Development Bank of Japan
Research Report
No. 13

Recent Trends in the Japanese Economy:
Weakness of Current Economic Recovery and
Its Background

March 2001

Economic and Industrial Research Department
Development Bank of Japan

Contents

Summary ............................................................................................................................. iii
I. The Japanese Economy: Pausing in Recovery ............................................................. 1
1. Overview: Slower Growth in Production ................................................................................. 1
2. Shipments: Slowed Growth, Inventories: Increase Led by Producers’ Goods ................... 2
3. Consumption: Sluggish ................................................................................................................ 5
4. Plant and Equipment Investment: Stalled in Non-manufacturing,
Leading Indicator Implys Slowing Down................................................................................. 9
5. Housing Starts: Leveling Off ....................................................................................................13
6. Public Investment: Moving Downward..................................................................................15
7. Exports: Leveling Off, Imports: Continuing to Increase .....................................................16
8. Consumer Prices: Still Weak .....................................................................................................18
9. Employment: Harsh Especially for Self-employed, with Unemployment
Stays High....................................................................................................................................19
10. Share Prices: Bearish, Long-term Interest: Showing Downtrend .....................................22
II. Weakness of Current Economic Recovery and Its Background ................................ 25
1. Characteristics of Current Economic Recovery Compared withPatterns since 1980s...................................................................................................................25
2. Factors behind Sluggish Personal Consumption, Stalled Improvement in
Productivity and Large Labor Share........................................................................................26
3. Quick Start but Weak Expansion for Current Recovery in Plant andEquipment Investment..............................................................................................................28
4. Modest Plant and Equipment Investment amidst Rapid Recovery in
Corporate Profits........................................................................................................................31
5. Contribution of Exports to Economic Recovery and Increase inImports Led by Consumer Goods ..........................................................................................34
6. Heavy Debt Burden for National and Local Governments. Real Interest
Rates Bottom Out due to Price Declines ...............................................................................35
7. Weak Prices Accompanied by Sluggish Wages and Salaries ................................................37

Development Bank of Japan Research Report/ No. 13 i

Recent Trends in the Japanese Economy:
Weakness of Current Economic Recovery and Its Background
Summary
1. The Japanese economy recovered moderately after bottoming out in April 1999 but recently
there has been a pause in the recovery. Consumption remains weak, reflecting negligible
improvement in income and employment conditions. Without significant positive factors,
production growth has been slowing as public investment is reduced due to financial difficulties,
and exports are leveling off.
Personal consumption remains sluggish. Although earned income recorded positive growthin 2000, bonuses have increased only slightly last summer and the pace of recovery has not
picked up. The slump in nominal consumption, accompanied by a decline in the consumer
spending deflator, has not supported a recovery in consumption in terms of sales performance.
The buoyant sales of emerging specialty stores have not resulted in an increase in sales for thewhole retail industry including medium- and small-sized stores.
Plant and equipment investment is recovering rapidly in the manufacturing sector, led byelectrical machinery and other so-called IT-related industries. In the non-manufacturing sector,
however, investment has remained level after a swift recovery led by the growth of retail outlets
and increased investment in certain services. The leading indicator points to a decline in bothmanufacturing and non-manufacturing industries.
The housing investment is leveling off, following a rise led initially by owned houses on theback of enhanced tax relief measures in 1999, and then by dwellings for sale later in the year.
Sales have been buoyant for dwellings for sale, with the contract rate remaining around 80% for
condominiums in the Tokyo metropolitan area, although inventories have also increased slightly.
Public investment is declining mainly among local governments as they experience financial
difficulties. Although the new development policy drawn up in October 2000 may have someeffect, the value of public works projects continues to decrease from the previous year on acontract basis.
Exports, a major contributor to the recent economic recovery, had leveled off by late 2000,
reflecting the slowdown in the U.S. economy and the depreciation of the euro. Imports, on theother hand, continue to increase slowly, mainly from Asia. On balance, net exports have been
declining from the previous year.
Despite accelerated growth in capital goods led by plant and equipment investment,
industrial shipments remain stagnant for construction materials and consumer goods. As
inventories of heavily weighted producers’ goods are in the phase of involuntary accumulation,
inventories have risen as a whole and growth of shipments has been slowing.
Prices remain weak except for some influence of rising crude oil prices. Job offers have been
improving but unemployment remains high, as the increase in employment is largely offset by acontinued decline in the number self-employed. Financial institutions are increasing theirinvestment in government bonds as share prices stagnate and demand for financing remains
weak.

Development Bank of Japan Research Report/ No. 13 iii

2. The current economic recovery since the bottom of the second quarter of 1999 has been led
by private demand including exports and plant and equipment investment. Despite theimprovement of corporate profits, however, the pace of recovery has been very slow due tostagnant consumption.
Personal consumption has remained stagnant largely because improving corporate profits
have not translated into a significant increase in earned income. This may be partially attributed
to the large labor share, which continued to rise throughout the 1990s even though laborproductivity did not improve substantially. Although plant and equipment investment started torise rapidly, growth has been slow due to lack of a sufficient ripple effect. This may be partly
because corporate profits have improved largely due to a reduction in fixed costs, so plant andequipment investment has not increased in proportion to corporate profits.
Exports, a major contributor to the current recovery, heavily depend on economic
conditions overseas. On the other hand, imports are rising due to such factors as relative prices
and direct external investment as well as the condition of the Japanese economy, thusincreasingly affecting domestic supply. There remains little scope to increase public investment as
the national and local governments accumulated debts throughout the 1990s. The credit functionof financial institutions has also been weak. In addition to the continuing downtrend in the pricesof goods, service prices are now tending to weaken along with wages and salaries.

iv Development Bank of Japan Research Report/ No. 13

I. The Japanese Economy: Pausing in Recovery
1. Overview: Slower Growth in Production
The Japanese economy recovered slowly after bottoming out in April 1999 but recently there has
been a pause in the recovery. The demand has been weakened as exports are leveling off despite
the increase in plant and equipment investment. Consumption remains in a slump reflecting
negligible improvement in income and employment conditions. Overall, the Japanese economy is
not strong.
Real GDP (Figure 1-1, based on 93 SNA) recorded its first positive growth in two years infiscal 1999, up 1.4% from the previous year, following a decline of 0.6% in fiscal 1998. On aquarterly basis, real GDP resumed the level of the previous year in the first quarter of 1999,
followed by positive growth for seven consecutive periods to the fourth quarter of 2000 sincerecording an increase of 1.1% from the previous year in the second quarter of 1999.
Figure 1-1.
(％)
8

Trends in Real GDP (Year-on-year change by component)

91/2

7

97/3

93/10

99/4

Year-on-year change in GDP

6
5
4

Exports
Government consumption

3
2

Plant and equipment investment

1

Housing investment
Consumption
Public investment
Imports (reverse sign)

0
-1
-2
-3
-4
90

91

92

93

94

95

96

97

98

99

00

(CY quarterly basis)

Source:Cabinet Office, “Annual Report on National Accounts,” 1995 as base year.
Reference: Revision of real GDP growth (%) with change in base year (from 1990 to 1995) for national accounts (based on
93SNA).
FY

1991

1992

1993

1994

1995

1996

1995 as base year (93SNA)

2.5

0.4

0.4

1.1

2.5

1990 as base year (68SNA)

2.9

0.4

0.5

0.6

3.0

▲0.4

0.0

▲0.1

0.5

▲0.5

Revision
Note:
Source:

1997

1998

1999

3.4

0.2

▲0.6

1.4

4.4

▲0.1

▲1.9

(0.5)

▲1.0

0.3

1.3

(0.9)

Number for fiscal 1999 taking 1990 as base year represents preliminary estimation.
Cabinet Office.

By expenditure item, private final consumption has remained sluggish. After recording asubstantial increase in the lower 2% range in the first half of fiscal 1999, which reflected theconsumption trend of single-member households, it has not shown significant signs of recovery,
sliding to the first year-on-year decline in three periods in the third quarter of 2000. The ripple
effect of improvement in corporate profits has been weaker than in past recovery phases, withhigh unemployment as one factor delaying the recovery in consumption.
Since recording the first increase in six periods in the fourth quarter of 1999, up 2.9% from
Development Bank of Japan Research Report/ No. 13 1

the previous year, private plant and equipment investment increased on the previous year for fiveconsecutive periods to the fourth quarter of 2000. However, the recovery, backed by net exports,
has been unevenly distributed. Indeed, investment in the manufacturing sector has increased
rapidly led by IT-related industries, while the non-manufacturing sector has been experiencing a
up and down in investment, mainly in services. The leading indicator such as machinery orders
has shown a sign of decline in both manufacturing and non-manufacturing industries.
Private housing investment increased on the previous year from the second quarter of 1999,
mainly due to the continuation of low interest rates and the effect of housing tax relief measures.
However, it has been declining on the previous year for two consecutive periods since the second
quarter of 2000, as housing starts turned down for owned houses, which had led the increase ininvestment. Although housing starts exceeded 1.2 million units as a whole in fiscal 1999 and havealready turned upwards for owned houses, they are currently showing signs of leveling off as theconstruction of dwellings for sale including condominiums has passed its peak.
Public fixed capital formation has been declining on the previous year for five consecutive
periods since the fourth quarter of 1999, partly due to the diminishing effect of the two
economic stimulus packages launched in fiscal 1998. Despite the expected progress of theeconomic stimulus package (totaling ¥18 trillion) and the new development policy (¥11 trillion)
decided in November 1999 and October 2000 respectively, it will continue to fall as the financesof local governments remain precarious.
Data on international trade in goods and services indicate that exports rose on the previous
year in the third quarter of 1999 and continued to increase by double digits to the third quarter of
2000, backed by favorable economic conditions worldwide, particularly in Asia. According toseasonally adjusted figures, however, the year-on-year increase leveled off in the third quarter of
2000. The slow-down in growth of the world economy, particularly the U.S. economy, areexpected to have an effect in the coming periods. Meanwhile, imports have been increasing
mainly from Asia, rising by about 10% in each period since the fourth quarter of 1999. Although
net exports have made a positive contribution for four quarters since the first quarter of 2000,
their trend must be monitored closely in future.
Figure 1-2 shows the trend of major production indicators including industrial production
index, construction activity index and tertiary industry activity index.
The industrial production index, after bottoming out in the second quarter of 1999, has been
rising as a whole to the fourth quarter of 2000, although the pace of growth has been slowing.
On a monthly basis, the index peaked in August 2000. Attention should be focused on whether
production growth will surpass this level.
The construction activity index rose temporarily from the fourth quarter of 1988 as public
works projects took off, but has since leveled off and remains low at present. Although there has
been no substantial movement in the tertiary industry activity index, it has been rising slowly
thanks to transportation, communications and other industries, led by mobile communications
and carriers.
2. Shipments: Slowed Growth, Inventories: Increase Led by Producers’ Goods
The inventory cycle in terms of the growth of shipments and inventories to 2000 indicates thatthe growth of industrial shipments as a whole has been slowing since peaking in the second
quarter of 2000 while total industrial inventories have risen, led by producers’ goods. This shift
implies that the inventory buildup phase is nearing completion (Figure 1-3).

2

Development Bank of Japan Research Report/ No. 13

Figure 1-2. Trend of Production Indicators (Seasonally adjusted)
120
91/2

97/

93/10

99/4

110

100

90
(CY quarterly basis)

80
90

91

92

93

Industrial production index
系列1(1995=100, weight 22.4%)

Source:

94

95

96

97

Tertiary industry activity index
系列2 weight 59.5%)(1995=100,

98

99

00

Construction activity index
系列3weight 8.1%)(1995=100,

Ministry of Economy, Trade and Industry, “Industrial Statistics Monthly.”

By type of goods, shipments of capital goods (excluding transport equipment) continue toincrease substantially backed by the growth of plant and equipment investment, resulting in thecontinued reduction of inventories (Figure 1-4). The shipments of construction materials remain
almost unchanged from the previous year as public investment has been curtailed and private
construction investment remains sluggish except in a few areas such as factories (Figure 1-5).
Despite a slight recovery in domestic demand, shipments of consumer goods have changed little
overall as the growth of exports has leveled off due to adverse factors such as the slowdown of
the U.S. economy (Figure 1-6). Though weak demand continues for both construction materials
and consumer goods, inventories remain below the level of the previous year. Producer’s goods
pushed up the growth of industrial shipments as a whole by leading the recovery for final
demand goods. In the latter half of 2000, however, the slower growth of shipments was
accompanied by the rapid increase in inventories, suggesting that the inventories of producers’
goods are now in the “unintended accumulation phase” (Figure 1-7). Although the slower growthof shipments may be partially explained by the high level recorded in the previous year andreaction to the excessive global demand in the first half of 2000, the deteriorating prices andproduction adjustment that have started for certain industries such as electrical machinery andiron/steel may result in an across-the-board adjustment depending on demand in the coming
periods.

Development Bank of Japan Research Report/ No. 13 3

Figure 1-3. Inventory Cycle (Mining and manufacturing sector)
97/1-300/4-6

Change in shipments on
previous year (%)

Change in shipments on previous
year (%)

10

99/10-125

00/1-3
99/7-9000/7-999/4-6
99/1-300/10-12(2.2,3.9)-5

98/7-998/10-12

-10

-5

0

5

45-degree line

Buildup phase

Unintended
accumulationh

Recoveryphase

98/1-3

98/4-6-10

Concept

Adjustment phase
Change in inventories onprevious year (%)

10

Change in inventories on previous year (%)

15

00/10-12(△4.0,13.8)

97/1-300/4-600/1-310
500/7-999/10-12

0

98/1-3

99/7-9-5

Figure 1-5. Inventory Cycle ofConstruction Materials
Change in shipments on previous
year (%)

Change in shipments on previous
year (%)

Figure 1-4. Inventory Cycle of Capital
Goods (Excluding transport equipment)

99/4-6-10

98/7-998/10-12

99/1-3

-15
-20

-15

-10

-5

98/4-6

0

5

10

15

5

-5
-10

99/1-3

99/10-12

98/10-12
98/7‑998/4-6-500/10-12(△2.2,0.2)

-10

-5

4

0

0

5

10

Change in inventories on previous year (%)

5

10

Ministry of Economy, Trade and Industry, “Industrial Index.”

Development Bank of Japan Research Report/ No. 13

00/4-600/1-3

99/10-1200/7-999/7-95

97/1-300/10-12(6.6,5.1)

99/4-60

99/1-3

98/1-3
98/10-12-10

Change in inventories on previous year (%)

Source:-5-598/1-3-10-15

98/1-3

98/4-6-15

1000/4-600/7-999/4‑6

98/7-915

00/1-3

99/7-90

99/10-12

Figure 1-7. Inventory Cycle ofProducer Goods

97/1-3500/10-12(△0.3,△0.6)

99/4-6
98/10-12-10

Change in shipments on previous
year (%)

Change in shipments on previous
year (%)

10

00/4-600/1-3
99/7-999/1-30Change in inventories on previous year (%)

Figure 1-6. Inventory Cycle ofConsumer Goods

00/7-997/1-3-10-5

98/7-90

98/4-6

5

10

Change in inventories on previous year (%)

3. Consumption: Sluggish
Figure 1-8 shows trends in the total amount of wages and salaries per person. In spite of positive
growth for four consecutive periods since the first quarter of 2000, the amount has improved
very little as a whole. Although overtime pay has risen for three consecutive periods since thethird quarter of 1999 thanks to a slight increase in extra hours, recovery in regular wages andsalaries has been insignificant as the spring labor union campaign in 2000 only resulted in a pay
increase of 2.06%, falling to a new record low. Bonus and special earnings have only bottomed
out. Figure 1-9 shows the change on the previous year of summer and year-end bonuses (in theprivate sector). The summer bonus in 2000 increased by only 0.5% from the previous year, andthe year-end bonus undercut the previous year’s. As a whole, income has overcome the worst but
is not recovering.
Figure 1-10 shows the year-on-year change in consumer spending for all households
including single-member households. Per household (③), spending recorded substantial declinesof 3-4% in 2000. Per person (③), however, spending was the same as the previous year, and thedeviation from per capita final consumption expenditure (①) fell somewhat (average deviationfrom 1Q/96-3Q/00: 2.0 percentage points between ① and ③, and 0.7 percentage point between① and ②). Thus, reflecting the diminishing family size, consumption per household may beunderstating actual spending.
Figure 1-8. Trends in Wages andSalaries per Person (Trend of year-onyear change by component)

Figure 1-9. Change in Summer and Yearend Bonuses on Previous Year

(%)

(%)
8

4

- Firms employing 5 or moreworkers -3- Firms employing 5 or more workers 6

2

4

1
0

2

-1

0

-2

91

-3

(CY quarterly basis)-495

Source:

96

97

98

99

00

Regular wages and salaries

Overtime pay

Bonus and special earnings

Total wages and salaries

Ministry of Health, Labor and Welfare,“Monthly Labor Survey.”

92

93

94

95

96

97

98

99

00

-2
-4
FY
-6
Summer bonus
夏季賞与

Note:

Source:Year-end bonus
年末賞与

Summer bonus includes wages and salaries paidas bonus between June and August of the year.
Year-end bonus includes wages and salaries
paid as bonus between November of the year
and January of the following year.
Ministry of Health, Labor and Welfare,“Monthly Labor Survey.”

Development Bank of Japan Research Report/ No. 13 5

Figure 1-10. Comparison of Real
Consumption Expenditure (Change on
previous year)

Figure 1-11. Factor Resolution of Real
Consumption Expenditure of Workers’
Households (Change on previous year)

(%)

6

6%

4

4%

2

2%

0

0%

-2

-2%

-4

(CY quarterly basis)

-6
96

97

98

99

00

-6%
(CY quarterly basis)-8%95①GDP basis (per capita)①ＧＤＰﾍﾞｰｽ（一人当たり）②All households (per capita)②家計総世帯（一人当たり）③All households (per household)③家計総世帯（世帯当たり）(percentage points)

Average deviation of growth:
1Q/96-3Q/2000

-4%

①−③

①−②

2.0

0.7

96

97

98

99

00

Consumption propensity
propensity factor
Consumption
factorTaxandandcharges
chargesfactor
factorTax
Incomefactor
factor
IncomeRealconsumption
consumption
Real

Notes: 1. Figures for all households represent estimates by the Ministry of Management and Coordination excluding
agricultural, forestry and fishery households and single persons living in dormitories and boardinghouses
accommodating 30 or more people.
2. C/P =αx (Y-T)/P is calculated as follows:
Consumption propensity△(C/P) =αx△(Y/P) – αx△(T/P) +△αx(Y-T)/P + residual(seasonally adjusted)(income factor) (tax and charge factor) (consumption propensity factor)
99/3Q
71.9%
C: consumption expenditure, Y: income, T: tax and charges,α: average consumption
99/4Q
71.3%
propensity, P: consumer price3. Contribution of local sales vouchers to income amounts to +1.0% for 1Q/99 and
00/1Q
70.8%
+0.1% for 2Q/99 (DBJ estimate).
00/2Q
72.7%
Sources:Cabinet Office, “Annual Report on National Accounts;” Ministry of Public
00/3Q
70.9%
Management, Home Affairs, Posts and Telecommunications, “Results of All
00/4Q
71.8%
Household Aggregation,” “Family Income and Expenditure Survey,” “Consumer
Price Index” and “Population Estimation.”

Figure 1-11 analyzes the factors behind sluggish consumption from the trends in realconsumer spending in workers’ households according to the Family Income and Expenditure
Survey. Here, the factors influencing consumption are decomposed into income (pre-tax income
including regular wage and salary, overtime pay and bonus), tax and charges (income tax,
inhabitant tax, social insurance premium, etc.) and consumption propensity (ratio ofconsumption to disposable income, which is equivalent to income minus tax and charges).
From the third quarter of 1999 to the first quarter of 2000, the reduction in tax and charges
due to the continuation of tax relief measures and the rise in consumption propensity were offset
by the reduction of bonus and the reaction to the previous year’s local sales promotion voucher
handouts. Currently, however, the drop in consumption propensity is canceling out the slight
improvement in income.
The lack of perceived recovery in consumption may be explained by the fact that theconsumer spending deflator has declined for 10 consecutive periods since the second quarter of1998 (Figure 1-12) and that, unlike the previous phase of economic recovery, at present there has
been a slump in nominal consumption (Figure 1-13). During the recovery from the previous
trough (4Q/93), nominal consumption recovered slightly faster than real consumption. In the6

Development Bank of Japan Research Report/ No. 13

current recovery phase (from 2Q/99), however, nominal consumption has not exceeded realconsumption in growth, and the gap between the two indicators has now widened to 2%
approximately.
Figure 1-14 shows the situation from vendors’ point of view according to the sales statistics.
The retail sales index (seasonally adjusted, 1995=100) is still low even after bottoming out in early
2000. The recovery of the index for durable goods (household machinery and appliances,automobiles), which account for a little less than 20% of total retail sales, came to a halt in 2000.
Also, the index for semi- and non-durable goods (textiles, clothes, personal goods, foods andbeverages), accounting for 40% of the total, has remained low since plummeting in the latter halfof 1999. In particular, the latter index continues to suffer adverse effects from accelerated pricecompetition in clothing and the increase of cheap imports in foods.
Figure 1-12. Change in Consumer
Expenditure Deflator on Previous Year

Figure 1-14. Trend of Retail Sales Index(Seasonally adjusted)

(%)
4

120

3

115

2

110

1

105

0

100

-1

95

(1Q/92=100,
seasonally adjusted by
Census X-12-ARIMA)

90

-2
90

91

92

93

94

95

96

97

98

99

00

(CY quarterly basis)

85
80

Source:(CY quarterly basis)

Cabinet Office, “Annual Report on
National Accounts.”

75
92

Figure 1-13. Comparison of Nominal
Consumption and Real Consumption in
Economic Recovery Phase (Economic
bottom=100, seasonally adjusted)

0

Source:

1

2

3

4

5

0

1

2

3

4

96

97

98

99

00

and beverages

100.0
Retail industry total

Note:

Source:(CY quarterly basis)(CY quarterly basis)95

Of which: textiles, clothing, personal items, foods
100.0

Nominal consumption
Real consumption

94

100.0
Of which: household machines and appliances, automobiles

(%)
105
104
103
102
101
100
99
98
97
96
95

93

Retail sales index by industry (seasonallyadjusted) is estimated using the weight of eachindustry in total sales (1995 as base year) andthen recalculated on the basis of 1Q/92=100.
The weights of industries appearing here are as
follows:
・ Textiles, clothing, personal items, foods andbeverages
39.4%
・ Household machines andappliances, automobiles 17.0%
Ministry of Economy, Trade and Industry,“Report on the Current Survey of Commerce.”

5

Cabinet Office, “Annual Report on National
Accounts.”

Development Bank of Japan Research Report/ No. 13 7

In recent years, the retail industry has been characterized by the emergence of new specialty
stores. Figure 1-15 shows the contribution of specialty stores and other retail stores to the yearon-year growth of retail sales. Specialty stores are represented by the 186 companies ranked
among the top 500 Japanese retailers for fiscal 1999 according to the Nikkei Ryutsu Shimbun andfor which sales can be traced back to fiscal 1995. The sales of other retail stores are estimated as
residual by treating as given the sales of the whole retail industry and large-sized retailers(department stores and supermarkets) in the sales statistics. Whereas the sales of the whole retailindustry have been depressed since fiscal 1997, the positive contribution of the 186 specialized
retailers has risen gradually, from 0.1% in fiscal 1997 to 0.6% in fiscal 1999. The share of thosestores in total sales also increased from 6.4% in fiscal 1995 to 8.9% in fiscal 1999. Above all, the11 pharmaceutical retailers and the 36 household electrical appliance and camera retailers enjoyeddouble-digit sales increases on average in fiscal 1995-99, up 12.4% and 10.7% respectively.
However, this spectacular increase has been offset by stagnant conditions in other parts of theindustry including small stores. Thus, specialty stores have not led to growth of the whole retailindustry.
Among durable goods, Figure 1-16 shows the number of new car registrations (seasonallyadjusted). Although the number has been improving since hitting a post-bubble low in the fourth
quarter of 1999, new car sales since the autumn of 2000 have not grown overall partly due toproblems related to recalls. The decline for two consecutive periods since the third quarter of2000 points to the weakness of recovery in car sales.
Figure 1-15. Contribution to Retail Sales
Growth by Type of Retailers

Figure 1-16. Trend of New Car
Registrations (Seasonally adjusted)(%)(10,000 vehicles)
140

3(Census X-11)

Large retailers
186 specialty stores
OthersRetail industry toral

2
1

90/3Q
130

97/1
97/1Q

0
-1

120

-2

FY

-3

110

-4
-5
96

Note:

Sources:

8

97

98

99

Specialty stores are represented by the 186companies ranked among the top 500 Japaneseretailers for fiscal 1999 and for which sales can betraced back to fiscal 1995. The sales of otherretail stores are estimated as residual after
subtracting the sales of large retailers (department
stores and supermarkets) and the 186 specialty
stores from the total sales of the retail industry.
Ministry of Economy, Trade and Industry,“Report on the Current Survey of Commerce;”
Nihon Keizai Shimbun, “Distribution Company
Yearbook;” Nikkei Ryutsu Shimbun, “The Top
500 Japanese Retailers.”

Development Bank of Japan Research Report/ No. 13

100

93/4Q

98/1Q
(CY quarterly basis)

90
90

Source:

91

92

93

94

95

96

97

98

Cabinet Office, “Indexes of BusinessConditions.”

9900

4. Plant and Equipment Investment: Stalled in Non-manufacturing, Leading Indicator
Implys Slowing Down
Figure 1-17 shows the trend of plant and equipment investment by industry according to theStatistical Survey of Incorporated Enterprises. Investment in the manufacturing sector recovered
rapidly, up 13.0% from the previous year in the third quarter of 2000 followed by 10.4% growthin the fourth quarter, led by the so-called IT related industries such as non-ferrous metals andcement, ceramics & glass, as well as by electric machinery. Investment in the non-manufacturingsector, which led the recovery of the manufacturing sector has regained modest growth in the
fourth quarter of 2000 after the decline of 5.9% of the previous quarter (the first decline in four
quarters). The growth of plant and equipment investment in non-manufacturing from the fourth
quarter of 1999 to the first quarter of 2000 was led by wholesale/retail (investment in new officebuildings and large-scale redevelopment, accelerated establishment of new outlets before theenforcement of the Law on the Location of Large-scale Retail stores) and services (hotels,
personal services and recreational facilities). Much of this growth may have come from temporary
and local investment.
Return on investment (operating profit-tangible asset ratio – average interest rate on newloans: see Note of Figure 1-17), which empirically has a significant correlation with plant andequipment, continued to improve in the fourth quarter of 2000 for the manufacturing sector,
exceeding a level equivalent to the previous peak in the second quarter of 1997. In the nonmanufacturing sector, however, the improvement has been halted for somewhat recently. In thecurrent recovery phase, the initial cautiousness of the manufacturing sector in plant andequipment investment is now being overtaken by a rapid recovery as investment returns to
Figure 1-17. Plant and Equipment Investment and Return on Investment(Corporations of all sizes)
Manufacturing
(％)
30

91/2

93/10

97/3

Non-manufacturing
99/4

(％)
15

20

(％)
30

91/2

93/10

97/3

99/4

(％)
10.0

20

7.5

10

5.0

0

2.5

-10

0.0

-20

-2.5

-30

-5.0

10
10
0

5

-10
0
-20
-30

-5
90 91 92 93 94 95 96 97 98 99 00(CY quarterly basis)

Change on previous year in

設備投資前年同期比plant and equipment

90 91 92 93 94 95 96 97 98 99 00(CY quarterly basis)

Return on investment (right
投資採算(右目盛)
scale)

Notes:

1. Return on investment = operating profit-tangible asset ratio – average lending rate of banks (new loans, total),
where operating profit-tangible asset ratio = operating profit/(tangible fixed assets + inventories).
2. No adjustments are made for changes in the accounting rule on business tax (ministerial order revised in Dec.
1998).
Sources: Ministry of Finance, “Quarterly Report of Statistical Survey of Incorporated Enterprises,” etc.
Development Bank of Japan Research Report/ No. 13 9

improve, while the recovery in non-manufacturing remains weak despite similar improvement ininvestment returns, except for a temporary increase from the fourth quarter of 1999 to the firstquarter of 2000. This may be partially explained by the restraint on plant and equipment
investment in industries that are under heavy pressure to cut costs due to deregulation or to
restructure due to balance sheet problems.
Figure 1-18. Trends in Orders Received for Machinery(Trend of year-on-year change by industry)
Manufacturing

35

(%)
35

25

25

15

15

5

5

-5

-5

-15

-15

-25

-25

-35

-35

(％)

Non-manufacturing

90 91 92 93 94 95 96 97 98 99 00 01

90 91 92 93 94 95 96 97 98 99 00 01(CY quarterly basis)

Note:
Source:Chemicals
Iron & steel
General machinery
Electric machinery
Automobiles
OthersManufacturing
Cabinet Office estimate for 1Q/01.
Cabinet Office, “Orders Received for
Machinery.”(CY quarterly basis)

Construction
Communications
Wholesale/retail
Finance/insurance
Real estate
OthersNon-manufacturing (excl. ships and electricity)

Figure 1-19. Trends in Real Plant and Equipment Investment by Investment Item
(Seasonally adjusted)
Machinery orders(private demand)(¥ trillion)
600

Construction work orders(private non-housing)
1100

250

500

900

200

400

700

300

500

200
95

96

97

98

99

300
00
(monthly basis)

ManufacturingNon-manufacturing excluding ships and electricity (right scale)

10 Development Bank of Japan Research Report/ No. 13

1200
1000
800

150

600

100

400

50

200
95

96

97

98

99

00

(monthly basis)
ManufacturingNon-manuacturing (right scale)Machinery orders (private demand excluding ships and electricity: Figure 1-18), which usuallylead plant and equipment investment by approximately two quarters1, increased by double digits
from the previous year in both manufacturing and non-manufacturing, particularly from electricmachinery and communications respectively. Thus, plant and equipment investment is likely toremain firm until the first half of 2001. However, the forecast for the first quarter of 2001
decrease in both manufacturing and non-manufacturing – as a whole machine orders will
decrease for the first time in seven quarters.
Moreover, orders received for construction works (private non-housing), a leading indicator
for construction investment, have been falling slightly mainly from non-manufacturing (Figure 119). Also, as production may peak as suggested by the inventory cycle analysis presented in
Section 2, the prospects for plant and equipment investment from the second half of 2001 do notlook good.
[Supplement]
Trends in Plant and Equipment Investment by Type of Goods based on 93SNA andEstimation of Time Lag for Leading Indicator
Effective from October 2000, the basis of the Annual Report on National Accounts was changed
to 93SNA (1995 as base year), and software was newly included in plant and equipment
investment. This Supplement uses a simple method to estimate the quarterly trend of plant andequipment investment by type of goods according to 93SNA (1995 as base year), and examine
the time lag of the leading indicator.
(1) Method and result of estimate of plant and equipment investment by type of goods

1) Method of estimate
The Annual Report on National Accounts shows the nominal and real amounts of investment insoftware as part of gross fixed capital formation for each calendar year since 1990. Based on thedata and using the public-private ratio in the 1995 Input-Output Table/Fixed Capital Matrix,
software investment grew at an annual rate of 7.4% in both nominal and real terms during thenine-year period from 1990 to 19992. Private software investment is estimated at ¥5.7 trillion in
nominal terms in 1999, accounting for 7.6% of total plant and equipment investment. The
computation of quarterly data is based on the new investment in software in the “Gross Capital
Stock of Private Enterprises.”
The amount of plant and equipment investment on a GDP basis minus the amount ofsoftware investment estimated above is considered as the amount of tangible fixed asset
investment3. The amount of machinery investment is considered as the residual after subtracting
the amount of construction investment estimated separately based on the Integrated Statistics onConstruction Work (Ministry of Land, Infrastructure and Transport), etc.
2) Result of estimate
Trends in the amounts of real plant and equipment investment (seasonally adjusted) for the three
types of goods (machinery, construction and software) estimated above are shown in Figures 120 and 1-21, as well as their contribution to year-on-year change in total real plant and equipment
investment. As a substantial increase in software investment can be observed currently as well as
in 1997-98, its contribution has been something despite its small share in total plant and
1 See Supplement for the measurement of the time lag.
2 The estimate method assumes that the same growth rate applies to the public sector and the private sector.
3 In the strict sense, the amount includes investment in plant engineering, which was reclassified from tangible fixed assets tointangible fixed assets with the introduction of 93SNA.
Development Bank of Japan Research Report/ No. 13 11

equipment investment4.
Figure 1-20. Trends in Real Plant andEquipment Investment(Trend of year-on-year change byinvestment item)

Figure 1-21. Trends in Leading Indicatorof Plant and Equipment Investment

2.0

18Machinery
Construction
Software (right scale)

16
14

20
Software

15

1.5

12

Construction
Machinery

10

Total plant and equipment investment

5

10

0

8

1.0

6

-5
-10

4
2

0.5
90

91

92

93

94

95

96

97

98

99

00

-15
91

92

93

94

95

96

Note:
Sources:

97

98

99

00

(CY quarterly basis)(CY quarterly basis)Of the investment items, “machinery” is calculated as residual after subtracting the separately estimated amounts ofconstruction investment and software investment from total plant and equipment investment.
Cabinet Office, “Annual Report on National Accounts,” “Gross Capital Stock of Private Enterprises,” Ministry of Land
Infrastructure and Transport, “Integrated Statistics on Construction Work” and “Construction Cost Deflator.”

Figure 1-22. Measurement of Time Lag for Leading IndicatorTime lag for machinery orders

Coefficient

1.2

0.6

1.0

0.5

0.8

0.4

0.6

0.3

0.4

0.2

0.2
0.0

0.1

Average lag – 1.83

-3

-2

0.0
-1

0
Lag (quarters)

Notes:

Sources:Time lag for construction orders

Coefficient

Average lag – 2.50

-4

-3

-2

-1

0
Lag (quarters)

1. Data are seasonally adjusted.
2. Estimation equation:
Nominal machinery investment = constant term +Σ(βt･nominal machinery orders t), where t = 0 – -3; andNominal construction investment = constant term +Σ(γt･nominal construction work orders t), where t = 0 – -4.
Estimation is made with the least-squares method using an Almon lag (quadratic, without restriction on terminal
point). Machinery orders include private demand excluding ships and electricity. Construction work orders include
private non-residential construction. The estimation covers the period from 1Q/91 to 3Q/00. A constant term
dummy is inserted for 1Q/97 and after.
3. Lines linking estimated values indicate significance at the 5% level.
Same as in Figures 1-19-21.

4 Software made a contribution of 0.8 percentage point to the 3.3% increase of real plant and equipment investment from theprevious year in 3Q/00.
12 Development Bank of Japan Research Report/ No. 13

(2) Estimation of time lag for leading indicator
The time lag is calculated by the regression of the seasonally adjusted nominal series ofmachinery investment and construction investment obtained in the previous section with thenominal seasonally adjusted series of machinery orders (private demand excluding ships andelectricity) and construction orders (private non-residential). A quadratic Almon lag (without
restriction on the terminal point) is assumed as the lag structure. The length of lag is assumed to
be 0-3 quarters for machinery and 0-4 quarters for construction. The sample period ranges fromthe first quarter of 1991 to the third quarter of 2000 to match the availability of data. A dummy
for structural change is inserted for the first quarter of 1997 and afterward in light of the trend ofresiduals. As shown in Figure 1-22, the result indicates that the shape of the lag pattern and thesignificance of the coefficient are both satisfactory. The average time lag is 1.8 quarters formachinery orders and 2.5 quarters for construction orders. Thus, the time lag for machineryorders is found to be a little shorter than the traditional estimate of two to three quarters. Thismay be explained by the downsizing of machinery to be covered by plant and equipment
investment due mainly to the increased share of IT-related machinery.
5. Housing Starts: Leveling Off
Housing starts (seasonally adjusted annual rate) plummeted after peaking at 1.697 million units inthe fourth quarter of 1996, falling below 1.2 million in the third quarter of 1998 followed by acontinued decline until the end of the year. Since regaining 1.2 million units in the first quarter of1999 thanks to extension of housing tax relief in January 1999 and continued low interest rate,
housing starts have remained flat in general, with some ups and downs (Figure 1-23). Figure 1-24
shows the contribution to year-on-year growth by type of housing. The recovery that started in
the first quarter of 1999 was initially led by owned houses, which were followed by dwellings forsale including condominiums from the latter half of 1999. Currently, however, the eleventh-hourdemand for owned houses to benefit from tax relief is being offset by the decline in dwellings for
sale.
Figure 1-23. Trend of Housing Starts

Figure 1-24. Housing Starts(Trend of year-on-year change by component)(Seasonally adjusted annual rate,
in 1,000 units)(Change on previous year, %)

2,000

20

1,800

15

1,600

10

1,400

5

1,200

0

1,000

-5

800

-10

600

-15

400

-20

200

-25
95

0

Ministry of Land Infrastructure andTransport, “Report on Statistical
Survey on Construction Starts.”

97

98

99

2000

(CY quarterly basis)

90 91 92 93 94 95 96 97 98 99 00(CY quarterly basis)

Source:96
Owned houses
Company houses

Note:

Condominiums
Total

Houses for rent

Same as in Figure 1-23.

Development Bank of Japan Research Report/ No. 13 13

The construction of owned houses increased in the first half of 1999 partly due to the
expectation of an interest rate hike (Figure 1-25) and partly due to the initial time limit ofDecember 2000 to benefit from housing tax relief. The subsequent downtrend may be explainedby the stability of the standard lending rate of the Housing Loan Corporation at around 2.8% aswell as by the reaction to the eleventh-hour demand.
The number of applications for the Corporation’s housing purchase loans, a leading
indicator of the construction of owned houses, rose 4.2% for the first invitation in 2000 but fell
42.1% for the second invitation (Figure 1-26). However, the drop was reduced to 4.5% for thethird invitation. Some eleventh-hour demand may be occurring as the time limit for the current
housing tax relief measures is approaching (June 2001).
The construction of condominiums was buoyant until the first quarter of 2000, largely
offsetting the slump in owned houses, but then fell in the third quarter. Last-minute demand for
condominiums seems to have subsided earlier than for owned houses due to their longer
construction period (nine months to one year). Although the contract rate for condominiums in
the Tokyo metropolitan area has stayed firm since 1999 at around 80%, completed inventories
have been increasing slightly (Figure 1-27). The construction of houses for rent continues to slide
due to a small glut on the supply side.
Figure 1-25. Trend of Housing Loan Interest Rates
(%)
99/6

7

8

Housing Loan Corporation

2.50 2.60

City bank variable rate

2.375

9

10

12

00/1

2.80

2

3

4

5

6

7

8

2.75 2.80 2.85 2.80 2.75

9

10

11

2.80 2.85

1201/1 01/2

2.80

2.70

2.5

City bank fixed rate (5 years)

2.60 2.70 2.85 2.70

City bank fixed rate (10 years)

3.55

Notes:

11

2.65 2.60

3.75 3.60

3.50

2.75

2.65 2.75

3.40 3.55

3.50

3.45

2.90

2.80

2.75

2.70

3.60 3.65

3.55

3.50

3.45

1. Interest rate of the Housing Loan Corporation represents the standard rate (applicable to “certain housing of
good quality” for the initial 10 years).
2. The rate represents that at the end of the month.

Figure 1-26. Housing Loan Applications for Owned Houses (Tokyo metropolitan area)(Units)Application
period (Day)

Change onpreviousyear(%)

Standard rate
(%)

5/30

10

55

-47.7

3.10

2

9/12

15

52

-60.3

3.10

3

11/28

18

47

-21.9

3.00

85%

4

3/6

19

57

-33.2

3.00

80%

1

6/5

23

62

13.3

2.75

2

9/30

31

67

28.8

2.55

75%

3

12/25

37

70

49.9

2.00

70%

4
1

3/26
6/18

48
36

101
62

75.1
0.0

2.20
2.40

65%

2

10/29

67

88

32.6

2.60

60%

3

1/14

61

37

-47.3

2.80

4

3/10

33

38

-62.5

2.75

1

6/30

49

65

4.3

2.75

2

9/22

34

51

-42.1

2.75

3

12/22

38

35

-4.5

2.80

FY2000

FY1999FY1998FY1997

Application
deadline

Source:100%

Number ofapplications(1,000)

1

95%

14,00012,00090%
10,000
8,000
6,000
4,000

(CY quarterly basis)

55%

95

Note:

Source:

2,000
0

50%

Housing Loan Corporation, “Monthly
Report on Housing Loans.”

14 Development Bank of Japan Research Report/ No. 13

Inventories (right scale)Contract rate

96

97

98

99

00

Contract rate represents the quarterly average ratioof units sold in the month to units marketed in themonth. Completed inventories are measured at theend of each quarter.
Real Estate Economic Research Institute, “Trendof Condominium Market in Tokyo Metropolitan

6. Public Investment: Moving Downward
Public investment (public capital formation, seasonally adjusted) started to rise in the fourth
quarter of 1998 thanks to the economic stimulus package of April 1998 (totaling over ¥16
trillion) and the emergency economic measures of November 1998 (¥23.9 trillion). It increased
to over 8% of GDP in the first and second quarters of 1999 (Figure 1-28) but had declined tounder 7% by the third quarter of 2000.
The contract value of public works, the leading indicator, recorded a substantial increase of
11.7% for fiscal 1998 largely thanks to the huge year-on-year increase of 52.7% in the firstquarter of 1999 due to the economic measures. However, the contract value began to fall again in
the second quarter of 1999, particularly in regions with financial difficulties, and declined 9.1% in
fiscal 1999 (Figure 1-29).
Despite the effects of the economic stimulus package of November 1999 (totaling some ¥18
trillion), public investment continues to slide from the previous year in fiscal 2000, falling forseven consecutive periods to the fourth quarter of 2000. Although the new development policy(totaling some ¥11 trillion) should have some effect, public investment is expected to continue todecline.
Figure 1-28. Trend of Public Investment(¥ trillion, nominal figures)

50

Sep. 1993: Emergency
economic measures(about ¥6 trillion)

45

Nov. 1999: Economic stimulus
package (¥18 trillion)
Nov. 1998: Emergency
economic measures(¥23.9 trillion)

Sep. 1995: Temporary
economic measures(¥14.22 trillion)

Apr. 1993: Integrated
economic measures(about ¥13.2 trillion)

40

10.0
9.5
9.0
8.5
8.0
7.5

35

Oct. 2000: New development
policy (¥11 trillion)

Feb. 1994: Economic stimulus
package (about ¥15.25 trillion)

25

Apr. 1998: Economic stimulus
package (over ¥16 trillion)

Aug. 1992: Economic stimulus
package (about ¥10.7 trillion)

20

7.0

Apr. 1995: Emergency economic
measures against the yen appreciation(about ¥4.62 trillion)

30

91

92

93

94

95

96

97

98

99

6.5
6.0
5.5

2000

5.0

(CY quarterly basis)

Public fixed capital formation

Note:
Source:As of GDP (right scale)

Data represent seasonally adjusted annual rate.
Cabinet Office, “Annual Report on National Accounts.”

Development Bank of Japan Research Report/ No. 13 15

Figure 1-29. Trend of Contract Value for Public Works (Change on previous year)
（％）
60
50

Central

Local

Others

Total

40
30
20
10
0
-10
-20
91

92

93

94

95

96

97

98

99
(FY)

Source:

4-6
1998

7-9 10-12 1-3
1999

4-6

7-9 10-12 1-3
2000

4-6

7-9 10-12

Association of Surety Companies, “Table of Surety Business.”

7. Exports: Leveling Off, Imports: Continuing to Increase
Figure 1-30 shows the trend of the real effective exchange rate of major currencies. Afterappreciating from September 1998 to December 1999, the yen remained almost flat throughout
2000.
The trend of export and import volumes in terms of seasonally adjusted monthly index
indicates that imports have been increasing behind the gradual recovery of the domestic economy
while the increase in exports leveled off in the latter half of 2000 due to the slowdown in othercountries’ economies (Figure 1-31).
Figure 1-30. Trend of Real Effective Exchange Rate (1990=100)
140

130

米国
US

Currency appreciation

Japan
日本
Germany
ドイツ

130
120
110
100

Exports
輸出Imports
輸入

120
110
100
90

90
95

96

97

98

99

00

95

(CY quarterly basis)

Note:

Source:Real effective exchange rate is currency index
weighted for trade in industrial products with 44
trading partners in 1990 after adjustment for
inflation.
J.P. Morgan, “World Financial Market.”

16 Development Bank of Japan Research Report/ No. 13

Note:
Source:

96

97

98

99

00

(monthly (月次)basis)

Seasonally adjusted (X-12ARIMA) DBJ estimate.
Japan Tariff Association, “Summary Report on
Trade of Japan.”After turning upward on the previous year in the third quarter of 1999 thanks to therecovery of the Asian economy, exports increased substantially in the first and second quarters of
2000. In the third quarter, however, exports to the U.S. declined 0.2% from the previous year due
to the perceived slowdown in the U.S. economy, followed by another decline in the fourth
quarter. The growth in exports to Europe, which remained strong from the third quarter of 1999,
slowed in the third quarter of 2000 as compared with the first and second quarter, as the euro
continued to slide, and finally turned negative in the fourth quarter due to the slumping exports
of automobiles. After the recovery from the currency crisis in ASEAN countries and South
Korea, exports to Asia turned up in the second quarter of 1999 (up 5.7%) followed by acontinued substantial increase, thus leading the growth of total exports. In the third quarter of
2000, however, the year-on-year increase was somewhat reduced as exports of steel ships andcolor TVs declined from the previous period. A similar trend was also observed in the fourth
quarter.
Figure 1-32 shows the trend of shipments for export by type of goods according to theIndustrial Production Statistics. The increase in exports in 1999 was led by producer goods suchas transformers and fixed condensers. In 2000, there was a significant increase in exports forcapital goods such as precision measurement instruments, steel ships and switches, as well as for
producer goods.
Import volume (Figure 1-33) fell by as much as 6.8% in the third quarter of 1998 due to thesluggish domestic demand. After turning upward in the first quarter of 1999 (up 4.0%), it
increased on the previous year for eight consecutive quarters, as domestic demand recovered
gradually and the yen strengthened.
By origin, imports from Asia have been increasing strongly since 1999, accounting for mostof the year-on-year increase in total imports.
By type of goods, the recovery of domestic production has boosted imports of producer
goods and capital goods since 1999. The year 2000 also saw a significant increase in imports ofdurable and non-durable consumer goods.
Imports started to rise in the first quarter of 1999, while exports started to recover a little
later (3Q/99) but have continuously increased since then. On balance, net exports declined fromthe previous year in 1999. Exports and imports both increased throughout 2000, but although
exports continue to increase, the growth is decelerating. As a result, net exports have beensmaller than in the previous year in general.
Figure 1-32. Trend of Export Volume (Change on previous year)
Shipment for exports by type of industrial
goods (seasonally adjusted)

Export volume by destination
25

(％)

（％）
25
U.S.

20

Europe

15

15

Asia
Others10

Capital goods
Construction materials
Durable consumer goods
Non-durable consumer goods
Producer goods
Total

20

World

10

5

5

0

0

-5

(CY quarterly basis)-5(CY quarterly basis)

-10

-10
95

96

97

98

99

00

95

96

97

98

99

00

Development Bank of Japan Research Report/ No. 13 17

Figure 1-33. Trend of Import Volume (Change on previous year)

25

Import volume by origin

(％)

25

U.S.
Europe

20
15

World
World

10
5

0

0

-5

(CY quarterly basis)-10

Sources:

96

Capital goods
Construction materials
Durable consmer goods
Non-durable consumre goods
Producer goods
Total

15

5

95

（％）

20

Asia
Others10

Import by type of industrial goods(seasonally adjusted)

97

98

99

-5

(CY quarterly basis)

-10
95

00

96

97

98

99

00

Japan Tariff Association, “Summary Report on Trade of Japan;” Ministry of Economy, Trade andIndustry, “Summary of Analysis of Mining and Manufacturing Industrial Activities.”

8. Consumer Prices: Still Weak
International commodity prices (Figure 1-34), mostly composed of primary products excluding
crude oil, rebounded in the first quarter of 2000 for the first time in about four years largely due
to the rise in metal prices induced by the expansion of the world economy in 1999 including therecovery of the Asian economy. However, they declined slightly from the previous year in the
fourth quarter, affected by the expectation of good harvests worldwide and the slowdown of theworld economy. Currently, prices are flat or declining slightly.
Figure 1-34. Trends in Commodity and Wholesale Prices (Domestic Demand Goods)(Trend of year-on-year change by component)
5%25%

Final goods
Intermediate goods

4%3%

Raw materials
Domestic demand goods

International commodities(excluding oil, right scale)

2%

20%
15%
10%

1%

5%

0%

0%

-1%

-5%

-2%

-10%

-3%

-15%
-20%

-4%
90

91

92

93

94

95

96

97

98

99

00

(CY quarterly basis)

Note:
Sources:

Wholesale prices represent the average of domestic and import prices for domestic demand goods.
Bank of Japan, “Price Indexes Monthly;” IMF, “International Financial Statistics.”

18 Development Bank of Japan Research Report/ No. 13

Figure 1-35. Trends in Corporate Service and Consumer Prices (Goods and services)(Trend of year-on-year change by component)
4%

Agricultural, marine, livestock and industrial products
Personal services, etc.
Public services, etc.
Composite consumer priceCorporate service price index

3%

2%

1%

0%

-1%

-2%
90

91

92

93

94

95

96

97

98

99

00

(CY quarterly basis)

Notes:

Sources:

1. Personal services, etc. include publications, rent and eating-out. Public services, etc. include electricity, city gas andwater supply.
2. Corporate services include lease/rental, transport, communications, real estate rental, bank commission, insurance
premium, etc.
Bank of Japan, “Price Indexes Monthly;” Ministry of Public Management, Home Affairs, Posts andTelecommunications, “Consumer Price Indexes Monthly.”

Wholesale prices of domestic demand goods (weighted average of domestic and importprices; Figure 1-34) have been rising since the beginning of 2000 as prices of raw materials andintermediate goods turned up due to rising crude oil prices. However, the price hike has not been
passed on to final goods even after the traditional time lag of about one year as the prices of final
goods continue their slide from 1998.
The decline in corporate service prices (Figure 1-35) slowed in 2000, reflecting the rise inmaritime transport charges, which are determined internationally in general. Nonetheless, prices
partly are still weak due to the downward pressure of deregulation in the communication andfinance sectors as well as the decline in leasing prices including information equipment and in realestate rents.
Consumer prices have been falling on the previous year since 1999. Figure 1-35 indicatesthat the prices of commodities (agricultural, marine, livestock and industrial products) have been
declining since the fourth quarter of 1999. In addition to the substantial fall in fresh food prices
partly due to competition with imports, there has been a drop in prices for a wide range of items
including furniture/houseware and culture/recreation as well as textile products and durable
goods. Service prices have also been weak. For personal services in particular (published prices
for personal services plus publishing, rent for housing and eating-out), downward pressure iscoming from recreational services, eating-out and communications.
9. Employment: Harsh Especially for Self-employed, with Unemployment Stays HighAs a whole, employment has not improved discernibly. Figure 1-36 shows the trend of principal
macroeconomic employment indicators: the ratio of job offers to applicants and unemployment
Development Bank of Japan Research Report/ No. 13 19

Figure. 1-36. Trends in Ratio of Job Offers
to Applicants and Unemployment Rate

(10,000 persons)(Times)

（％）
5

4

1.6

70

1.4

60

1.2
1

3

2
Unemployment rate
Ratio of job offers to applicants (right scale)
1
91

92

93

94

95

96

97

98

99

50
40
30

0.8

20

0.6

10

0.4

0

0.2

10

0
90

Figure 1-37. Trends in Unemployment by
Reason for Job-seeking

00(CY quarterly basis)

20
91

Ministry of Public Management, Home Affairs,
Posts and Telecommunications, “Labor Force
Survey;” Ministry of Health, Labor and Welfare,“Statistics on Placement Activities.”

93

94

95

Involuntary severance
School graduates
Total(CY quarterly basis)

Sources:

92

Notes:

Source:

96

97

98

99

00

Voluntary severance
Others

1. Any deviation between the total and the sumof components is included in “Others.”
2. “Involuntary unemployment” includes
severance for reasons such as personnel
cutback, business slump and age limit.
“Voluntary unemployment” includes
severance for personal or family
circumstances. “Others” includes
housewives (non-labor force) who are newly
seeking employment, etc.
Ministry of Public Management, Home Affairs,
Posts and Telecommunications, “Labor Force
Survey.”rate. The former indicator recovered gradually from a low of 0.46 in May 1999 to 0.66 in
December 2000. The unemployment rate, however, has not improved and stood at a record highlevel of 4.9% as of January.
Figure 1-37 shows the change in the number of unemployed by reason for job seeking. The
growth of unemployment dropped substantially in 1999, mainly for “involuntary severance” dueto personnel cutbacks and the deterioration of business performance. Although the number
unemployed decreased temporarily in the second and third quarters of 2000, it is rising again
except for “voluntary severance” due to personal or family reasons.
By industry (Figure 1-38), the number employed has not improved much except in services
and transport/communications. Particularly in the manufacturing sector, the downtrend has notbeen halted since the third quarter of 1997. Wholesale/retail and restaurants have lost theirtraditional labor-absorbing power, as business conditions remain unfavorable.
The increase in the number of employees is not necessarily a cause for optimism. Figure 140 shows the change in the number of regular workers and temporary/daily workers. Although
regular employment is currently showing signs of bottoming out after consecutive year-on-year
declines from the first quarter of 1998, the increase in employees is still led by temporary/daily
employment, which represents irregular workers with lower labor cost for employers.
By status of employers (Figure 1-41), employees of medium-sized companies (employing 30499 workers) are increasing significantly, while the increase in employment by large companies
20 Development Bank of Japan Research Report/ No. 13

(500 or more workers) observed in the first half of 2000 has come to a halt. The overall
employment picture is mixed, with tough conditions for small companies (1-29 workers) and a
progressive increase in bankruptcies.
(Trend of year-on-year change bycomponent)

Figure 1-38. Number Employed by Industry
Figure 1-39. Number Employed by Status(Trend of year-on-year change by component)
( %)
2

(%)
2

Family workers
Self-employed
Employees
Total number employed

1

1

0

0

-1
OthersServices
Transport/communications
Wholesale/retail, restaurants
Manufacturing
Construction
Total

-2
-3
-4
95

Source:

96

97

98

-1
(CY quarterly basis)99(CY quarterly basis)

-2
95

00

Ministry of Public Management, Home Affairs,
Posts and Telecommunications, “Labor Force
Survey.”Figure 1-40. Contribution to Change in
Number Employed (Non-agricultural sector)
(%)
3

96

Source:

97

98

99

00

Ministry of Public Management, Home Affairs,
Posts and Telecommunications, “Labor Force
Survey.”Figure 1-41. Contribution to Change in
Number Employed (Non-agricultural
sector excluding government)(%)
3

Full-time workers
Part-time and daily workers
Total

2

500 employees or over～
30～499 employees
1～29 employees
Total

2

1

1

0

0

-1

-1
(CY quarterly basis)-2
95

Source:

96

97

98

99

00

Ministry of Public Management, Home Affairs,
Posts and Telecommunications, “Labor Force
Survey.”(CY quarterly basis)-2
95

Source:

96

97

98

99

00

Ministry of Public Management, Home Affairs,
Posts and Telecommunications, “Labor Force
Survey.”Development Bank of Japan Research Report/ No. 13 21

10. Share Prices: Bearish, Long-term Interest: Showing Downtrend
Since the termination of the zero-interest policy in August 2000, inter-bank overnight lending
rates was guided to the level of 0.25% (Figure 1-42). However, the rate is nearing zero again after
the announcement of easing of monetary policy on March 19. Yields on three-month CDs (buy),
which are representative of short-term interest rates, showed a slight increase due to this change
in policy and seasonal demand for funds in the year-end period, but declined reflecting the easingof monetary policy.
Long-term interest rates stayed at about 1.8% from around June 1999 and remained stablewith very little movement from the latter half of fiscal 1999. Subsequently, they temporarily rose
to almost 1.9% in September 2000 but have declined to about 1.2% recently.
Share prices fell in 2000 after rising throughout 1999. The position of foreign shareholders,
who supported the increase in 1999, changed from long to short in 2000 (Figure 1-43).
Money supply (M2+CD) grew by more than 3.5% from fiscal 1998 to the first half of fiscal
1999, dropped to a low of 1.9% in the latter half of the year, and is now around 2% (Figure 1-44).
In detail, CDs turned upward in July 2000, but quasi-money (term deposits, etc.) has been
reduced and the growth of deposit currencies has been slowing. On the other hand, outstandingbank credits have been dropping and the increase in assets is solely attributed to the purchase ofgovernment bonds (Figure 1-45).
From February 2001, both short-term and long-term interest rates have shown further
decline reflecting the BOJ’s easy monetary policy.
Figure 1-42. Trends in Selected Financial
Indicators(%)

Figure 1-43. Net Purchase of Stocks(¥ trillion)(Jan. 4, 1968=100)

2.5

1800

10

2.0

1600

5

1.5

1400

0

1200

-5

1000

-10

800

-15

Inter-bank overnight lending rate (unsecured)

1.0

Three-month CDs
Yield on long-term government bonds
TOPIX (right scale)

0.5
0.0
1
99
Notes:

Source:

4

7

10

1
2000

4

7

10

Financial institutions
Non-financial corporations
Security houses
Foreigners

95

96

97

Investment trusts
Other corporations
Individuals
Total

98

99

00

(monthly basis)

1. Yield on long-term government bonds
represent that on 10-year bonds.
2. Three-month CDs are represented by thequotation (buy) rate on new issues.
Nihon Keizai Shimbun.

22 Development Bank of Japan Research Report/ No. 13

Note:
Source:Based on sales and purchases on commission on
the Tokyo Stock Exchange.
Tokyo Stock Exchange, “TSE Monthly.”Figure 1-44. Growth of Money Supply

Figure 1-45. Asset Growth in Banking
Sector

(%)
6

5

5

4

(%)

3

4

2

3

1

2

0

1

-1
-2

0

Government bonds, etc.

-3

-1Loans to private sector, etc.

-4-2(monthly basis)-3
98/1 47

10 99/1 4

7

10 00/1 4

7

Others-5

Total assets

-6

10

95

96

97

98

99

2000

(CY quarterly basis)

Cash currency
Quasi-money
Total

Note:
Source:Deposit money
CD

Source:Bank of Japan, “Financial and Economic
Statistics Monthly.”

Average balance, change on previous year.
Bank of Japan, “Financial and Economic
Statistics Monthly.”

Development Bank of Japan Research Report/ No. 13 23

II. Weakness of Current Economic Recovery and Its Background
1. Characteristics of Current Economic Recovery Compared with Patterns since 1980s
Figures 2-1, 2-2, 2-3 and 2-4 identify demand items leading economic recoveries since the 1980s
by showing real values indexed on the economic bottom (=100). The current recovery after thebottom of the second quarter of 1999 has been led by exports and plant and equipment
investment, taking the lead from public investment (public capital formation) and housing
investment, which had supported the economy until it hit the bottom.
Figure 2-1. 1Q/83 - 1Q/85B(Recovery from worldwide recession)

Figure 2-2. 4Q/86 - 4Q/88(Recovery from high yen recession)

130

140

125
130

120
115

120

110
110

105
100

100

95
90

90

85
80

80
0

1

2

3

4

5

6

7

0

8

1

2

3

4

Figure 2-3. 4Q/93 - 4Q/95(Recovery from collapse of bubble economy)

Figure 2-4. 2Q/99 - 3Q/00(Current recovery)

115

120

110

115

5

6

7

8

Exports

110

105

105

Plant and equipment
investment

100

GDP
Consumption

100
95

Housing

95

90

90

85

85

80

Public capital formation

80

0

1

2

3

4

6

7

8

0

1

2

3

GDP
Ｇ
ＤＰ

Consumption
消費

Housing
住宅

Plant
and資equipment
設
備投Publicformation
公 的 capital
資本形
成Exports
輸出

investment

Note:
Source:

5

4

5

6

7

8

Index based on economic bottom (=100).
Cabinet Office, “Annual Report on National Accounts.”

Development Bank of Japan Research Report/ No. 13 25

Figure 2-5. Comparison of Real Personal
Consumption
125

Figure 2-6. Trends in Corporate Profits
and Employees’ Compensation (year-onyear change)
(%)

(%)

50

10

40

8

115

30

6

110

20

4

10

2

0

0

-10

-2

-20

-4

-30

-6

(Economic peak=100, bottom=0)

120

105
100
95
(Quarters eraped since peak)

-40

90
0 1

2 3

4 5

6 7

8 9 10 11 12 13 14 15 16 17-5080First oil crisis recession (4Q/73 - 1Q/75 - 2Q/76)
第１次石油不況（73/4Q‑75/1Q‑76/2Q）
Worldwide recession(1Q/80 - 1Q/83 - 2Q/84)
世界同時不況
（80/1Q‑83/1Q‑84/2Q）
High yen recession (2Q/85 - 4Q/86 - 1Q/88)
円高不況（85/2Q‑86/4Q‑88/1Q）
Heisei recession (1Q/91 - 4Q/93 - 1Q/95)
平成不況（91/1Q‑93/4Q‑95/1Q）
Current recession(1Q/97 - 2Q/99 - 3Q/00)
今回不況（97/1Q‑99/2Q‑2000/3Q）

Note:
Source:Based on 68SNA for first oil crisis recession.
Cabinet Office, “Annual Report on National
Accounts.”-8(CY quarter)

85

90

95

-10
00

Ordinary profit for all industries
Employees’ compensation (right scale)

Note:
Sources:

Based on 68SNA for employees’ compensation
until 4Q/90.
Cabinet Office, “Annual Report on National
Accounts;” Ministry of Finance, “Quarterly
Report of Statistical Survey of Incorporated
Enterprises.”

The current recovery process resembles the recovery from the worldwide recession thatstarted in the first quarter of 1983, in that it was led by exports and plant and equipment
investment. That machinery investment in export-oriented industries such as electric machineryand transport equipment increased rapidly at that time corresponds to the fact that the current
growth has also been led by machinery investment including in electric machinery. However, thecurrent recovery is different in that the growth of the non-manufacturing sector is far less strong.
Also, the current recovery is similar to the post-bubble recovery from the fourth quarter of
1993, being led by the growth of exports, but it is also marked by a slump in consumption,
whereas in the post-bubble recovery, consumption stayed relatively firm and covered the slump
in plant and equipment investment.
2. Factors behind Sluggish Personal Consumption, Stalled Improvement in
Productivity and Large Labor Share
The current recovery process is characterized by a prolonged slump in personal consumption anda lack of vitality even after five quarters from the economic bottom (2Q/99). Figure 2-5compares the current situation with recovery phases from major recessions in the past (periodranging from the peak to the bottom and five quarters after the bottom). Here, real consumption
on a quarterly basis is indexed on the economic peak (=100).
With the exception of the first oil crisis, the level of real consumption had never dropped
below the level at the economic peak throughout the past recovery phases (from the worldwide
recession, the high-yen recession and the Heisei recession). In the current case, however, theeleventh-hour demand in the second quarter of 1997, just before the consumption tax hike, was
26 Development Bank of Japan Research Report/ No. 13

followed by a slump that continued for two years until the economy hit the bottom. Moreover,consumption has stayed almost flat since the bottom, and as of the third quarter of 2000 is still
about 2% lower than in the first quarter of 1997. The current slump in consumption contrasts
strongly with the recovery phase from the equally grave recession following the first oil crisis,
during which real consumption had regained the pre-recession level by the time the economy hit
the bottom (1Q/75) and subsequently followed a mild recovery path.
As noted in Section 1-3, one of the factors behind the current slump in consumption is lackof growth of wages and salaries. Indeed, the improvement in corporate profit appears to have
had no significant impact on household income. The following section examines thisphenomenon from a macroeconomic viewpoint in terms of the relationship between corporate
profits and income as well as between productivity and labor share.
Figure 2-7. Lagged Correlation between
Corporate Profits and Employees’
Compensation

Figure 2-8. Labor Share and Real Labor
Productivity(Coefficient of determinants)

(%)
90

0.9

(¥ million)
U.S. labor share (CY)

0.8Japanese labor share(93SNA, FY)

80

0.7
0.6

70

0.5

60

0.4
0.3

100

90

80

Japanese labor share (68SNA, FY)
Real labor share (right scale, CY)

70

50

60

40

50

0.2
0.1

(Year)

0
0

1

2

3

4

-0.1

Note:

Sources:

5

6

7

8

9

10

11

12

(Quarterly lag)30

40
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98
Manufacturing
All industries

IQ/80– 3Q/00
決定係数
IQ/80– 4Q/95
決定係数
決定係数
IQ/96
– 3Q/00

Notes:

Based on the equation: year-on-year change in
employees’ compensation = α+β*year-onyear change in ordinary profit for all industries(-t), the degree of correlation is measured forthree estimation periods. Dotted line on thegraph indicates statistical insignificance. Data
are based on three-quarter moving average.
Cabinet Office, “Annual Report on National
Accounts;” Ministry of Finance, “Quarterly
Report of Statistical Survey of Incorporated
Enterprises.”

Sources:Non-manufacturing

1.

Labor share = employees’ compensation/(national income – proprietorship income).
2. Real labor productivity = real GDP byindustry/number employed by industry.
Estimates for 1970-89 are based on average
differential between 68SNA and 93SNA for
1990-98.
3. Non-manufacturing includes construction,
electricity/gas/water supply,
wholesale/retail, finance/insurance, realestate, transport/communications andservices.
Cabinet Office, “Annual Report on National
Accounts;” Ministry of Public Management,
Home Affairs, Posts and Telecommunications,“Labor Force Survey;” U.S. Department ofCommerce, “Survey of Current Business.”

Development Bank of Japan Research Report/ No. 13 27

Since remuneration is distributed from the value added by corporate activities, changes in
employees’ compensation are considered to be closely related with corporate profits. Figure 2-6
compares the year-on-year change in ordinary profit in all industries according to the Quarterly
Report of Statistical Survey of Incorporated Enterprises with the year-on-year change in
employees’ compensation according to the SNA statistics. The relationship between the twoitems reveals that under the bubble economy, any substantial increase of 20-30% in ordinary
profit eventually led to a rapid increase of 8-9% in employees’ compensation. Since the latter halfof the 1990s, however, the growth of employees’ compensation has stayed within the range of 13% even when ordinary profit increased as substantially as in the bubble period. Thus, ordinary
profit has increased by double digits since the third quarter of 1999, but employees’
compensation only recorded a modest increase of 1.3% in the third quarter of 2000.
Moreover, a measurement using lagged correlation (Figure 2-7) indicates that the time lag
between improvement in corporate profits and increase in employees’ compensation has
shortened since the latter half of the 1990s. Between the first quarter of 1980 and the fourth
quarter of 1995, improvement in corporate profits impacted on employees’ compensation within
about two years in most cases. However, the correlation weakens if the estimation period is
extended to the third quarter of 2000. If we take the period between the first quarter of 1996 andthe third quarter of 2000, employees’ compensation reflects the improvement in corporate profits
in only about one year. If this relationship holds true, any slowdown in corporate profits in thelatter half of 2000 will affect employees’ compensation in the latter half of 2001. Thus, income
conditions may deteriorate again without fully recovering.
Improvement in productivity is essential for income growth. Figure 2-8 shows the long-term
trend of real labor productivity. After a steady rise until the 1980s, labor productivity leveled off
in the 1990s and has remained stubbornly flat since 1996. By industry, improvement in laborproductivity has become negligible in the non-manufacturing sector. Against this backdrop, thelabor share in Japan, which was considered to be relatively small, increased rapidly in the 1990s
and has stayed at a record high level of around 80% since fiscal 1994. This sharp shifts contrasts
the stable trends of labor in the U.S., which has stayed at around 80%. Considering the fact thatJapanese economy is now seeing the ever low productivity improvement and large labor share,
any further improvement in household income is unlikely.
3. Quick Start but Weak Expansion for Current Recovery in Plant and Equipment
Investment
Regarding the current economic recovery, attention has been focused since the initial stage onplant and equipment investment as one of the leading factors. Viewing recent developments, realplant and equipment investment on a GDP basis reportedly declined 2.5% from the previous
period in the second quarter of 2000 and increased only 1.5% in the third quarter. Some argue
that the investment has not increased as initially expected. How do such trends in plant andequipment investment compare with previous economic recovery processes?
The chronological relationship between the bottom of plant and equipment investment andthat of the economy should be examined first to grasp the quickness or slowness of the recovery
in plant and equipment at the initial stage of economic recovery. Figure 2-9 identifies the peak
and bottom of plant and equipment investment by the change in the seasonally adjusted amountof real plant and equipment investment on a GDP basis (using a series cleared of time trends forthe period until the fourth quarter of 1986; see Notes of the Figure for details). From the 1980s
to the peak of the 11th cycle (the so-called Heisei boom), the peak and bottom of plant andequipment investment coincided with those of the economy or lagged behind them by one
quarter. In contrast, from the trough following the Heisei boom (4Q/93) to the peak of the 12th
28 Development Bank of Japan Research Report/ No. 13

cycle (1Q/97), plant and equipment investment lagged behind the economy by five quarters inhitting the bottom and by three quarters in peaking. This might indicate that the recovery ininvestment was delayed by the prolonged stock adjustment following the collapse of the bubble
economy, leading to the delay in reducing investment in response to the next economic peak. In
the current recovery process, plant and equipment hit the bottom with the economy in thesecond quarter of 1999. Although it merely represents a return to the traditional pattern,
expectations grew for plant and equipment investment to play a leading role at the initial stage ofrecovery due to its quicker response than in the previous recovery.
In order to measure the strength of recovery from the bottom in plant and equipment
investment, Figure 2-10 compares the trend of investment indexed on the bottom (=100) withprevious economic recovery processes. The current recovery does not differ much from the past
three recoveries in its pace during the three quarters directly following the bottom. However, thecurrent recovery has been comparable to the previous recovery in its slowness since the fourth
quarter from the bottom.
Figure 2-9. Business Cycle and Plant and Equipment Investment
EconomyPlant and equipment investment
ExpansionLagperiodBottom

Bottom

Q1/83
Q4/86
Q4/93
Q2/99

Q1/83
Q4/86
Q1/95
Q2/99

0
0
5
0

10
18
11
(5)

Economy
Peak
Q1/80
Q2/85
Q1/91
Q1/97

Plant and equipment investment
RecessionLagperiod
Q1/80*
0*
12*
Q3/85
1
5
Q2/91
1
15
Q4/97
3
6
Peak

Figure 2-10. Trend of Plant and Equipment Investment from Bottom(Seasonally adjusted index, bottom=100)150
83/Q1～
86/Q4～
95/Q1～
99/Q2～

140
130
120
110

Time passed from bottom (quarters)

1000Notes:

Sources:

1

2

3

4

5

6

7

8

9

10

11

1. Judgment on the peak and bottom of plant and equipment investment is based on the seasonally adjusted
amount of real plant and equipment investment. For the period until Q4/86, however, the judgment is based ona time series obtained after removing the time trend from the original data (linear regression covering four
quarters before and four quarters after the economic bottom or peak). * indicates data based on 68SNA (1990 asbase year).
2. Lag (time lag from the economic bottom or peak), expansion period and recession period are in quarters. The
expansion period from the bottom of Q2/99 is as of Q3/00.
Cabinet Office, “Standard Dates of Business Cycle” and “Annual Report on National Accounts.”

Figure 2-11 shows the contribution to the year-on-year change in nominal plant andequipment investment according to the Quarterly Report by industry and by scale of corporation
to identify the causes of the sluggish recovery from the bottom. The positive contribution from
non-manufacturers at the initial stage of the current recovery has been reversed and replaced by

Development Bank of Japan Research Report/ No. 13 29

manufacturers of all sizes. Meanwhile, large and medium-sized non-manufacturers haveconstantly made a negative contribution. Setting aside the Heisei boom, in which plant andequipment investment grew across the board, the increase in investment was extended by therobustness of non-manufacturing in the latter stage in the 1983-85 and 1995-97 periods. In lightof the trend of non-manufacturing so far, the current growth of plant and equipment investment
may not continue for as long as in past recoveries (10 quarters from Q1/83 and 11 quarters fromQ1/95; see Figure 2-9).
Figure 2-11. Nominal Plant and Equipment Investment by Industry and by Corporate
Size
40(%) points
Small non-manufacturers
Large and medium-sized non-manufacturers
Small manufacturers
Large and medium-sized manufacturers

30
20
10
0
-10
-20
80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

(CY quarterly basis)

Note:
Source:Large and medium-sized companies are capitalized at ¥100 million or over, and small companies at less than ¥100
million.
Ministry of Finance, “Quarterly Report of Statistical Survey of Incorporated Enterprises.”In order to analyze the trend in each industry in further detail, the cumulative contribution
to the year-on-year change in nominal plant and equipment investment (simple total ofcontribution in individual periods) was calculated for five quarters in each recovery period
following the bottom to identify the degree of concentration (share) on the top five industries
regarding their positive and negative contributions. According to Figure 2-12, a positive
contribution is concentrated more heavily on the top five industries in the current recovery(78.5%) than in the previous three recovery phases. As compared with the Q1/87-Q1/88 andQ2/95-Q2/96 periods, when the degree of concentration remained in the 50-60% range, thecurrent recovery is far less inclusive, led by only a handful of specific industries. Moreover, thetop five industries belong to the non-manufacturing sector with the exception of electricmachinery and among them, hotels and personal services have already seen their investment
curtailed, thus justifying concerns about the sustainability of the recovery. Although thecontribution of IT-related manufacturing industries (see Note of the Figure for definition) islarger than in the past three recovery processes, it is not as significant as generally considered,particularly in comparison with the Q2/83-Q2/84 and Q2/95-Q2/96 periods.
On the other hand, the concentration of negative contribution on the top five industries wasconstant in the higher 70% range in the previous three recoveries. In comparison, the current
recovery has a low concentration of 58.6% on the top five industries. In contrast with thepositive contribution, the fact that the negative contribution is distributed over a wide range ofindustries points to a stronger downward pressure from factors such as balance sheet
adjustments, which may be partially responsible for the current weakness of recovery in plant andequipment investment.

30 Development Bank of Japan Research Report/ No. 13

Figure 2-12. Cumulative Contribution to Year-on-year Change in Nominal Plant andEquipment Investment by Industry and Degree of Concentration(5 quarters from bottom)
Top 5 positive contributors and degree of concentration
Q2/83 ~ Q2/84
Business services
Electric machinery
Metal products
Other manufacturing
Real estate
Concentration on top 5% pt
Q1/87~ Q1/88% pt
Q2/95 ~ Q2/96
18.5 Business services
9.4 Business services
11.8 Other
5.8 Electric machinerytransport/communications
3.1 Wholesale
5.0 Othertransport/communications
1.9 Real estate
3.5 Metal products
1.9 Retail
3.1 Personal services
74.2% Concentration on top 5 54.2% Concentration on top 5% pt

Q3/99 ~ Q3/00
7.4 Movie/recreation
7.0 Electric machinery

% pt
5.9
5.8

4.6 Wholesale
1.7 Hotels
1.6 Personal services
62.7% Concentration on top 5

2.6
2.4
1.9
78.5%

(Cf.)
IT-related industries total
Concentration

13.3 It-related industries total
26.4% Concentration

0.4 IT-related industries total
9.4 IT-related industries total
7.3
0.9% Concentration
26.2% Concentration
30.7%

Top 5 negative contributors and degree of concentration
Q2/83 ~ Q2/84
Iron & steel
Transport equipment
Marine transport%ptHotelsGeneral machinery
Concentration on top 5-1.4 Marine transport-1.3 Marine transport-1.1 General machinery-0.9 Oil/coal
78.3% Concentration on top 5 77.3% Concentration on top 5

Notes:

Source:Q1/87 ~ Q1/88-5.1 Transport equipment-3.5 Iron & steel-1.7 Hotels%pt

Q2/95 ~ Q2/96-4.0 Electricity-2.7 Real estate-2.3 Construction%pt

Q3/99 ~ Q3/00-2.5 Electricity-1.3 Transport equipment-1.3 Other
transport/communications-0.7 General machinery-0.7 Real estate
78.9% Concentration on top 5

%pt
-5.4
-4.2
-3.5
-1.8
-1.8
58.6%

1. The names of industries are simplified as appropriate.
2. Cumulative contribution to year-on-year change in plant and equipment investment for five quarters from thebottom is calculated according to the detailed classification of industries (18 manufacturing industries and 17
non-manufacturing industries) based on the Statistical Survey of Incorporated Enterprises. Concentration
indicates the share of the top five industries in the sum (absolute value in the case of negative contribution) of
positive (negative) contributors.
3. The contribution of IT-related industries represents the sum of the positive contribution from electric machinery,non-ferrous metals, cement/ceramics/glass, general machinery and precision machinery. Concentration indicates
their share among positive contributors.
Ministry of Finance, “Quarterly Report of Statistical Survey of Incorporated Enterprises.”

4. Modest Plant and Equipment Investment amidst Rapid Recovery in Corporate
Profits
The modestness of recovery in plant and equipment investment as compared with the
improvement of corporate profits is another characteristic of the current recovery phase. Figure
2-13 shows trends in total ordinary profit and plant and equipment investment (seasonallyadjusted) for all industries and all sizes of corporation according to the Quarterly Report ofStatistical Survey of Incorporated Enterprises. Since bottoming out at ¥6.0 trillion in the fourth
quarter of 1998, ordinary profit has recovered to ¥9.8 trillion, a level almost comparable to 1989,
when it reached the highest point for the 1980s and afterwards. On the other hand, plant andequipment investment has only recovered very slowly, at least in nominal terms.
In order to see how significant this phenomenon is in comparison with past recoveries, theratio of plant and equipment investment to ordinary profit (investment/profit ratio) was
calculated in terms of the trend from the bottom of plant and equipment investment. According
Development Bank of Japan Research Report/ No. 13 31

to Figure 2-14, the investment/profit ratio declines at the initial stage in each of the recovery
phases, which means that plant and equipment investment always grows slower than profits atthe start of the recovery. However, the decline in the investment/profit ratio was greater in thecurrent recovery and the ratio (five quarters after the bottom) is still lower than in the past threerecoveries. Although this implies a cautious corporate attitude, this gap should be monitored
carefully in the coming periods. Throughout the previous recovery phases, the investment/profit
ratio was constantly high, which indicates that plant and equipment investment outpaced therecovery in corporate profits. Hence, the cautious corporate attitude in the current phase isparticularly worth noting.
Figure 2-13. Comparison of Trends in
Plant and Equipment Investment andOrdinary Profit (Corporations of all sizes in
all industries)
16(¥ trillion)
Plantandand equipment
Plant
investment
equipment
investment
Ordinaryprofit
profitOrdinary(right scale)(right scale)

14
12
10
8

(CY quarterly basis)(CY quarterly basis)

6
4
80

Note:
Source:

85

90

95

Figure 2-14. Trends in Investment/Profit
Ratio from Bottom of Plant andEquipment Investment (Corporations of
all sizes in all industries)
12

200

10

180

8

160

6

140

4

120

2

100

00

Seasonally adjusted.
Ministry of Finance, “Quarterly Report ofStatistical Survey of Incorporated Enterprises.”

(%)

0

1

2

3

4

Q1/83～

Q4/86～

Q1/95～

Q2/99～

5

6

7

8

9

10 11

Time passed from bottom (quarters)

Note: Same as in Figure 2-13.

The restraint on plant and equipment investment in comparison with corporate profits may
also be explained from the structure of profit increase. The contribution of income factors issmaller than in the past phase of profit increase, and marginal profit rate factors are currently
making a negative contribution. Therefore, the current profit increase is characterized by apositive contribution from fixed cost reduction (Figure 2-15). Apart from the favorable influenceof increased cash flow on financing, stronger corporate profits are generally considered toincrease plant and equipment investment because they raise the expected growth rate or expected
profit rate, both of which are basic criteria for investment. Apparently, the current structure of
the profit increase provides few reasons for companies to be optimistic about their future andtherefore has done little to boost plant and equipment investment.
The rapid recovery in corporate profits may level off as the U.S. economy cools. According
to the Bank of Japan’s Tankan survey in December 2000, for example, ordinary profit in the firsthalf of fiscal 2000 increased 30.0% on the previous year for all industries and all sizes ofcorporation, but is slated to record a substantial drop of 4.2% in the latter half of the fiscal year.
In order to identify the impact of such trends in corporate profits on plant and equipment
investment, a functional estimate on their relationship was conducted for the period since the1980s (except the 11th cycle for which the lag pattern differs considerably) by industry and by sizeof corporation, supposing a quadratic Almon lag (lag period of 0-8 quarters; with a restriction on
the end point considering the coefficient of nine quarters ago as zero). As shown in Figure 2-16,
the result of the estimate indicates that small companies are more likely to respond sensitively to
32 Development Bank of Japan Research Report/ No. 13

current profits than large and medium-sized companies. The average lag period in the
manufacturing sector, which currently leads plant and equipment investment, stands atapproximately 3.5 quarters for large and medium-sized companies and at 2.5 quarters for small
companies. Thus, any slowdown in corporate profits in the latter half of fiscal 2000 is likely toexert a visible impact on small companies from the first half of fiscal 2001 and on large andmedium-sized companies from the latter half of the fiscal year.
Figure 2-15. Year-on-year Change in Ordinary Profit by Component(Corporations of all sizes in all industries)
8000(¥ billion)

6000
4000
2000
0
-2000
-4000
-6000
-8000
80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

(CY quarterly basis)
Sales
Sales increase

Notes:

Source:Marginal profit rate

Fixed cost

Composite factor

Increase in ordinary profit (on previous year)

1. According to the formula: ordinary profit = sales (S) x marginal profit rate (MPR) – fixed cost (FC), (ΔS x MPR0)
is treated as the contribution of profit increase, (ΔMPR x S0) as that of marginal profit, ΔFC as that of fixed
cost and the residual as that of composite factor (Δ: change on previous year, 0: value of one year ago).
2. Fixed cost is defined as the sum of personnel cost, depreciation expenses and discount charge on interest payment.
Ministry of Finance, “Quarterly Report of Statistical Survey of Incorporated Enterprises.”

Figure 2-16. Responsiveness of Plant and Equipment Investment to Ordinary Profit(By industry and by corporate size)
Responsiveness(elasticity)

Responsiveness(elasticity)

Manufacturing

0.20
0.15
0.10
0.05

Lag (quarters)

0.00
-8

-7

-6

-5

-4

-3

-2

-1

0

Large and medium-sized companies:
Cumulative responsiveness 0.892
Average lag –3.52
Small companies:
Cumulative responsiveness 0.719
Average lag –2.51

Notes:

Source:Non-Manufacturing

0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
-0.05

Lag (quarters)

-8

-7

-6

-5

-4

-3

-2

-1

0

Large and medium-sized companies:
Cumulative responsiveness 1.497
Average lag –4.52
Small companies:
Cumulative responsiveness 0.878
Average lag –1.16

1. Seasonally adjusted. Large and medium-sized companies are capitalized at ¥100 million or over, and small
companies at less than ¥100 million.
2. From the formula: ln (plant and equipment investment = constant term +Σ(βt･ln (ordinary profit t)), where t = 0– -8, estimation is made with the least-squares method using an Almon lag (quadratic, with a restriction on terminal
point prescribing β = 0 for t = -9). Estimation period ranges from Q1/80 to Q4/86 and from Q4/93 to Q3/00.
3. Lines linking estimated values indicate significance at the 5% level.
Ministry of Finance, “Quarterly Report of Statistical Survey of Incorporated Enterprises.”
Development Bank of Japan Research Report/ No. 13 33

5. Contribution of Exports to Economic Recovery and Increase in Imports Led by
Consumer Goods
Figure 2-17 compares the contribution of exports to real GDP growth (change on the previousyear) between the current economic recovery and the past recovery phases. The data indicate thatthe contribution of export is greater in the current recovery phase.
Figure 2-18 breaks down the movement of export volume into three factors (income indestination countries, relative export prices and foreign direct investment) to identify theconditions underlying the current growth of exports. As regards exports to the U.S., relative
export prices are rising and therefore making a negative contribution as the yen has risen on theprevious year since the latter half of 1999. In recent years, however, income has been making a
positive contribution reflecting the expansion of the U.S. economy. The contribution rose
substantially from the latter half of 1999 to the first half of 2000 in particular, largely leading the
growth of exports to the U.S. in this period. The growth leveled off in the third quarter of 2000,
however, as the contribution of income slowed down slightly and growth became flat for major
export items such as passenger cars, which had been increasing substantially.
Figure 2-17. Contribution of Exports to Year-on-year Growth of Real GDP(Comparison between economic recovery phases)
(%)

180
140
100
60
20
-20
-60

(Quarters passed from economic bottom)

1

2

3

4

5

6

7

8

Ⅰ/75～Ⅰ/77
IV/86～I/91
Note:
Source:

9

10

11

12

13

14

ⅠV/77～Ⅰ/80
IV/93～97/I

15

16

17

18

Ⅰ/83～II/85
Current recoveryII/99～

Based on 68SNA until 1Q/80 and on 93SNA thereafter.
Cabinet Office, “Annual Report on National Accounts.”

Figure 2-18. Factor Resolution of Export Volume① Exports to U.S.

(%)

② Exports to Asia.

(%)
25
20
15
10
5
0
-5
-10
-15
-20

25
20
15
10
5
0
-5
-10
-15
-20
Ⅰ
95

Ⅲ

Ⅰ
96

Ⅲ

Ⅰ
97

Ⅲ

Ⅰ
98

Ⅲ

Ⅰ
99

Ⅲ

Ⅰ
00

Ⅲ

Relative price factor
Income factor
Year-on-year change in export volume (line)

Note:

Sources:

Ⅰ
95

Ⅲ

Ⅰ
96

Ⅲ

Ⅰ
97

Ⅲ

Ⅰ
98

Ⅲ

Ⅰ
99

Ⅲ

Ⅰ
00

OthersForeign direct investment factor

Seasonally adjusted export volume index is resolved into income factor (U.S.: real GDP, Asia: import volume),
relative price factor (export price index/WPI for U.S. and Asia) and foreign direct investment factor (for Asia only;
cumulative direct investment/nominal GDP of Japan) based on OLS.
Japan Tariff Association, “Summary Report on Trade of Japan;” Ministry of Finance, “Statistics of Direct External
Investment;” Cabinet Office, “Annual Report on National Accounts;” IMF, “International Financial Statistics.”

34 Development Bank of Japan Research Report/ No. 13

Ⅲ

The income factor has recovered considerably since 1999 as regards exports to Asia, leading theincrease in overall exports in recent years. By product, exports to Asia have been led since thefirst quarter of 2000 by capital goods including switches and producer goods including
semiconductor integrated circuits.
Similarly, Figure 2-19 breaks down the movement of imports into the factors of domestic
income, relative import prices and foreign direct investment. The increase of exports from Asia
since 1999 is largely attributable to the upturn of domestic demand and the decline in relative
import prices. As compared with the previous recovery phase, the current recovery process ismarked by the decline in import prices including textile and chemical products, metal products
and machinery products, in addition to the continued slowness in the recovery of domestic
demand. Also, the continued growth of direct investment in Asia is apparently exerting upward
pressure on imports.
We also compared the current and past recovery phases by type of goods. The contributionof import goods to the growth of total industrial supply in the current recovery is greater than in
the bubble era and previous recovery period (Figure 2-20). The contribution is significantly great
in non-durable and durable consumer goods. This indicates that audio-visual equipment, clothes,shoes and other imports mainly from Asia are increasingly penetrating the domestic market as
relative import prices continue to fall.
Figure 2-19. Factor Resolution ofImport Volume (Imports from Asia)

Figure 2-20. Contribution of Import
Goods to Growth of Total Industrial
Supply

25
100

20
15

86/Ⅳ～91/Ⅰ
93/Ⅳ～97/Ⅰ

80

10

99/Ⅱ～00/Ⅲ

5

60

0
-5

40

-10

Industrial
goods total

20

-15
-20
ⅢⅣⅠ Ⅱ ⅢⅣⅠⅡ ⅢⅣ Ⅰ ⅡⅢⅣⅠ ⅡⅢ ⅣⅠⅡ Ⅲ
95
96
97
98
99
00

Capitalgoods

Non-durable
consumer goods
Durableconsumergoods

Producer
goods

0

OthersForeign direct investment factor

Relative price factor
Income factor

Notes:

Year-on-year change in import volume (line)

Note:

Sources:

Seasonally adjusted import volume index isresolved into income factor (real domestic demandof Japan), relative price factor (import priceindex/domestic WPI for Japan) and foreign direct
investment factor.
Same as in Figure 3-18.

Source:1. Contribution to year-on-year growth fromthe economic bottom (cumulative basis).
2. Capital goods exclude transport equipment,
and producer goods exclude mining.
Ministry of Economy, Trade and Industry,“Total Industrial Supply Table.”

6. Heavy Debt Burden for National and Local Governments. Real Interest Rates
Bottom Out due to Price Declines
Throughout the 1990s, outstanding debts increased rapidly for both the national and local
governments as they were forced to take successive economic stimulus measures despite
dwindling tax revenues. Due to the heavy debt burden, there is little room for maneuver for thestate and regions.
Development Bank of Japan Research Report/ No. 13 35

National tax revenues increased throughout the 1980s but have been falling since the peak of¥60 trillion in fiscal 1990, and have not reached ¥50 trillion recently (Figure 2-21). Although
outstanding ordinary government bonds have been increasing since the 1980s, the increase
accelerated in the 1990s largely due to successive economic stimulus measures (the numbers for
tax revenue and outstanding debts in fiscal 2000 represent revised budget after the supplementarybudget). The government bond/tax revenue ratio rose from 2.8 in fiscal 1992 to 7.3 in fiscal
1999.
Local tax revenues fell slightly after reaching ¥35 trillion in fiscal 1991. Although there was aslight recovery in fiscal 1997, revenues have increased very little since then (Figure 2-22).
Outstanding municipal bonds increased rapidly in the 1990s, as in the case of government bonds.
The municipal bonds/local tax revenue ratio, which stayed under 2 until fiscal 1990, is expected
to reach 3.8 for fiscal 2000.
Figure 2-21. Outstanding Government Bonds and Tax Revenues(¥ trillion)(Times)400

8Outstanding ordinary government
bonds
Tax revenues

350
300

6
5

200

4

150

3

100

2

50

1

0

0
80

82

84

86

88

90

92

94

96

98

2000

After supplementary budget for FY2000.
National Finance Association, “Financial Data
Book,” etc.

5Local tax revenues

120

4

Outstanding local bonds/tax
revenues (right scale)

90

3

60

2

30

1

0

0
80

82

(FY)

Note:
Sources:(Times)Outstanding local bonds

7

Outstanding government bonds/tax
revenues (right scale)250(¥ trillion)
150

84

86

88

90

92

94

96

98

2000

(FY)

Note:
Sources:

Estimates for FY1999 and 2000.
Local Finance Association, “Annual Report ofLocal Finance Statistics.”

As regards finance, real interest rates have bottomed out while bank credits stagnate.
Nominal interest rates (referring to the long-term composite value of average contracted
interest rates on new loans for the purpose of this section) declined substantially from around 7%
in the early 1990s to less than 2% at present. However, real interest rates have not fallen as
sharply as nominal rates as prices remain weak. If the plant and equipment deflator is taken as aproxy variable for expected inflation rate (real rate 1), real interest rates declined until 1997 but
have risen slightly since then (Figure 2-23). Even when the deflator is replaced with consumer
price index (real rate 2), real interest rates have not fallen since 1997.
Also, demand for loans has been weak, and the 1990s are characterized by a stagnant credit
compared with the 1980s (Figure 2-24). Credit grew in parallel with the economy in the recovery
phases from the worldwide and high yen recessions in the mid-1980s. In the 1990s, however,both the post-bubble and current phases have not seen any increase in credit to match theeconomic recovery.

36 Development Bank of Japan Research Report/ No. 13

Figure 2-23. Nominal Interest Rate andReal Interest Rate(%)
9

Figure 2-24. Trends in Lending of
Financial Institutions in Recovery Phases
125

Nominal interest rate
Real interest rate 1
Real interest rate 2

8
7
6
5

120
115
110

4

105

3
2

100

1

95

0

0
91

92

93 94

95

96

97 98

99

Sources:

2

3

4

5

6

7

8

1Q/83 - 1Q/85: recovery from worldwide recession
4Q/86 - 4Q/88: recovery from high yen recession
4Q/93 - 4Q/95: recovery from collapse of bubble economy
2Q/99 - 3Q/00: current recovery(CY quarterly basis)

Notes:

100

1. Nominal interest rate represents the longterm composite of average lending rate on
new loans.
2. Real interest rate 1 is calculated from yearon-year change in private corporation plantand equipment investment deflator. Real
interest rate 2 is calculated from consumer
price index (national composite index
excluding fresh foods). The impact of theconsumption tax hike in April 1997 (1.5%)
and the increase in medical expenses (0.4%)
is excluded.
Cabinet Office, “Annual Report on National
Accounts;” Bank of Japan, “Financial andEconomic Statistics Monthly;” Ministry of
Public Management, Home Affairs, Posts andTelecommunications, “Consumer Price Indexes
Monthly.”

Notes:

Source:1. Indexed on economic bottom (=100).
2. Figures under the horizontal axis indicate
the number of quarters passed from thebottom.
Bank of Japan, “Accounts of Domestic
Banks.”

7. Weak Prices Accompanied by Sluggish Wages and Salaries
Since bottoming out in March 1999, crude oil prices have increased by almost 200% on the backof OPEC’s policy to curtail production as well as the recovery of the world economy (Figure 225). Although this period coincides with the current economic recovery process, upward pressure
on costs has not affected the whole Japanese economy. It is true that import prices rose 9.0% injust over the last one and a half years, but the rising oil prices have had little impact as thewholesale prices of domestic demand goods (imports and domestic goods) only increased by
0.7% in the same period while consumer prices even declined slightly. Of course, as mentioned
in Section 1-8, the increase in raw material prices has raised wholesale prices in total. However,its impact has been negligible because the share of crude oil and oil products in business
transactions (or GDP) has been declining.
Using the classification of goods and services, Figure 2-26 compares consumer prices
between the current recovery and past recovery processes. As regards goods (excluding fresh
foods), the economic recovery coincided with price declines in the last two recovery phases,
Development Bank of Japan Research Report/ No. 13 37

which began in 1993 and 1986 respectively. Although some external factors existed in therecovery before last, such as the appreciation of the yen and the decline of crude oil prices, pricedecline occurred in the last recovery phase for manufactured goods (durable goods in particular).
Therefore, the price declines in the current recovery phase should not be exaggerated.
Figure 2-25. Crude Oil Prices and Price Indicators
114

300

Crude oil prices (right scale)

112

260

110
108

220

Import prices

106

180

104

140

102

Wholesale prices (domestic demand goods)

100

Consumer prices (excluding fresh foods)

98
99/03

Note:
Sources:

99/05

99/07

99/09

99/11

00/01

00/03

00/05

00/07

00/09

100
60

00/11

Indexed on March 1999 (=100).
Ministry of Finance, “Statistics on Trade;” Bank of Japan, “Price Indexes Monthly;” Ministry of Public Management,
Home Affairs, Posts and Telecommunications, “Consumer Price Indexes Monthly.”

Figure 2-26. Consumer Price Index for Goods and Services (Economic bottom=100)① Goods (excluding fresh foods)
106② Services(Quarters passed)(Quarters passed)

106

104

104

102

102

100

100

98

98

96

96
-4

-3

-2

-1

0

Current (2Q/99～）

Note:
Source:1234Q/93～

4

5

6

4Q/86～

7

8

9

1Q/83～

-4

-3

-2

-1

0

Current (2Q/99～)

1

2

3

4Q/93～

4

5

6

4Q/86～

7

8

9

1Q/83～

October-November average for 4Q/00.
Ministry of Public Management, Home Affairs, Posts and Telecommunications, “Consumer Price Indexes Monthly.”

On the other hand, it should be noted that service prices rose by an annual rate of about 2%
in the previous three recovery phases but have remained level or declined slightly on the previous
year in the current phase. As mentioned in Chapter 1, the prices of personal and public services
have stabilized since 1998. Since service prices exert a dominant influence on prices as a whole,their stabilization largely explains the decline in consumer prices.
Figure 2-27 shows unit labor cost in relation to prices. Unit labor cost is defined as the labor
cost divided by value added (GDP). Although it does not correspond directly to prices, it isuseful for examining the pressure on prices exerted by labor cost. Incidentally, the classificationof manufacturing/non-manufacturing here is not equal to the classification of goods/services

38 Development Bank of Japan Research Report/ No. 13

mentioned above1. The year-on-year growth of unit labor cost shows a similar trend for
manufacturing and non-manufacturing, and changes in parallel with the price index at large.
Figure 2-27. Trends in Unit Labor Cost
(Trend of year-on-year change by component)① Manufacturing(%)② Non-manufacturing

(%)

10

(CY)

8

10

6

6

4

4

2

2

0

0

-2

-2

-4

-4

-6

(CY)
(CY)

8

Productivity factor
生産性要因
Wage factor
賃金要因
Unit labor cost
単位労働コスト-6-8
80

Notes:

Sources:

82

84

86

88

90

92

94

96

98

00

-8
80

82

84

86

88

90

92

94

96

98

00

1. Unit labor cost = nominal wage index x number employed/activity index.
2. Activity index for manufacturing represents the industrial production index for manufacturing industries.
3. Non-manufacturing includes electricity/gas/water supply, wholesale/retail, finance/insurance, real estate,transport/communications and services. Wage index represents a composite of weighted average for regular
employment. Activity index represents the tertiary industry composite index.
Ministry of Health, Labor and Welfare, “Monthly Statistical Survey on Labor;” Ministry of Public Management,
Home Affairs, Posts and Telecommunications, “Labor Force Survey;” Ministry of Economy, Trade and Industry,“Industrial Statistics Monthly.”

A breakdown of unit labor cost into productivity and wage factors2 indicates that althoughproductivity tends to fluctuate considerably according to cyclical factors, there has been asignificant improvement in the manufacturing sector in particular, pointing to a substantial
reduction in unit labor cost. The wage factor turned negative in 1998 and 1999 for bothmanufacturing and non-manufacturing. Although it rose again for the January-October 2000
period, the growth has remained low in non-manufacturing, exerting a downward pressure on
unit labor cost.
(as of March 16, 2001)[by Economic Research Group (e-mail: report@dbj.go.jp)]

1 Unit labor cost can be calculated for all industries but any change in unit labor cost in the retail industry, which is included in
the non-manufacturing sector, is incorporated in the prices of goods. Also, any change in unit labor cost in the wholesaleindustry affects wholesale prices and thus exerts influence on a wide range of goods and services.
2 Unit labor cost = nominal wage x number employed/value added = nominal wage/productivity. Here, the number of working
hours is not taken into consideration and capacity utilization rate is not incorporated in the breakdown into the wage andproductivity factors. Therefore, any rise in operating rate in good times will overstate the growth of productivity and wage, thus
amplifying the cyclical movement. This however does not affect unit labor cost.
Development Bank of Japan Research Report/ No. 13 39

List of Back Numbers (Including JDB Research Report)
No.13

Recent Trends in the Japanese Economy: Weakness of Current Economic Recovery and Its
Background (This Issue)

No.12

Empirical Reassessment of Japanese Corporate Investment Behavior: Features and Changes Since
the 1980s, Based on Micro-level Panel Data, March 2001

No.11

Survey on Planned Capital Spending for Fiscal Year 1999, 2000 and 2001, October 2000

No.10

Job Creation and Job Destruction in Japan, 1978-1998: An Empirical Analysis Based on EnterpriseData, September 2000

No.9

Recent Trends in the Japanese Economy: Information Technology and the Economy, September
2000

No.8

Trend of International Reorganization Affecting the Japanese Automobile and Auto Parts Industries,
June 2000

No.7

Survey on Planned Capital Spending for Fiscal Years 1999 and 2000, May 2000

No.6

Current Status and Future Perspective of the Japanese Remediation Industry: Technology andMarket for Underground Remediation, May 2000

No.5

Recent Trends in the Japanese Economy: The 1990s in Retrospect, March 2000

No.4

Destabilized Consumption and the Post-bubble Consumer Environment, February 2000

No.3

The Slump in Plant and Equipment Investment in the 1990s: Focusing on Lowered Expectations,the Debt Burden and Other Structural Factors, January 2000

No.2

Survey on Planned Capital Spending for Fiscal Years 1998, 1999 and 2000, November 1999

No.1

Corporate Strategies in Japan’s Semiconductor Industry: Implications of Development in Other
Asian Countries, November 1999

JDB Research Report
No.96

Recent Trends in the Japanese Economy: Focused on Fixed Investment and Capital Stock, August
1999

No.95

Efforts to Protect the Natural Environment in the United States and Germany: Environmental
Mitigation and Biotope Conservation, July 1999

No.94

Survey on Planned Capital Spending for Fiscal Years 1998 and 1999, June 1999

No.93

Towards the realization of ‘environmental partnership’: A survey of Japan’s environmental NPO
sector through comparison with Germany, June 1999

No.92

The Impact of Demographic Changes on Consumption and Savings, March 1999

No.91

Recent Research and Development Trends in Japanese Enterprises: Technology Fusion, March
1999

No.90

Recent Trends in the Japanese Economy: Prolonged Balance Sheet Adjustment, January 1999

No.89

Impact of Asset Price Fluctuations on Household and Corporate Behavior: A Comparison between
Japan and the U.S., December 1998

No.88

Survey on Planned Capital Spending for Fiscal Years 1997, 1998, and 1999, December 1998

No.87

Foreign Exchange Rate Fluctuations and Changes in the Input-Output Structure, November 1998

No.86

Structural Changes in Unemployment of Japan: An Approach from Labor Flow, November 1998

No.85

Recent Trends in the Japanese Economy: Characteristics of the Current Recession, August 1998

No.84

R&D Stock and Trade Structure in Japan, August 1998

No.83

Survey on Planned Capital Spending for Fiscal Years 1997 and 1998, August 1998

No.82The Significance, Potential, and Problems of DNA Analysis Research: Establishing Public
Acceptance is Essential, May 1998

No.81

The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996, 1997 and1998 Conducted in August 1997, March 1998

No.80

Recent Trends in the Japanese Economy: Growth Base of the Japanese Economy, January 1998

No.79

Information Appliances: The Strength of Japanese Companies and Tasks for the Future, January
1998

No.78

Challenges and Outlook for the Japanese Machinery Industries: Impact of ISO14000 Series andEnvironmental Cost, January 1998

No.77

Current Conditions and Issues of Computerization in the Health Care Industry : For theConstruction of a Health Care Information Network, January 1998

No.76

Household Consumption and Saving in Japan, December 1997

No.75

The Direction of Japanese Distribution System Reforms: Strengthening the Infrastructure to
Support Diverse Consumer Choices, November 1997

No.74

Foreign Direct Investments by Japanese Manufacturing Industries and Their Effects on
International Trade, October 1997

No.73

The Impact of the Changing Trade Structure on the Japanese Economy: With Special Focus on the
Effects on Productivity and Employment, October 1997

No.72

An Analysis of Foreign Direct Investment and Foreign Affiliates in Japan, August 1997

No.71

Recent Trends in the Japanese Economy: Stock Replacement and New Demand as Aspects of
Economic Recovery, August 1997

No. 70 Corporate Fundraising : An International Comparison, June 1997
No. 69 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in February 1997, May 1997
No. 68 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in August 1996, August 1997
No. 67 An International Comparison of Corporate Investment Behavior: Empirical Analysis Using Firm
Date from Japan, France and the US, April 1997
No. 66 Housing in the National Capital: Analysis of the Market for Housing using Micro Data, March 1997
No. 65 The Environment for Locating Business Operations in Major East Asian Cities, January 1997
No. 64 Direction of Reconstruction of Business Strategy in the Chemical Industry, January 1997
No. 63 Reflection on Discussions Concerning Regulation of the Electric Power Industry: Deregulation of
the Electric Power Industry in Japan and Implication of Experiences in the United States,
December 1996
No. 62 Current Status and Future Perspective of the Japanese Semiconductor Industry, November 1996
No. 61 A Breakthrough for the Japanese Software Industry?: Responsiveness to Users’ Needs is the key,
October 1996
No. 60 Recent Trends in the Japanese Economy Focusing on the Characteristics and Sustainability of theCurrent Economic Recovery, September 1996
No. 59 Analysis of the Primary Causes and Economic Effects of Information: Related investment in the
United States and Trends in Japan, August 1996
No. 58 Selected Summaries of Research Reports: Published in FY 1995, June 1996
No. 57 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1995 and 1996
Conducted in February 1996, May 1996

No. 56 Recent Trends in the Japanese Economy, May 1996
No. 55 Issues Concerning the Competitiveness of the Japanese Steel Industry, February 1996
No. 54 Changes in the Financial Environment and the Real Economy, January 1996
No. 53 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994, 1995 and1996 Conducted in August 1995, October 1995
No. 52 Current Economic Trends: Focusing on the Appreciation of the Yen and its Effects, October 1995
No. 51 Problems Concerning the International Competitiveness of the Petrochemical Industry, October
1995
No. 50 An Economic Approach to International Competitiveness, October 1995
No. 49 Selected Summaries of Research Reports Published in FY 1994, July 1995
No. 48 Strategies for Improving the Efficiency of the Japanese Physical Distribution System: Part2, July
1995
No. 47 Issues on International Competitive Strength of the Auto Industry, June 1995
No. 46 Problems Concerning the International Competitiveness of the Electronics and Electric Machinery
Industry, June 1995
No. 45 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994 and 1995
Conducted in March 1995, June 1995
No. 44 Strategies for Improving the Efficiency of the Japanese Physical Distribution System, March 1995
No. 43 Capital Spending Recovery Scenario Cycle and Structure, August 1994
No. 42 Progress of International Joint Development between Industrialized Countries on the Private Level,
May 1994
No. 41 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993, 1994 and1995 Conducted in August 1994 , November 1994
No. 40 Selected Summaries of Research Reports Published in FY 1993, June 1994
No. 39 Recent Trends in Japan’s Foreign Accounts, April 1994
No. 38 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993 and 1994
Conducted in March 1994, April 1994
No. 37 Economic Zones and East Asia Prospect for Economic Activity Oriented Market Integration,
December 1993
No. 36 Japanese Corporate Responses to Global Environmental Issues, December 1993
No. 35 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992, 1993 and1994 Conducted in August 1993, September 1993
No. 34 Structure of Profit to Capital in the Manufacturing Industry, September 1993
No. 33 Comparison of the Japanese and The U.S. Labor Markets, October 1992
No. 32 The Relative Competitiveness of U.S., German, and Japanese Manufacturing, March 1993
No. 31 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992 and 1993
Conducted in March 1993, April 1993
No. 30 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991, 1992 and1993 Conducted in August 1992, December 1992
No. 29 Flow of Funds in the 80s and Future Corporate Finance in Japan, November 1992
No. 28 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991 and 1992
Conducted in February 1992, April 1992

No. 27 An Analysis of Foreign Direct Investment in Japan, March 1992
No. 26 Projection of Japan's Trade Surplus in 1995: Analysis of Japan's Trade Structure in the 80s, February
1992
No. 25 Intra-Industry Trade and Dynamic Development of The World Economy, November 1991
No. 24 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990, 1991 and1992 Conducted in August 1991, September 1991
No. 23 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990 and 1991
Conducted in February 1991, March 1991
No. 22 Trends of the Petrochemical Industry and its Marketplace in East Asia, March 1991
No. 21 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989, 1990 and1991 Conducted in August1990,September 1990
No. 20 Deepening Economic Linkages in The Pacific Basin Region: Trade, Foreign Direct Investment andTechnology, September 1990
No. 19 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989 and 1990
Conducted in February 1990, March 1990
No. 18 Petrochemicals In Japan, The US, and Korea an Assessment of Economic Efficiency, February
1990
No. 17 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1988, 1989 and1990 Conducted in August 1989, October 1989
No. 16 Impact of the EC Unification on Japan’s Automobile and Electronics Industries, August 1989
No. 15 Industrial and Trade Structures and the International Competitiveness of Asia’s Newly
Industrializing Economies, August 1989
No. 14 The Japan Development Bank Reports on Capital Investment Spending: Survey for Fiscal Years
1988 and 1989 Conducted in February 1989, March 1989
No. 13 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1987, 1988 and1989 Conducted in August 1988, September 1988
No. 12 Growing Foreign Investors’ Activities and the Future of Internationalization, September 1988
No. 11 Futures Tasks and Prospects for the Japanese Machine-Tool Industry, July 1988
No. 10 International Division of Labor in the Machine Industries Among Japan, Asia’s NICs and ASEANCountries, June 1988
No. 9

Trends of the Petrochemical Industry and its Marketplace in East Asia around Japan, May 1988

No. 8

The International Competitiveness of Japan and U.S. in High Technology Industries, April 1988

No. 7

The Japan Development Bank Reports on Private Fixed Investment in Japan, March 1988

No. 6

Economic Projections of the Japan’s Economy to the Year 2000, February 1988

No. 5

The Japan Development Bank Reports on Private Fixed Investment in Japan, September 1987

No. 4

Current Trends in the Japanese Auto Parts Industry in Overseas Production, July 1987

No. 3

Current Moves for Foreign Direct Investment into Japan, May 1987

No. 2

Overseas Direct Investments by Japanese Corporations, May 1987

No. 1

Current U.S. Consumption Trends, May 1987