipa ted g row th ra te of dem a nd is a n a ll -industry fig ure.
Indica tes outlook five -yea rs into the future.
55
Consumption(１)
Financial Planning for Old Age and Savings Rate
40
2015
2010
38
Savings Rate with
Age Factor Removed
36
(Savings Rate, %)
34
2000
32
30
28
26
1990
1984
24
1990
22
2015
2010
2000
Savings Rate
20
40
45
50
55
60
65
70
Percentage of persons stating that the purpose of holding
financial assets is to cover living expenses in old age (%)
Source: Ministry of Internal Affairs and Communications, and Bank of Japan; compiled by DIR.
Note: Savings rate from household survey “Rate of Surplus”. Aging factor found by estimating savings rate.
The forecast formula is as follows: Savings rate = 18.01 – 0.75 x aging rate + 0.16 x anxiety regarding the
future +0.01 x household assets (-2). Aging rate and household asset factors have a significance of 1%.
Anxiety regarding the future has a significance of 5%. Anxiety regarding the future is the percentage of
persons stating that the purpose of holding financial assets is to cover living expenses in old age in reply to
surveys regarding the purpose of holding financial assets.
56
Consumption(2)
Employee Compensation Growing, while Personal Consumption
Stagnates
Real Personal Consumption and Real Employee Compensation
(Y Tril)
(Y Tril)
330
270
325
320
265
315
310
260
305
300
255
295
290
250
285
280
275
05
06
07
08
09
Real Personal Consumption
10
11
12
13
14
15
245
16 (CY)
Real Employee Compensation (Right Axis)
57
Consumption(3)
Increase in Social Security Contributions Puts Squeeze on Growth in
Disposable Income
Factor Analysis of Change in Wages & Salaries, Employee Compensation, and Disposable Income
（FY2012→FY2014）
(Change Between FY2012 and FY2014, Yen Bil)
12,000
＋2,442
10,000
8,000
＋2,021
＋6,853
＋336
6,000
＋4,832
▲ 3,861
4,000
▲ 2,021
＋1,399
2,000
＋1,193
▲ 688
▲ 3,267
0
Wages
& Salaries
Employer's Employee
Operating
Property
Income
Contribution Compensation Surplus Income (Net) Tax (Paid)
to Social
Security
Employer's Employee's
Social
Contribution Contribution
Security
to Social
to Social
Benefits
Security
Security
(Received)
Others
Disposable
Income
58
Consumption(4)
R ea l Dura bles Consum ption a nd its Trend
(Y Tril)
60
50
40
Trends in Personal Services
(2013=100)
108
106
Trend seen prior to introduction of the
eco-car subsidy and the consumer
electronics eco-point system.
104
102
30
100
20
98
10
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
(CY)
Period When Eco-Car Subsidy and Consumer Electronics Eco-Point System Policies were in
Effect
Period During which Last-Minute Demand was Generated beofore Sales Tax Hikes
Source: Ca binet Office; com piled by D IR .
96
13/1
13/5
13/9
14/1
14/5
Broad-Ranging Personal Services
Non-Essential Personal Services
14/9
15/1
15/5
15/9
16/1
(Yr/Mo)
Essential Personal Services
Source: Ministry of Economy, Trade and Industry; compiled by DIR.
Note: Less retailing.
59
Consumption(5)
P ersonal C onsum ption by A nnua l Income
P ersonal C onsum ption by Age G roup
(2012= 100)
101
(2012= 100)
10 5
100
10 0
99
95
98
90
97
85
96
80
95
75
94
70 and Over
60-69
50-59
40-49
30-39
29 and Below
Ⅰ
Ⅱ
Ⅲ
Ⅳ
Ⅴ
(Five Annual Income Quantiles)
Source: Ministry of General Affairs and Communications; compiled by DIR
Note: Seasonal Adjustment by DIR. Thick bold line indicates average of all households.
Source: Ministry of General Affairs and Communications; compiled by DIR
Note: Seasonal Adjustment by DIR. Thick bold line indicates average of all households.
60
Consumption(6)
Consumption Function Estimation Results by Age Group and Income Bracket
Estimation of Consumption Functions by Age Group
Age 29 and
Below
30-39
40-49
50-59
60-69
Age 70 and Over
Disposable Income
0.91***
0.97***
0.67***
0.79***
0.49***
0.46***
Financial Assets
Anxiety Regarding
the Future
0.08
-0.04
-0.05
0.16***
0.11
0.54***
-0.32***
-0.11***
-0.15***
-0.06*
0.00
0.11
0.00
0.00**
0.00
0.00*
0.00***
0.00**
Trend Term
Estimation of Consumption Functions by Income Bracket
Low Income
Middle Income
High Income
Disposable Income
0.85***
0.84***
0.75***
Financial Assets
Anxiety Regarding
the Future
0.15***
0.17***
0.26***
-0.01
-0.02**
-0.07***
Source: Produced by DIR.
Notes: 1) The asterisks *, **, *** indicate that the coefficients are statistically different from zero at the 1%, 5%, and 10% levels.
2) The factor of anxiety regarding the future is Japan’s outstanding obligations as a percentage of GDP.
61
Consumption(7)
S tructural a n d F riction al U n em p loym ent R a tes b y Ag e G rou p
In v o lu ntary Irregu lar E m p loyee R atio (20 15)
(％)
(％)
9
8
7
6
5
4
3
2
1
0
30
25
20
15
10
90
92
94
96
98
00
02
04
06
08
10
5
15～24
25～34
35～44
45～54
55～64
12
14
16
(CY)
65 and over
0
15-24
25-34
35-44
45-54
55-64
65
Source: Ministry of Interna l Affa irs a nd Com m unica tion, Ministry of H ea lth, La bour a nd
W elfa re; com piled by DIR
Source: Ministry of Internal Affairs and Communication; compiled by DIR
Notes: 1) Number of irregular employees accounted for by individuals w ho became an irregular
employee because there w ere no regular employee positions open.
2) Number of irregular employees in the 15-24 age group does not include individuals still going to
school.
62
Consumption(8)
Individual Opinions Regarding Level of Interest Rate
70
QQE 2
QQE 1
Usecured Call Rate Overnight Reduction
（ 0.3％→0.1％）
Deposits and Securities Holdings by Age of Head of Household （ Households
holding financial assets、 2015）
(Securities Holdings, Y10,000)
500
50
Effect of Fluctuation in Stock Prices
(Greater in Direction of Arrow)
60
Negative Interest Rate
（％, ％pt）
400
40
300
30
20
200
10
100
0
1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q
2007
2008
①-②
2009
2010
2011
Interest is too low（ ①）
2012
2013
2014
2015 2016
(FY)
Interest is too high（ ②）
Note: Ratio of responses to survey regarding level of interest rate (too low : too high).
Source: Bank of Japan; compiled by DIR.
0
70s and older
50s
60s
30s
Overall
40s
Effect of Fluctuation in Interest Rates on Deposits
(Greater in Direction of Arrow)
20s
-100
0
200
400
600
800
1,000
1,200
1,400
1,600
(Amounts Held in Deposits, Y10,000)
Source: Central Council for Financial Services Information, Ministry of General Affairs and
Communication; compiled by DIR.
Note: Size of circles represents number of households as of 2015. Overall category is a simple average of
number of households.
63
Impacts on Consumption Vary
by Types of Labor Market Improvement
Impact of 2% Rise in Employee Compensation on Personal Consumption
Increase in consumption spending (Y tril)
7
6
5.3
5
Durables
Semi-durables
Non-durables
Services
Personal consumption
4
1.9
3
2
0.7
1
0
-1
-2
Contractual cash earnings
Bonuses
No. of employees
Source: Cabinet Office, Ministry of Health, Labour and Welfare, Ministry of Internal Affairs and Communications; compiled by DIR.
Note: Employee compensation expressed as "total cash payments multiplied by no. of employees". If employee compensation
rises 2%, contractual cash earnings would be up 2.4%, bonuses up 12.0%, and no. of employees up 2.0%. If this is the
case, personal consumption would increase as shown in the chart. Estimation period: Jan-Mar 1994 to Apr-Jun 2013.
64
Unit Purchase Price of Foodstuffs in
Downward Trend
Changes in Unit Purchase Price Index and Consumer Price Index (Foodsuffs)
(2013=100)
Unit Purchase Price
Consumer Price
110
108
106
104
102
100
98
12345678910
11
1212345678910
11
1212345678910
11
1212345678910
11
1212345678910
11
1212345678910
11
1212345678910
11
12
2010
2011
2012
2013
2014
Source: Ministry of Internal Affairs and Communications; Compiled by DIR.
Note: Figures are seasonally adjusted and use the 3-month moving average.
2015
2016
(Mo)
(Yr)
65
US Consumer Confidence Is Favorable
US Consumer Confidence and Japan's Economy
(CY2005=100)
240
Japan's Coincidence Index (right)
220
130
120
200
110
180
160
100
140
90
120
80
100
3
80
70
60
1
40
20
4
4
60
2
US Consumer Confidence Index (left)
1
0
(CY)
50
40
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Source: Cabinet office, Conference Board; compiled by DIR.
Notes: 1) Shaded areas denote economic downturns in Japan.
2) Figures in boxes: Months preceding Japan's economic trough.
66
US Role as World’s Banker
G lobal M oney F low s 2015
UK to US
Eurozone to Japan
8543
-24409
-186
-282
US to UK
Japan to Eurozone
1566
1240
255
UK to Japan
Eurozone to US
-1095
10808
Bonds
Stocks
Bonds
DI
-998
Bonds
Stocks
Bonds
-1103
DI
41123
DI
422
-615
Eurozone
1194
Stocks
-743
Stocks
-4598
Bonds
DI
736
Stocks
-1792
-24878
23774
UK
DI
DI
Japan to UK
-1072
42872
220
6988
Stocks
7871
11004
US to Eurozone
-58
Bonds
9663
-169
-277
10784
3605
41801
-625
191
Bonds
Bonds
Stocks
DI
US to Japan
Stocks
DI
Japan to US
221
1441
-727
92
US
-94
Ja pan
-819
379
Japan to Asia
US to Latin Am erica
-854
Bonds
2757
Stocks
-2639
DI
Bonds
Stocks
DI
-243
-277
Bonds
Stocks
-1798
1328
1837
-1278
680
-1600
Bonds
Stocks
DI
DI
2484
509
Asia to Japan
Latin Am erica to US
-4427
711
200
2525
1604
-1316
Bonds
686
601
1933
Stocks
DI
Latin Am erica to Japan
-1902
La tin
Am e rica
-1003
-91
As ia
US to Oceania
Japan to Latin Am erica
291
-681
881
115
-86
-23
-971
-119
183
198
-369
-567
-590
Bonds
US to Asia
1615
-1793
577
Japan to Oceania
Stocks
DI
Asia to US
1271
471
-2285
236
O ce ania
-3940
-124
Bonds
Stocks
DI
Bonds
Stocks
Source: US Dept. of Treasury, US Dept. of Commerce, Ministry
of Finance; compiled by DIR.
Note: Unit: 100 mil dlrs, annualized rate. Data for Eurozone to
Japan includes EU (25 countries) and UK. Asia does not include
Japan. Latin America includes the Caribbean. Data for
US-Oceania includes only Australia.
DI
Bonds
Stocks
-224
DI
228
5
Bonds
Stocks
59
DI
Bonds
Stocks
DI
-1711
Bonds
Stocks
DI
-334
Oceania to Japan
Oceania to US
Bonds
2
9
Stocks
DI
Stocks
DI
-578
Bonds
67
Influence of US and European Monetary
Policy on World Economy
US Interest Rate Hikes + EU Quantitative Easing
US Interest Rate
Hikes
US
EU
Emerging
Nations
World
2015
2016
2017
2015
2016
2017
2015
2016
2017
2015
2016
2017
①
0.01%
-0.09%
-0.27%
0.02%
-0.06%
-0.25%
0.01%
-0.08%
-0.24%
0.01%
-0.08%
-0.25%
0.00%
-0.14%
-0.34%
0.00%
-0.15%
-0.39%
0.00%
-0.12%
-0.31%
0.00%
-0.13%
-0.34%
EU Quantitative
Easing
US Interest Rate Hikes
at Neutral Pace + EU
Quantitative Easing
0.02%
0.09%
0.13%
0.04%
0.14%
0.20%
0.02%
0.09%
0.12%
0.03%
0.10%
0.14%
②
0.00%
0.00%
0.00%
0.01%
0.02%
-0.01%
0.00%
-0.01%
-0.05%
0.00%
0.00%
-0.02%
Source: Compiled by DIR
Notes: 1) Cumulative rate of deviation from baseline.
2) Figures for the w orld are a total of the values of the US, EU, and the emerging nations (covers about 82% of w orld GDP).
3) The US interest rate hike case starts in the Oct-Dec period of 2015, and assumes increases in the 10-yr bond yield of 25bp at a time for 8
consecutive quarters.
4) The EU quantitative easing case starts in the Jan-Mar period of 2015 and assumes an expansion of the ECB balance sheet of 180 bil Euros at a
time for 8 consecutive quarters.
5) Simulation run using the DIR w orld economic model.
68
Fundamentals of Emerging Nations Improve
Risk Resilience of Emerging Market Economies
Public finance to
strengthen
Ratio of foreign reserves to import value per month (times)
Public finance to weaken
16
Risk resilience
to strengthen
Brazil
14
Russia
12
Thailand
10
Argentina
8
Turkey
6
4
2
Indonesia
Risk resilience
to weaken
Mexico
0
120
50
40
30
20
10
0
Debt service ratio (%)
Source: Haver Analytics; compiled by DIR.
Notes: 1) Arrows denote shift of positions at critical moments to 2012.
2) Year of crises defined as 1994 for Mexico, 1997 for Thailand and Indonesia, 1998 for Russia, 1999 for Brazil,
2001 for Turkey, and 2002 for Argentina.
3) Size of circles shows ratio of foreign reserves to foreign debt with less than one-year maturity. The larger the
circle, the greater the resilience.
69
How Far will Yuan Depreciate?
The yuans' real effective exchange rate
140
(2010=100)
130
120
110
20%
100
90
80
2000
30%
2002
2004
2006
2008
2010
2012
2014
2016
Source: Haver Anlytics; compiled by DIR.
70
Capital Flight from China
C hina ’s ba la nce o f interna tiona l pa ym ents
2,500
China's Foreign Reserves
(Bil.USD)
(MIl.$)
4,500
2,000
1,500
4,000
1,000
3,500
500
3,000
Chang es in Reserves
Foreign Reserves
150
100
0
50
2,500
-500
0
-1,000
2,000
-1,500
1,500
-2,000
-50
1,000
-100
-2,500
2000 2002 2004 2006 2008 2010 2012 2014 2016
Financial/capital account balance
Current account balance
Chg. in foreign reserves
Source: H a ver Ana lytics; com piled by D IR .
500
(CY)
0
-150
05 06 07 08 09 10 11 12 13 14 15 16 (CY)
Source: PBOC
71
Export-boosting effect of weak yen
Estimated export-boosting effect of weak yen
10 0
Export volume index cumulative change factor analysis
(2010=100)
(pt)
Boosting effect
98
96
10 10
9
8
8
6
7
4
94
6
2
92
5
4
90
3
88
2
86
1
84
0
12
13
14
15
16
Boosting effect (rig ht a xis)
E stima te
If foreig n excha nge ra tes ha d rema ined fla t from October 2012
Source: Ministry of Fina nce, Ba nk of Ja pa n, a nd N etherla nds Burea u for E conom ic
Policy Ana lysis sta tistics; Com piled by DIR
(Cum ula tive cha ng e since N ovember 2012, pt)
0
-2
-4
-6
-8
-1 0
12 /11
13 /3
13 /7
13 /11
14 /3
14 /7
14 /11
15 /3
15 /7
15 /11
16 /3
(Yea r/Month)
(CY)
R esidual + approximation error
Nominal effective exchange
R elative export price
Japan export share trend-cycle component
Global production ex Japan
Export volume index cumulative change (3MA)
N ote: R ela tive export price=Ja pa n export price/w orld export price ex Ja pa n
(in U S dolla rs).
Source: Ministry of Fina nce, Ba nk of Ja pa n, a nd N etherla nds Burea u for E conom ic
Policy Ana lysis sta tistics; Com piled by D IR
72
How should we think about immigration?
Emmanuel Todd Family Types
Parent-child relationship
Equal
(separate
residences)
Unequal (same
residence)
Equal
Unequal
Filial relationship
China
France
Russia
UK
Japan
US
Germany
73
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Current State and Future of Japanese Economy (with Appendix)

Transcription

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