Development Bank of Japan
Research Report
No. 22

Recent Trends in the Japanese Economy:
The Japanese Economy under Deflation and
Prospects of Evolution

February 2002

Economic and Industrial Research Department
Development Bank of Japan

Contents

Summary ........................................................................................................... iii
I

The Japanese Economy Amid Serious Adjustment ....................................1 (Figures)
1. Overview: Continued Drop in Production with a Risk of Further Decline.. 1 (25)
2 Substantial Decline in Shipments and Protracted Inventory Adjustment ..... 3 (26)
3. Employment Conditions: Deteriorating ............................................................. 4 (27)
4 Consumption: Weak due to Deteriorating Income and
Employment Conditions....................................................................................... 5 (28-29)
5. Plant and Equipment Investment: Decreasing with No Sign of Recovery ... 7 (30)
6. Housing Investment: Decreasing......................................................................... 7 (31)
7. Public Investment: Declining due to Financial Difficulties ............................. 8 (32)
8. Exports and Imports: Both Dropping ................................................................ 9 (33)
9. Lending Declines under Low Interest Rates through Quantitative
Monetary Easing..................................................................................................... 9 (34)
10. Downturn in the Wholesale Prices and Continued Decline in
the Consumer Prices............................................................................................ 10 (35)

II The Japanese Economy under Deflation and Prospects of Evolution .....12
1. Concerns about the Japanese Economy and Prospects of Evolution ......... 12 (36)
2. Trends of Business Restructuring and Prospects of Revitalization of
the Corporate Sector ........................................................................................... 12 (37)
3. Incessant Transformation of Industrial Structure ........................................... 13 (38)
4.
5.
6.
7.
8.
9.

Reduction of Trade Surplus due to Sluggish World IT Market .................... 15 (39)
Export of Parts and Materials to China Expected to Increase Following
Its Accession to WTO......................................................................................... 17 (40)Development of Stock Market for Emerging Businesses andIncrease in M&A .................................................................................................. 18 (41)
Hopeful Development of Markets for Rented Houses,
Used Houses and the Housing Renovation ..................................................... 19 (42)
Increase in Real Consumption of Durable Goods and Expansion ofSecondhand Markets............................................................................................ 20 (43)
Strong Willingness to Spend on Education...................................................... 22 (44)Development Bank of Japan Research Report/ No. 22 i

Analysts and writers:

Hajime Wada
Jun-ichi Nakamura
Akimitsu Fujii
Wataru Miyanaga
Naoki Shinada
Tadateru Hayashi
Michinori Takahashi

Overall supervision
Sections I-1, I-2, I-5, II-1, II-2 and II-3
Sections I-7, I-9 and II-6
Sections I-3, I-4, II-8 and II-9
Sections I-8 and II-4
Section II-5
Sections I-6, I-10 and II-7

ii Development Bank of Japan Research Report/ No. 22

Recent Trends in the Japanese Economy:
The Japanese Economy under Deflation and Prospects of Evolution
Summary
1. Following a mild recovery from a trough in early 1999, which turned out to be the shortest
period of expansion after World War II, the Japanese economy has remained in recession, withpainful adjustments resulting from the slump in IT-related markets which originated in the US.
On the supply side, industrial production dropped further, led by producer goods(intermediate materials including semiconductors and liquid crystals), almost reaching the lowest
level since 1990. Tertiary industry activity has also leveled off, while construction activity remains
sluggish. The industrial investment cycle is well into an adjustment phase, which began in early2001 mainly due to falling shipments. From a cyclical perspective, a recovery is not expected until
at least early 2002. Employment conditions are likely to worsen in the short term as theunemployment rate continues to record successive highs due to structural unemployment(mismatch between supply and demand) and as production is restructured to cope with
globalization. The situation will likely worsen as structural reforms including the writing-off of
non-performing loans continue.
On the demand side, there was nothing to offset the deteriorating economic performance:
exports declined across the board to the US, Europe and Asia; consumption remained sluggish;and plant and equipment investment showed signs of weakness.
Personal consumption, which has been declining due to concerns about the future, including
the budget deficit and pension problem, is expected to remain weak as income and employment
conditions worsen. Plant and equipment investment has tended to fall in parallel with exports,
after a weak recovery from late 1999 that was led solely by IT-related industries. The leading
indicator points to a continued downtrend at least until the first half of 2002. Although housing
investment was boosted by tax relief measures for new housing introduced in 1999, it has again
begun to decline mainly due to falling investment in owner-occupied houses. Public investment islikely to continue falling in view of the on-going budget reforms. Exports have been decreasing
substantially. Meanwhile, the diminishing domestic demand caused imports to fall in early 2001,
after consecutive increases due to structural factors, mainly from China.
In the financial sector, despite the quantitative monetary easing policy adopted by the Bankof Japan (which will be continued until consumer price inflation stabilizes above zero),commercial banks continue to invest their assets in the relatively low-risk government bonds tothe detriment of lending. Yields on government bonds remained almost on a par, with concerns
about the budget deficit offsetting the increase in investment. Consumer price deflation has
clearly set in, with industrial product prices falling since late 1999. Thus, the quantitative
monetary easing policy will be maintained for some time.
2. The Japanese economy is currently suffering increasingly serious cyclical and structuraladjustments under deflation, and concerns about the sustainability of the economy are mounting.
Despite this, there are prospects of evolution in some industries that are adapting to the newenvironment. This report examines the possibility that a new dynamism will emerge frommeeting the four challenges facing the Japanese economy: the weak potential for recovery of theDevelopment Bank of Japan Research Report/ No. 22 iii

corporate sector; the shrinking trade balance; the malfunctioning of financial and capital markets;and the saturation of household expenditure.
First, the corporate sector may recover as a result of business restructuring. For example, therecent improvement in performance in transport equipment is largely due to substantial
reductions in production capacity and the consequent rise in operating rate. Increased liquidity ofcorporate assets, which can be observed across all business categories and corporate scales, will
also have a stimulatory effect through the efficient redistribution of resources. Furthermore, theindustrial structure has been changing dynamically even in recent years, chiefly in response totechnological innovation, changing consumer preferences, as well as to deflation anduncertainties.
Second, the recent decline in trade surplus, which has caused much concern, may be
attributed to cyclical factors including IT goods, rather than to structural factors. Thus, exports
increased steadily even in the latest period for high value-added products. The accession of China
to the WTO should create substantial business opportunities, including increased exports thanks
to custom tariff reductions as well as direct investment. The domestic industry should strengthen
its export competitiveness and specialize in the development and production of high value-added
products.
Third, concerns about the malfunctioning of financial and capital markets may be addressedby swiftly improving access to stock markets for venture firms and other emerging businesses,
including the relaxation of listing requirements on JASDAQ in late 1998 as well as the creation of
TSE MOTHERS in late 1999 and Nasdaq Japan in June 2000. Also, M&A is progressing in Japanfor improving the efficiency of managerial resources, as established firms continue to restructure
their businesses.
Fourth, changing housing preferences, the recycling of durable goods and the importance ofinvestment in human resources should be noted regarding concerns about the saturation ofhousehold expenditure. As regards housing, houses for rent, used houses and housing renovation
will become more important markets, to the detriment of new and owner-occupied houses. It
was found that the Japanese used house market has more room for development than in the US.
Likewise, used markets are also likely to develop not only for automobiles but also for otherdurable goods including through Internet auctions.
Concerning investment in human resources, expenditure on children’s education has been
rising strongly since the 1990s, and there is a strong willingness to spend money on lifetime
education. A system for evaluating the quality of education will be needed to ensure that such
willingness will materialize into actual spending. Finally, it is important to note that greater
equality of information between suppliers and users will help improve efficiency through theredistribution of resources, which in turn will improve the social welfare through broader choices
for consumers.

iv Development Bank of Japan Research Report/ No. 22

I

The Japanese Economy Amid Serious Adjustment

1. Overview: Continued Drop in Production with a Risk of Further Decline (see p. 25
for figures)
The Japanese economy remains in recession1. Production continues to slide, affected by thestagnant US economy and the deterioration of markets related to information technology (IT).
On the demand side, the adjustment has become increasingly painful with nothing to offset thedeteriorating economic performance. In addition to the declines in exports and capital
investment, consumption, which had remained relatively firm despite some weakness, has now
begun to fall as a result of the worsening employment situation. Looking ahead, aggregate
demand is likely to decline further due to global political and economic instability following theterrorist attacks in the US. Although inventories have been reduced in some industries, theoutlook for adjustment in the months ahead remains bleak.
Real GDP for fiscal 2000 grew 1.7% from fiscal 1999 (up 1.9%), a second consecutive yearof positive growth. The 0.1% drop in consumption from the previous year was no more thanoffset by increases in exports (up 9.4%) and plant and equipment investment (up 9.3%). In fiscal
2001, however, real GDP recorded the first year-on-year decline in nine quarters in the AprilJune period (down 0.4%) as exports fell. Negative growth continued in the July-September
period, down 0.5% on the previous year (Figure 1-1).
By demand component, private final consumption expenditure has declined slightly due tothe deterioration of income and employment conditions. Real private consumption in fiscal 2000
declined for the first time in three years, but by only 0.1%, as stronger corporate profits did nottranslate into higher household incomes. In nominal terms, it declined for the first time since
fiscal 1981 (down 1.3%) under the current standard. Despite expectations, incomes have notgrown and consumption has not recovered so far in fiscal 2001. Thus, seasonally adjusted real
private consumption declined on the previous quarter for two straight quarters from the AprilJune 2001. The quick response of the corporate sector to the expected decline in profits has
impacted not only overtime pay and the ratio of job offers to applicants, but also on lagging
indicators such as regular wages and salaries, bonus and unemployment rate. Concerns about theworsening employment situation are also affecting consumer confidence and may lead to further
declines in consumption.
Plant and equipment investment is on the decline on a quarterly basis. Investment in fiscal
2000 increased in real terms for the first time in three years (up 9.3%), thus leading the second
consecutive annual GDP growth along with exports. On a quarterly basis, however, signs of aslowdown were already apparent in January-March 2001, as seasonally adjusted real investment
recorded the first decline in seven quarters, following the slump in IT-related markets whichstarted in the autumn of 2000. Although preliminary GDP data indicates an increase ofinvestment for a second consecutive quarter since April-June period, other data including theStatistical Survey of Incorporated Enterprises and the shipments of capital goods suggests thatplant and equipment investment continued to fall. The weak trend is expected to continue forsome time as machinery orders, the main leading indicator, continue to decline, particularly in the
manufacturing sector, affected by substantial downward revisions to closing accounts andinvestment plans.
Housing investment remains low. Investment in fiscal 2000 declined 1.5% in real terms,
mainly for owner-occupied houses, as the inflationary effect of the housing loan tax reduction
subsided. In fiscal 2001, investment continued to fall on the previous year in real terms, down
1

The most recent peak of the Japanese economy is estimated to have been around October 2000.
Development Bank of Japan Research Report/ No. 22 1

9.4% in April-June and 7.7% in July-September. In addition to the falling investment in owneroccupied houses, investment in condominiums for sale, which remained relatively firm, showedsigns of weakness such as the decline in contract rate and increased inventories. Overall, housing
investment is expected to remain weak in the months ahead.
Reflecting financial difficulties, public investment remains subdued. In fiscal 2000, it fell forthe second straight year, recording the biggest drop since fiscal 1981 under the current calculation
standard of 7.4%. On a quarterly basis, public investment has been declining since OctoberDecember 1999 (year-on-year change in real terms, excluding January-March 2001, wheninvestment did not change on the previous year). It represented 6.5% of GDP in July-September
2001, showing a substantial drop from about 8% in early 1999 (in seasonally adjusted nominal
terms). Investment by the central government will decline further, due to its budget reform policy
including the ¥3 trillion cap on bond issues, as well as by local governments, which are in
financial difficulties.
Exports declined both to Asia and to Europe and the US. Although exports in fiscal 2000
recorded the biggest increase in real terms since fiscal 1984, up 9.4%, they fell from the previous
quarter in seasonally adjusted real terms in October-December 2000. The downtrend has
accelerated so far in fiscal 2001 as the recession in the US has begun to affect European andAsian economies. Thus, exports in April-June dropped in real terms from the previous year for
the first time in eight quarters, followed by a much sharper drop of 10.1% from the previous year
in July-September.
Imports are also declining. Although they increased strongly by 9.6% in real terms for fiscal
2000, there was a slowdown toward the end of the fiscal year due to the domestic recession,
followed by the first decline in ten quarters in July-September 2001.
In fiscal 2000, the contribution of net exports (real terms) remained positive for the fourthstraight years. On a quarterly, year on year basis, however, it turned negative in January-March in2001 as exports started to slow down earlier than imports. Prospects for the US economy, on
which exports depend, have become increasingly uncertain following the terrorist attacks.
Coupled with the structural factor of increased imports due to the transfer of production facilities
overseas, some pessimists suggest that the negative contribution of net exports will continue oreven worsen, forcing the Japanese economy to make even more painful adjustments.
The Cabinet Office, in its revised economic outlook for fiscal 2000 (published on November
9, 2001), revised downward its estimate of real GDP growth for fiscal 2001, from the original
1.7% defined in the government outlook (Cabinet Meeting Decision on January 31, 2001) to
0.9%, thus predicting the first negative growth in three years.
To confirm this change in GDP from the supply side, Figure 1-2 shows the trend of major
production indicators covering the activities of all industries; industrial production index(weighted 22.4%), tertiary industry activity index (59.5%) and construction activity index (8.1%),
all seasonally adjusted.
The industrial production index turned down in January-March 2001, with reduced demandfor electric machinery and other IT-related industries affecting the production of producer goods.
IT demand showed no signs of recovery with sharper drop of capital goods affected by stagnant
plant and equipment investment, and the index dropped substantially for three straight quarters
to July-September 2001, down 4% approximately in each quarter (an annualized rate of about17%). This level is already lower than the trough recorded in the previous recession. An estimatebased on the Forecast Survey on Manufacturing Production indicates a drop of about 2.4% for
the following October-December period. Since the survey estimates tend to be revised
downward to better reflect actual performance, a sharper drop may be expected.
The tertiary industry activity index has leveled off mainly due to the decline in services and2 Development Bank of Japan Research Report/ No. 22

wholesale/retail sector against the backdrop of shrinking corporate activities and sluggish
consumption, recording a decline for two straight quarters (first time since January-March 1995).
The overall slump has also cast a shadow over leading industries. For example, the index forcommunications, an industry that previously led the tertiary sector with sustained growth, hasdeclined for four straight months.
Despite a temporary recovery in January-March 2001, mainly attributable to the progress of
public works projects, the construction activity index has remained low, reflecting the underlying
weakness of both private and public demand.
2 Substantial Decline in Shipments and Protracted Inventory Adjustment (see p. 26 forfigures)
On a graph with the year-on-year growth of inventories plotted on the horizontal axis and that ofshipments on the vertical axis, the level of inventories is empirically known to move in clockwise
circles. This confirms the existence of the inventory cycle: although producers try to adjust
production to shipment volume, the time lag between noticing a change in shipment growth inparallel with the economic cycle and the subsequent adjustment of production volume causes
swings in the inventory level.
For instance, when shipments grow in parallel with the economy, producers intentionallybuild up inventories by increasing production to avoid missing emerging business opportunities(intentional buildup phase). Subsequently, the growth of inventories exceeds that of shipments as
the economy peaks out (crossing the 45-degree line in the first quadrant from upper left to lower
right). This means that inventories, despite the efforts of producers, continue to increase above areasonable level (unintended accumulation phase). Further recession, hence further decreases inshipments, forces producers to cut back production at a pace faster than the decline in shipments
until inventories fall to a reasonable level (inventory adjustment phase). As the economy
subsequently bottoms out and shipments start to recover, however, inventories will then decrease
faster than shipments (crossing the 45-degree line in the third quadrant from lower right to upper
left), which means an unwanted reduction in inventories by producers (recovery phase). Realizingthat inventories have fallen below a reasonable level, they start to increase production again. This
creates the inventory cycle consisting of the above four phases.
According to this concept, the inventory cycle for the mining and manufacturing sector(Figure 1-3) as of July-September 2001, indicates that the increase in inventories slowed
somewhat due to reductions in some industries and for some products, while the decline inshipments as a whole accelerated to double figures. The locus of the current cycle on the graphstayed inside the previous cycle until April-June 2001, implying that the current adjustment would
be relatively mild. However, it moved outside the locus of the previous cycle toward the bottom
in July-September, thus revealing the characteristics of the current cycle, i.e. modest growth ofinventories and substantial drop in shipments. In the previous cycle, the locus began to turntoward the third quadrant in April-June 1998, and crossed the 45-degree line in three quarters toenter the recovery phase. In the current cycle, the slower pace of adjustment (weaker turn)
indicates that the adjustment is going to be protracted mainly due to shipment (demand) factors.
By type of goods, the shipments of capital goods (Figure 1-4) recorded a substantial drop ofover 8% from the previous quarter (annual rate of about 30%) in the recent two quarters due tooverall controls on plant and equipment investment. The year-on-year decline also reacheddouble figures in July-September 2001. Inventories grew only slightly from the previous year, up
1.0%, implying a quick response in terms of production adjustment. As regards construction
materials (Figure 1-5), there has been a sharper decline in shipments – though milder than for
capital goods – due to the sluggishness of construction investment in private housing, private
Development Bank of Japan Research Report/ No. 22 3

non-housing and public demand. The growth of inventories has accelerated slightly. Concerning
consumer goods (Figure 1-6), shipments continued to decline due to reduced exports of durable
goods and sluggish domestic consumption, but inventories grew very little. As for producer
goods (Figure 1-7), shipments started to decline earlier than for final demand goods, due to thedeterioration of IT-related markets. The locus of the current cycle has stayed outside that of theprevious cycle, reflecting the seriousness of the adjustment. However, inventories have beenadjusted somewhat, as they fell below the previous year’s level in July-September 2001 in someindustries and products including the electric machinery related and semiconductor integrated
circuits, which had experienced the sharpest drop in demand among producer goods.
Nonetheless, the decline in shipments has accelerated for all producer goods, including theindustries and products mentioned above, and so the ongoing adjustment process may be
protracted still further.
3. Employment Conditions: Deteriorating (see p. 27 for figures)
Employment conditions are deteriorating in response to the production decline. Figure 1-8
shows the ratio of job offers to applicants dropped to 0.59 in the most recent period (JulySeptember 2001) after peaking at 0.65 in October-December 2000. This was partly because thenumber of job seekers increased but job offers are also weakening; job offers in the
manufacturing sector has dropped below the previous year’s level for two consecutive quarters,
and the increase of the offers in services and wholesale/retail is getting smaller. The
unemployment rate exceeded 3% in January-March 1995 and 4% in April-June 1998, and now it
rised over 5% in July-September 2001,. The figure is the lowest since 1953, the earliest year forwhich comparable data are available. The deterioration of employment conditions in the autumn
is particularly significant after witnessing some increase in job offers and stable unemployment
rate during the summer.
Figure 1-9 shows the trend of the number of unemployed. It reached 3.43 million in JulySeptember 2001, up 290,000 from the previous year. Regarding reasons for unemployment,
involuntary severance (at the employer’s convenience) resumed to increase. Also, voluntary quit
for personal reasons increased for the two consecutive months, partly due to they become more
selective especially among young workers, but also due to the rise in voluntary retirement as early
retirement is treated favorably.
According to the Labor Force Survey, the number of the employed in July-September 2001
declined from the previous year for the second straight quarter, by 530,000. By industrial sector(Figure 1-10 (1)), the number of manufacturing fell for the second consecutive quarter (520,000
decrease in July-September)2, and for the third consecutive quarter in construction (down260,000). Although the number employed in the service sector increased for the eighth straightquarter (up 490,000), the increase was smaller and not sufficient to offset the decreases in othersectors. The trend by status of employment is shown in Figure 1-10 (2). The self-employed andfamily workers have decreased substantially for seven years at an annual rate of 4-5%. The
number of regular employees3 also fell in the most recent period, while the long-term increase intemporary and daily employees has slowed down. Finally, Figure 1-10 (3) shows the trend by sizeof corporation. The number of employees in large-sized firms dropped significantly, partly
because large numbers of manufacturers fall into this category. Recently, quite a few leading
companies announced plans to cutback their personnel in succession, and the employment
2

In the recent 12-month period, huge drops were recorded in the processing and assembly sub-sector including generalmachinery, electric machinery and transport equipment.
3
Regular employees are defined as “workers employed on contracts for over one year or for undetermined period.” Workers
who are employed on contracts for one year or less are classified into temporary and daily employees.
4 Development Bank of Japan Research Report/ No. 22

situation seems to be getting worse. Finally, Figure 1-11 indicates a decline for the third straightquarter in overtime hours, an indicator of short-term adjustments.
The long-term trend of the employment shift from manufacturing to services, or increasingrole of temporary workers are still under way. But the present changes are marked by thedecrease in self-employed and cutbacks in large-sized firms, if compared with the previous
downturn in 1998. However, the current trend cannot be understood as a transitional phasewhen restructuring economy unless we observe new job opportunities are created. Just how far
will the current adjustments continue?
4 Consumption: Weak due to Deteriorating Income and Employment Conditions (seepp. 28 – 29 for figures)
Figure 1-12 shows trends in wages and salaries per person according to the Monthly Labor
Survey. The total declined from the previous year in each of the two quarters in fiscal 2001. In
July-September, regular wages and salaries, overtime pay and bonus and special earnings all
declined, accumulated in an overall drop of 1.2% from the previous year. As shown in Figure 113, regular wages and salaries declined due to the record low rate of the annual wage increase inspring, as well as to the rising share of lower-paid part-time workers. By industry, construction
and transport workers are tend to be employed by hourly-basis, and experienced a greater decline
Bonus, which represents a major part of the “bonus and special earnings” heading (Figure 1-13),rose for the first time in six seasons in 2000, but then dropped in the following two seasons, i.e.
the winter of 2000 and the summer of 2001.4 Looking ahead, bonus prospects this winter are
bleak in light of the weakening corporate performance. The annual spring offensive for 2002 is
likely to result in a record low pay raise again, as the focus shifts toward securing jobs. Althoughfalling prices increase real purchasing power, the current income conditions and future prospects
continue to discourage consumption.
Total household consumption expenditure, a major indicator on the demand side, hasdeclined from the previous year so far in fiscal 2001. The growth rate adjusted for the shrinking
household size, etc. (Figure 1-14)5, indicates consecutive declines in nominal consumption
expenditure from 1999, with the only exception of October-December 2000. Although realconsumption is actually firmer due to the price drop, it has fallen from the previous year for two
consecutive quarters. Furthermore, the consumption expenditure of single-member households
has been declining since the beginning of 2000 at an even faster rate (down 6.3% in April-June,
down 2.9% in July-September).
In order to identify the factors behind the slumping consumption, Figure 1-15 breaks down
the year-on-year growth of real consumption spendings of workers’ households into threefactors: income (pre-tax income including regular wages and salaries, overtime pay and bonus),
tax and charges (income tax, inhabitant tax, social insurance premium, etc.) and consumption
propensity (ratio of consumption to disposable income, which is income minus tax and charges).6
Income has made a negative contribution almost continuously since 1998. In addition,
4

According to the Special Monthly Labor Survey, covering business establishments employing one to four workers, which
represent 15% of the work force, total wages and salaries in July 2000 declined 1.0% from the previous year, while bonus andspecial earnings in the recent 12 months dropped 3.7%, thus recording a sharper drop than in enterprises with 5 or moreworkers.
5Here, items that are not subject to direct spending by households (gifts and remittances) are excluded as well as automobiles,
which fluctuate widely. Data were then converted to those for four-member households to count out the influence of thedowntrend in the number of household members.
6
Due to wide fluctuation, the growth is broken down after calculating the moving average of the quarter and the following
quarter. The downtrend is all the more clear than in Figure 1-14 because no adjustment is made for the number of household
members, etc.
Development Bank of Japan Research Report/ No. 22 5

consumption propensity, which made positive contributions during the economic recovery phasefrom 1999, turned negative in fiscal 2001. In January-March 2001, consumption propensity
reached the highest level in four years at 73.2 (seasonally adjusted figure), largely due to theeleventh-hour demand before the implementation of the Recycling Law which charges to thedisposal of four major durables; tv, washer, refrigerator, and air conditioner. In the following
April-June period, however, it plummeted to 69.5 (seasonally adjusted) and is currently at arecord low.7
Among the supply indicators related to consumption, the retail sales index (January-March
1995=100; Figure 1-16) improved slightly from 2000 to January-March 2001, but has been
declining in fiscal 2001. By item, declines continued in textiles, clothing & personal goods andfoods & beverages partly due to falling prices. Retail sales were led by home appliances, thanks tothe surge in demand just before the Recycling Law was implemented, and by buoyant
automobiles sales, mainly of new models. Subsequently, however, retail sales declined for two
consecutive quarters as sales of personal computers suffered double-digit declines from theprevious year due to market saturation and price reductions.
Car sales (Figure 1-17) plummeted after the consumption tax hike but have recovered
gradually since the trough in January-March 1998. Sales increased during the last 12 months, led
by small-sized vehicles thanks to the successive launch of new models. On a monthly basis,
however, the volume has been lower than that of the previous year since September. Particularly
in October, the sales of small-sized vehicles, declined for the first time in 12 months. Although
new models will be launched in the months ahead, car sales will decline in the latter half of thecurrent fiscal year.
As regards tourism sales (Figure 1-18), the firm demand for overseas tours collapsed after
the terrorist attacks in the US, falling by as much as 25.7% in September and 46.1% in October.
Thus, total sales (the sum of domestic tours, overseas tours, and tours for foreigners) declined
0.6% on the previous year in the first half of fiscal 2001. Domestic tours remain relatively firm
despite falling unit prices, but the per person expenditure is only one fifth of that of overseas
tours, and so the shift from overseas to domestic tours will be insufficient to maintain total sales.
Although overseas tours only represent less than 1% of household expenditure,8 the negative
impact may spread further such as by postponing spending associated with tours, or reduced
purchase of clothing and other travel goods.
Finally, various questionnaire surveys reveal that consumer confidence is falling (Figure 1-19).
The consumer confidence index, which represents consumer outlook for the coming six months,
improved toward last summer buoyed by the start of the Koizumi administration, but declined
sharply in the most recent survey. Among the five components of the index, “employment” inparticular has declined for four straight quarters, thus lowering the whole index in the September
survey. Although it is difficult to compare consumer confidence survey data by levels, the trend
since 1990 indicates that “prices” are at the highest level (i.e. prices are falling), while the otherthree indicators – “overall livelihood,” “income growth” and “employment” – are at the lowest
levels. Even though falling prices are beneficial for consumers, this is more than offset by thedeteriorating consumer environment such as future income and employment. A similar trend canbe observed in the livelihood instability index. Reflecting the terrorist attacks in the US,7

Due to the so-called mad cow disease, the September Family Income and Expenditure Survey indicates a 20.3% drop from theprevious year in beef consumption expenditure, as well as the first decline in eight months in spending on fast-foodhamburgers. Although its impact on overall consumer spending has not been identified due to possible increase in demand foralternative products, the possibility of less active consumer attitude cannot be ruled out despite the difficulty of measuring any
such change in attitude.
8
In calendar 2000, an average two-member household spent ¥2,805,600 in total, of which overseas tours represent ¥25,614.
Incidentally, it spent a similar amount (¥26,140) on beef.
6 Development Bank of Japan Research Report/ No. 22

outbreaks of mad cow disease in the country and major bankruptcies, instability increased
substantially in the October survey and reached the highest level since the survey began.
Overall, consumption was poor during the economic recovery phase since 1999, partly
because income and employment conditions remained weak. Strong car sales, department store
sales and overseas tours were expected to prevent demand from falling as the economy moved
into a recession, but this did not happen. Income and employment conditions are deteriorating
rapidly and consumer confidence are sinking. In general, consumption is much more smooththan other demand components and has shown gradual increase as population and number ofhouseholds grow, but cannot be expected to grow for the time being.
5. Plant and Equipment Investment: Decreasing with No Sign of Recovery (see p. 30
for figures)
Return on investment, which is defined as operating profit-tangible asset ratio minus averagelending rate of banks on new loans according to the Statistical Survey of Incorporated
Enterprises, etc. is strongly correlated with the year-on-year growth of plant and equipment
investment (Figure 1-20). Empirically, the threshold return on investment vis-à-vis the change inplant and equipment investment is 5% for manufacturing and 2.5% for non-manufacturing.
The recent trend indicates that in the manufacturing sector, plant and equipment investment
rose in April-June 2000, a little later than the improvement in return on investment, and showeda strong increase of 22.6% in January-March 2001, which was almost as high as in the bubble era.
However, since peaking in October-December 2000, return on investment has fallen rapidly due
to the recession. In July-September 2001, it finally fell below the threshold of 5%, while plant andequipment investment declined for the first time in six quarters (down 2.7%), particularly inelectric machinery (down 17.2%). In the non-manufacturing sector, plant and equipment
investment has almost consistently sluggish compared to the return on investment since 1998, as
controls are still in place in industries facing strong pressure to reduce costs mainly due toderegulation. Since the latter half of 2000, investment has been weak despite fluctuating; returnon investment remains above the threshold but has leveled off. On a seasonally adjusted
quarterly basis, plant and equipment investment has been declining as a whole, since peaking in
October-December 2000.
Machinery orders (private demand excluding ships and electricity), which usually lead plantand equipment investment by approximately two quarters, fell substantially from the
manufacturing sector including electric machinery (down 20.5% from the previous year in JulySeptember 2001). Orders from the non-manufacturing sector stayed firm in 2001 despite therecession, but declined from the previous year for the first time in eight quarters in JulySeptember 2001 due mainly to the slowdown in communications. According to the Cabinet
Office outlook for October-December 2001, orders from manufacturing will decline further by
29.2%, the sharpest drop under the current standard (since April-June 1987). Although nonmanufacturing orders will grow by 2.2%, the figure may be revised downward because it wascalculated based on the good performance in the most recent three quarters. Based on trends inindustrial production and tertiary sector activity, machinery orders are considered to be still
falling, which implies that capital investment will continue to decline at least until the first half of2002.
6. Housing Investment: Decreasing (see p. 31 for figures)
Following a decline in October-December 1998, housing starts (seasonally adjusted annual rate)
have hovered around 1.2 million units since 1999, thanks to tax relief measures on housing loans(Figure 1-22). Figure 1-24 shows the trend since 2001 in detail. The construction of ownerDevelopment Bank of Japan Research Report/ No. 22 7

occupied houses declined from the previous year due to the deterioration of employment andincome conditions, as well as reaction to the eleventh-hour construction starts before thedeadline of the tax relief measures.9 Meanwhile, the construction of housing for sale remained
firm, and housing for rent, relatively small-sized properties in particular, rose. Construction starts
for owner-occupied houses have continued to fall 5% from the previous year since JanuaryMarch 2001.
The floor area of housing starts (Figure 1-23) has declined since January-March 2001. By
category (Figure 1-25), owner-occupied houses led the decline as in the case of the unit numberof housing starts. However, owner-occupied houses made a larger contribution to the drop in
floor area than in unit numbers, as they have a larger area per unit. Indeed, the floor area of
newly constructed owner-occupied houses has fallen 7.8% from the previous year since JanuaryMarch 2001.
Thus, housing starts (seasonally adjusted annual rate) have exceeded 1.2 million units since
1999, but real housing investment (seasonally adjusted annual rate) has fallen significantly since
January-March 2001, due to the reduction in floor area (Figure 1-26).
The construction of condominiums was buoyant in fiscal 2000 (Figure 1-27). Although highrise condominiums and other quality properties still sell very well, the fall in contract rate and therise in term-end completed inventories point to increased selectiveness among consumers as awhole.
7. Public Investment: Declining due to Financial Difficulties (see p. 32 for figures)
As a result of two economic stimulus packages in 1998 (totaling ¥40 trillion), in early 1998 public
investment (public capital formation, seasonally adjusted nominal value) reached its highest level
since 1996, exceeding 8% of GDP (seasonally adjusted nominal value) (Figure 1-28). It thendeclined to the level of 6-7% of GDP after July-September 2000, thought it rose temporarily
thanks to an economic renewal package (decision in November 1999, totaling ¥18 trillion).
In the most recent period, financial difficulties among local governments suppressed theirinvestment, which accounts for 70% of total public investment. The impact of those difficulties
has limited the effect of economic stimulus measures, by preventing local governments fromentirely implementing public works projects within the framework of the New Development
Policy (decision in October 2000, totaling ¥11 trillion). Thus, public investment is expected tocontinue to fall.
The contract value of public works, the leading indicator, recorded an increase of 11.7% in
fiscal 1998 thanks to economic measures. It then fell as projects by local authorities were scaled
back, declining by 9.1% in fiscal 1999 and by 12.9% in fiscal 2000 (Figure 1-29). It was still fallingin the most recent period, although the reduction in public works implemented by the central
government narrowed partly due to the effect of the New Development Policy.
While spending on public works has been decreased, annual revenue has also been declining
due to the recession, income situation and tax reductions, resulting in large budget deficits inboth the central and local governments. As budget deficits have been covered by central andlocal government bond issues, outstanding public bonds have increased sharply, and outstandingof total long-term debts is expected to reach ¥666 trillion by the end of fiscal 2001, or about
130% of GDP (Figure 1-30).
Although a supplementary budget was prepared in November 2001, additional spending
9

The eleventh-hour construction starts may have resulted from the fact that the original housing loan tax reduction measures(applicable to those who moved into the new houses before the end of June 2001) were more beneficial than the so-called newtax reduction measures (applicable to those who move into the new houses between July 2001 and the end of December 2003)
in terms of the period of deduction and the total amount covered.

8 Development Bank of Japan Research Report/ No. 22amounts to just over ¥1 trillion (of which central government expenditures related to public
investment account for ¥0.5 trillion) (Figure 1-31). Also, the second supplementary budget, to besubmitted to the Diet in January 2002, envisages additional spending of only ¥2.5 trillion, as the
Koizumi cabinet remains committed to keeping the central government bond issues to within¥30 trillion. Thus, public investment will continue to be tightly controlled, in contrast to its large
growth in the post-bubble period.
8. Exports and Imports: Both Dropping (see p. 33 for figures)
Figure 1-32 shows the trend of the real effective exchange rate of major currencies. The yen
remained weak following its depreciation in January-March 2001. The US dollar slightly
appreciated until April-June 2001, but in the following July-September period, the rise of thedollar slowed along with the US economy. The euro continued to depreciate until November
2000, but rebounded from December and rose substantially in January-March 2001 mainly due toconcerns about the slowing US economy, then stabilized.
How have Japanese exports and imports performed in this foreign exchange environment?
Figure 1-33 shows the trend of export and import volumes in terms of seasonally adjusted
monthly index. Export volume has fallen significantly so far in 2001, as overseas economies haveslowed. The growth of import volume slowed down in early 2001 and then reversed, reflecting
the slowdown of the domestic economy.
Figure 1-34a shows export volume by countries. Exports to the US have declined
continuously since January-March 2001. Exports to Asia, which led the growth of net exports in1999 and 2000, recorded significant drops from the previous year since January-March 2001, as
the slowing US economy affected the Asian economy due to large falls in demand for IT-related
goods. Exports to the EU also declined mainly due to the slowdown in the German economy.
Figure 1-34b shows the trend of shipments for export by type of goods according to Indicesof All Industries published by the Ministry of Economy, Trade and Industry. In April-June 2001,
shipments of capital goods grew, led by general machinery exports to China, while shipments ofproducer goods including semiconductor integrated circuits plunged, along with consumer
durable goods including automobiles.
The decline in import volume (Figure 1-35a) since April-June 2001 was largely due toreduced imports from the US. Imports from Asia also fell in the same period after growing
strongly.
Figure 1-35b shows the trend by type of goods according to Indices of All Industries.
Imports of consumer durable goods increased from the previous quarter in April-June 2001, led
by VCRs, for which production facilities have been transferred overseas. Meanwhile, imports ofthe production goods decreased from the previous period for two consecutive quarters, inJanuary-March and in April-June. This was largely due to falling imports of semiconductor
integrated circuits caused by the decrease in demand for personal computers.
9. Lending Declines under Low Interest Rates through Quantitative Monetary Easing(see p. 34 for figures)
In terms of financial policy, additional measures for quantitative monetary easing have been
implemented through massive funding of short-term financial markets since March 2001, whenthe quantitative monetary easing policy was first introduced by shifting the target of guidancefrom the inter-bank overnight lending rate (unsecured call) to the current account balance of the
Bank of Japan (Figure 1-36). Thus, the target for the BOJ current account balance was raised
from ¥5 trillion to ¥6 trillion in August, by taking measures to increase the monthly amount ofgovernment bond buying operations from ¥400 billion to ¥600 billion. Following the terrorist
Development Bank of Japan Research Report/ No. 22 9

attacks in the US in September, the guidance target for the current account balance was officiallystated to be ¥6 trillion or over, and the funds for yen-selling intervention in foreign exchange
markets were unsterilized.
In the financial markets, the inter-bank overnight lending rate (unsecured call) was guided to
the level of 0.25% for six months following the temporary abandonment of the zero-interest
policy in August 2000. Since then, the rate has returned to almost zero, reflecting the reduction in
the target rate in February 2001 and the effective reintroduction of the zero-interest policy withthe adoption of the quantitative monetary easing policy in late March.
Yields on three-month CDs (ask), which are representative of short-term interest rates, roseslightly in late 2000 due to the suspension of the zero-interest rate policy and seasonal demand
for funds in the year-end period. However, yields have remained around 0.1% in general after
actually restoring the zero-interest policy in February 2001. Meanwhile, yields on 10-year
government bonds, an indicator of long-term interest rates, rose to almost 2% in September 2000,
following the suspension of the zero-interest policy, but then fell again. They fell twice below
1.2%: in March 2001, due to concerns about rapid recession as symbolized by the collapse inshare prices; and in June, due to the expectation of government bond issue reduction throughfiscal reconstruction to be implemented by the new Koizumi cabinet. The yield was 1.3-1.4% in
the most recent period, as the market weighed concerns about the budget deficit against thedifficulty of investing elsewhere.
The monetary base fell from the previous year in late 2000 and early 2001, in reaction to themassive supply of funds related to the potential Y2K problems, followed by accelerated growthreflecting the quantitative monetary easing policy. It recorded significant increases of 14.2% inSeptember and 14.3% in October (Figure 1-37). The growth of money supply (M2+CD) from theprevious year dipped temporarily to around 2% in the latter half of 2000, but accelerated
thereafter, reaching around 3.5% in the latest period. The credit multiplier, which is the money
supply divided by monetary base, reached 13 in early 1999, but dropped below 9 in the latest
period, as the monetary base grew faster than the money supply. Staying at almost the lowest
level since 1970, it undermines the effect of the current financial policy.
On the credit side, the increase in M2+CD is largely attributable to the purchase ofgovernment bonds as well as to the significant increase in foreign bond purchases in the mostrecent period. The slow increase in money supply can therefore be explained primarily bydecreases in other factors including lending to the private sector (Figure 3-38). Outstanding
commercial bank loans have decreased from the previous year since 1998. In the latest period,
they declined about 2% from the previous year after adjustments for special factors (Figure 1-39).
Thus, commercial banks, with increased deposits, are avoiding the credit risk inherent in newloans and allocating their money in stable assets including government bonds.
10. Downturn in the Wholesale Prices and Continued Decline in the Consumer Prices(see p. 35 for figures)
International commodity prices (excluding crude oil) (Figure 1-40) fell in January-March 2001
due to weakness in the markets. Demand declined as the world economy stagnated, and supply
increased for some commodities including coffee, following good harvests.
The Wholesale Prices of domestic demand goods (weighted average of domestic and importprices) continued to rise as a whole until April-June 2001, with upward pressure coming fromraw materials, mostly imports, due to foreign exchange factors, and rising crude oil prices
offsetting weak demand for intermediate goods. However, they then fell in July-September as theeffect of crude oil prices on intermediate goods waned.

10 Development Bank of Japan Research Report/ No. 22

The Consumer Price Index10 (excluding fresh foods) has declined year-on-year since 1999,
with steeper drops since October-December 2000, and the trend was the same in the most recent
period. By component, goods prices (agricultural & aquatic products and industrial products)
have been falling from the previous year, with a sharper decline in July-September 2000. The
decline is largely attributable to falling industrial product prices resulting from technologicalinnovation and loose markets. In the service sector, private service prices have been rising,whereas public service prices fell in October-December 2000.
The Corporate Service Prices Index (Figure 1-41) has been falling since 1999. In the latest
period, downward pressure came from leasing and rental prices including information equipment,
as well as from miscellaneous service prices including motor vehicle maintenance and machinery
maintenance.

10

The base year for consumer price index was changed to fiscal 2000, with items such as personal computers and overseas
package tours newly added in calculating the index. This revision serves to better reflect the composition of household
consumption.
Development Bank of Japan Research Report/ No. 22 11

II The Japanese Economy under Deflation and Prospects of Evolution
1. Concerns about the Japanese Economy and Prospects of Evolution (see p. 36 forfigures)
The trend of the Japanese economy since 1990 is shown in Figure 2-1 in terms of real GDP(production) and GDP deflator (prices). Since the period of disinflation between 1994 and 1996,
the deflator has continued to decline regardless of the economic cycle, a decline that has
accelerated since 1999 due to both supply and demand factors.11
The Japanese economy fell into recession again without escaping from this deflation. As
production continues to fall and the trade surplus continues to shrink despite the sluggish
domestic demand, concerns are resurfacing about the possibility of a deflationary spiral (a vicious
cycle of declining production and falling prices). As the real debt burden rises as deflation
accelerates, some pessimists suggest that the Japanese economy is unsustainable in terms of nonperforming loans and budget deficits. Uncertainty about the future may cause businesses andhouseholds to become increasingly cautious about spending and increase their preference forliquidity.
Despite such concerns, individual industries appear to be adapting to the new environmentof deflation, uncertainty and changes in international division of labor. This chapter examines theprospects of evolution according to statistical data, addressing four typical concerns about theJapanese economy (Figure “Typical Concerns about the Japanese Economy and Prospects ofEvolution”):(1) Can the corporate sector recover on its own?
(2) Will the trade surplus keep shrinking?
(3) Are financial markets malfunctioning?
(4) Has household expenditure saturated?
The discussion reveals that the difficulties facing the Japanese economy will provide
opportunities for new dynamism, and will thus encourage reasonable and appropriate economic
policies to be taken.
2. Trends of Business Restructuring and Prospects of Revitalization of the Corporate
Sector (see p. 37 for figures)
As the macroeconomic adjustment became increasingly serious, the performance outlook andcapital investment plans for fiscal 2001 were greatly revised downward in IT-related industries.
Nevertheless, some industries appear to be standing firm, including automobiles and chemicals,
the so-called “old economy” sectors during the IT boom. As some evidence of the potential of
the corporate sector to recover, this section examines the progress and effects of businessrestructuring.
According to industrial statistics, the domestic production capacity index of the
manufacturing sector has been declining since peaking in late 1997, down 5% from the peak as ofJuly-September 2001. Figure 2-2 decomposes the year-on-year change in operating rate index into
the contribution of production change and that of capacity change. It is clear that the reduced
capacity has consistently supported the operating rate since 1998, although its contribution ineach quarter was not necessarily large. By industry, recently the operating rate has plunged inelectric machinery as the booming market of the previous year reversed, resulting in a rapid
11

For detail, see Development Bank of Japan, “Recent Trends in the Japanese Economy: The Japanese Economy under
Deflation” Sections II-2 and II-3, Research Report No. 19, August 2001.

12 Development Bank of Japan Research Report/ No. 22

decline in production. In transport equipment, the operating rate has been rising thanks to large
cutbacks in production capacity, following the rapid business restructuring in line with maturing
demand. This has contributed to the performance of the industry in the latest period.
The progress in business restructuring can also be explained in terms of increased liquidity ofexisting assets. By defining the liquidity indicator as the amount of sold, lost or transferredtangible fixed assets (excluding construction in progress and land) appearing in the Statistics ofIncorporated Enterprises,12 Figure 2-3 shows the trend of its ratio to the amount of investment
in new equipment by size of corporation. In large- and medium-sized firms, the ratio generally
showed a cyclical movement within a certain range in the 1980s, followed by a consistent rise in
the 1990s. It rose abruptly around 1993 and 1999 in the manufacturing sector, and has shown nosign of resuming the previous level despite subsequent increases in investment in new equipment.
The liquidity indicator bottomed around 1991 in non-manufacturing, followed by a steady rise
regardless of the change in investment amount. In small-sized firms, the overall trend is similar,
with the exception of disruptions such as a discontinuity in the manufacturing sector in 1997 dueto the change in minimum capital requirement for stock companies, and a rise in the ratio in nonmanufacturing in 1998 due to substantial drop in investment caused by harsh financial conditions.
It is hoped that this increased liquidity in corporate assets will help stimulate the corporate sector
through the redistribution of resources to more efficient industries and businesses.
The coincidence/lagging ratio of Business Condition CI (composite index) is a long-term
leading indicator (leading indicator of leading indices) and is considered particularly reliable inpredicting an economic trough.13 The reason for the coincidence/lagging ratio to exhibit thenature of a long-term leading indicator may be explained in various ways. One of the mostwidely-known explanations suggests that the ratio is a proxy variable of corporate profits (in thenear future), as the coincidence CI mainly consists of production index and other indicators
related to corporate sales, while the lagging CI principally comprises capital investment,
unemployment rate and other indicators related to corporate fixed costs. A comparison between
the coincidence/lagging ratio and annual change in ordinary profits of incorporated enterprises14
reveals that the two have almost moved in parallel since the 1980s. In a recession, when the
coincidence CI declines, the coincidence/lagging ratio bottoms as the lagging CI falls faster thanthe coincidence CI. This phenomenon reflects an autonomous mechanism, in which businessrestructuring accelerates the growth in profits as production bottoms out, thus providing
momentum for economic recovery.
The coincidence/lagging ratio has risen for two straight quarters since bottoming in JanuaryMarch 2001. Although the possibility of a double bottom could not be denied based on pastexperience, the trend of the ratio suggests that underlying profitability of businesses may improvethrough prompt restructuring.
3. Incessant Transformation of Industrial Structure (see p. 38 for figures)
From the viewpoint of product life cycle, the growth of production activities in specific industries
or for specific products and services is considered to be slow down and then reverse over time
due to factors on the demand side (changing consumer preferences, market saturation, theemergence of alternative products, etc.) as well as on the production side (technological advances,
12

This analysis is based on a simplified method, because a precise liquidity indicator would require that selling be separated fromloss, and that selling be limited to transfer to other domestic firms. Transfer included in “the amount of sold, lost ortransferred tangible fixed assets” means the transfer from the principal account of tangible assets to other accounts, andusually stands for a negligible amount.
13
For more information about the coincidence/lagging ratio, see, for example, Ichiro Shirakawa, Keiki Junkan no Enshutsu-sha(Directors of Economic Cycle), Maruzen Library, 1995, pp.67-69.
14
In the time series trend of economic variables, the movement of change (growth rate) leads that of level.
Development Bank of Japan Research Report/ No. 22 13

changes in cost competitiveness, etc.). Therefore, for sustained macroeconomic growth, theindustrial structure must change with new industries, goods and services incessantly emerging.
This section shows that a dynamic industrial structure has been created in response to various
changes in environment, despite the sluggish macroeconomic conditions since the late 1990s.
The industrial production index by product (477 products15, 1995 average=100, seasonallyadjusted) for July-September 2001 represents the cumulative growth rate for each product since1995. When multiplied by the share of each product in industrial production (based on theamount of value added in 1995), it reveals the approximate contribution of each product to the
cumulative growth rate of the total industrial production index (1995 average=100, JulySeptember 2001=94.4).16 Figure 2-5 shows the top 20 products that made the most positive
and negative contributions to the cumulative growth rate thus calculated.
The data shows that positive contributions mostly came from portable phones, personal
computers and other IT-related products including producer goods such as active liquid crystal
devices and lithium ion batteries, due to higher demand for portable phones and personal
computers. The production index for electric machinery as a whole was 103.9 in July-September
2001, just over the 1995 average, due to the rapid decline in IT-related demand. In the long term,
however, these products are still typical growth categories, and reflect a rapid growth in demand
due to technological progress. Similar examples can be found in optical fiber products for wires
and cables, digital color copiers, car navigation systems and applied electronic toys (household
game machines).
A review of the products making negative contributions bears witness to the rapid change inindustrial structure in IT-related fields against the backdrop of technological innovation andchanging cost competitiveness. For example, semiconductor integrated circuits (memory devices),
where competitiveness has been lost recently, provide the most negative contribution, while
semiconductor integrated circuits (logic devices) are among the top positive contributors.
Examples of technical innovation include changes accompanying digitalization – from cathoderay tubes (decline) to active liquid crystal devices (increase) and from electrostatic indirect copiers(decline) to digital color copiers (increase) – and changes accompanying progress in software,from word processors (decline) to personal computers. Among the products not included in thenegative contributors due to their smaller share is pagers, the production index of which has
dropped to zero as pagers have been completely replaced by portable phones.
In non-IT industries, there have been interesting changes in response to changing consumer
preferences. In passenger cars, medium and small sized vehicles are among the negative
contributors, while large sized passenger cars (including recreational vehicles) and midget
automobiles17 are among the positive contributors. This reflects the bipolarization of demand
from medium and small sized sedans to large sized recreational vehicles or compact cars. Also,
the positive contribution from plastic containers (hollow-molded) is due to the shift in preference
for drink containers from cans to PET bottles.

15

Excludes the industries for which data by product are not published (rolling stock, pharmaceuticals, foods & tobacco, wood &wood products, newspaper and publishing).
16
Cumulative contribution in a strict sense must be calculated using the share in each of the quarters since 1995. A simplified
method is used for the purpose of this report.
17
The increase in demand for midget automobiles has much to do with the introduction of a stringent collision safety standard in
October 1998 and the accompanying change in specifications (enlargement of vehicle size).
14 Development Bank of Japan Research Report/ No. 22

The products covered by the industrial production index are revised every five years when
the standard is reviewed. Among the top 20 positive contributors, four products - lithium ion
batteries, digital color copiers, car navigation systems and chillers for passenger car airconditioners – were newly added in the latest revision (in 1997). Despite the total index ofindustrial production remains below the 1995 average, industrial structure has gone through adynamic transformation in response to the changing environment such as technologicalinnovation, change in cost competitiveness and change in consumer preferences.
Likewise, the industrial structure is changing in non-manufacturing, as shown by calculating
the cumulative contribution using the tertiary industry activity index by industry (92 industries,18
1995 average=100, average of the original data for the recent 12 months19) (Figure 2-6). A
comparison between the major positive and negative contributors indicates trends such aschanging consumer preferences (from clothing retail to mobile communication, fromfood/beverage retail to restaurants), transition from ownership to rental due to deflation anduncertainty (from real estate sales & brokerage to real estate rental), the growth of the software
industry and the bypassing of wholesalers.
4. Reduction of Trade Surplus due to Sluggish World IT Market (see p. 39 for figures)
Since early 2001, Japanese exports have fallen even faster than imports, resulting in a continued
year-on-year decline in the trade surplus. This section examines whether this trend is cyclical or
long-term in nature.
The current decline in trade surplus on the previous year started in April-June 2000. Does
the current decline involve different factors from the decline in past drops in trade surplus?
Figure 2-7 breaks down the amount of trade balance on a customs clearance basis into fivefactors: export volume, export price, import volume, import price (excluding mineral fuels) andthe import price of mineral fuels. As an example of the decline in trade balance in the past, wefirst examine the period between April-June 1987 and July-September 1988. The Japanese
economy was expanding during this period as domestic demand increased. Import volume rose
consistently faster than export volume, thus reducing the trade surplus. Price changes subsided
compared with the preceding period of rapid yen appreciation, making no significant
contribution to the trade balance. The shrinking of the trade surplus stopped between JulySeptember 1988 and April-June 1999, as export volume increased to the growing Asian
economies.
The trade surplus also declined from July-September 1994 through January-March 1997.
During this period, import volume continued to increase on the back of the strong yen and risingforeign direct investment, as the Japanese economy recovered slowly. Meanwhile, export volumecontinued to increase until July-September 1995 but then slowed, leading to a sharper drop in the
trade surplus. Although the Japanese economy fell into recession in January-March 1997, thetrade surplus started to increase as exports to buoyant Europe and the US supported theeconomy.
First, the current decline in trade surplus is marked by a large increase in import volume
from January-March 1999. The growth of imports from Asia was particularly significant, perhaps

18

Four types of industrial classification are used for the tertiary industry activity index: large, medium, small and individual. The
individual classification is basically adopted for the purpose of this report, except that the lowest possible classification is used
when individual classification data are not available. Public corporations belonging to the finance/insurance industry are
excluded from the data, such as the Bank of Japan, and Postal Savings.
19
The average of the original data is adopted here, for seasonally adjusted values are not available for the individual classification.
Development Bank of Japan Research Report/ No. 22 15

due to the mild recovery of domestic demand and decline in the relative prices of imports.20
This increase in import volume contributed substantially to the decline in trade surplus until
January-March 2001. Up to the first half of 2000, the world economy grew rapidly as the US
economy remained firm and Asian economies recovered quickly from the currency crisis.
Consequently, Japanese exports increased substantially. By the autumn of 2000, however,reduced demand for personal computers and other IT-related goods in the US affected
production in Asia through falling demand for intermediate goods including semiconductors.
Thus, export volume plummeted to the US and Asia, both of which are major recipients ofJapanese exports. The recession in the US and Asian countries became increasingly serious in
2000, resulting in a sharp drop in Japanese exports, and hence a large decline in the trade surplus.
The current reduction in trade surplus is similar to the previous two reductions in thatimports increased as the Japanese economy recovered. In the previous cases, increased export
volume backed by buoyant overseas economies helped to halt the reduction in trade surplus
when the growth of imports slowed as domestic demand leveled off. In the current case,however, the decline in trade surplus was sharper because the economic slowdown was rapid andwidespread, particularly in the US and Asia.21
The current decline in trade surplus, particularly in April-June and July September 2001, islargely due to overseas economic conditions. Due to its cyclical nature, the trade surplus is
expected to rise again when the slowdown in overseas economies stops. The downturn in import
volume on the previous year in July-September 2001 may be attributed to the J-curve effect fromthe weak yen since October-December 2000, as well as to slumping domestic demand. Since the
US economy is likely to recover by late 2002, the Japanese trade surplus will keep shrinking until
then, regarding the above-mentioned cyclical factors.
In the medium to long term, however, net exports will certainly decline structurally, as Asian
countries are gaining export competitiveness. Domestic manufacturers need to maintain andstrengthen their export competitiveness by specializing in the development and production ofvalue-added products. Some characteristics of exports by product in the first half of fiscal 2001
are examined below.
Export volume declined in the first half of fiscal 2001, down 6.1% on the previous year
(Figure 2-8), largely due to electrical appliances and general machinery.
In electrical appliances, many products experienced declines in exports including VCRs,
communication equipment and integrated circuits, although TVs increased 5.7% on the previous
year. Above all, substantial growth was observed in video projectors and liquid crystal television(Figure 2-9); video projectors accounted for almost 60% of the value of television exports. In thisfield, the export competitiveness of Japanese manufacturers is strong, with more than 50% of theworld market. Indeed, exports of the product have been increasing firmly to the US, Korea andChina. Despite a smaller weight in value, exports of liquid crystal televisions are also rising,
mainly to the US for installation in automobiles. Although other Asian manufacturers have alarge share in small-sized liquid display exports and some overseas manufacturers are emerging ascompetitors in small-sized portable televisions, Japanese firms enjoy a competitive edge in highvalue-added exports including displays for car navigation systems. Exports of household liquid
crystal televisions, mostly sold in the domestic market, started in late 2000 to the US, and maylead to the development of new markets.
20

See Development Bank of Japan, “Recent Trends in the Japanese Economy: Weakness of Current Economic Recovery and Its
Background,” Research Report, No.13.
21This may be explained by closer trade relationships with Asia built in the 1990s in IT goods – intermediate goods in particular.
In this regard see Development Bank of Japan, “The Changing Structure of Trade in Japan and Its Impact: With the Focus on
Trade in Information Technology (IT) Goods,” Research Report, No. 24.
16 Development Bank of Japan Research Report/ No. 22

In general machinery, exports of automatic data-processing equipment including personal
computers declined in volume but increased in value. By countries, export volume has beenfalling to the US, but rising to Asia. In particular, exports to China have grown strongly,
indicating the rising importance of the country as a promising market.
Even among the products for which production has been largely transferred overseas andoverseas manufacturers have significant market shares, such as televisions and personal
computers, high value-added products developed and manufactured in Japan have been
constantly exported. Since the transfer of production facilities overseas will continue and theexport competitiveness of Asian countries will improve, greater efforts will need to be made to
develop products and strengthen the export competitiveness of Japan.
5. Export of Parts and Materials to China Expected to Increase Following Its Accession
to WTO (see p. 40 for figures)
According to the Chinese Custom Statistics, trade between Japan and China is almost balanced.
In 2000, Japanese exports to China amounted to $41.65 billion and imports from China $41.51
billion, thus a trade deficit for Japan of $140 million. On the other hand, the Japanese Foreign
Trade Statistics indicate a substantial Japanese trade deficit with China. In 2000, Japanese exports
to China amounted to ¥3.3 trillion and imports from China ¥5.9 trillion, thus a trade deficit of¥2.6 trillion. This difference is caused by the exports to China via Hong Kong. It is treated asexports to Hong Kong in the Japanese Foreign Trade Statistics, whereas the Chinese Custom
Statistics treat them as imports from Japan. Taking the exports to China via Hong Kong into
consideration, the Japanese trade deficit with China will shrink, resulting in a balanced traderelation as shown in the Chinese statistics.
Figure 2-11 shows the breakdown of exports from Japan to China by product category.
Machinery and electrical appliances have the largest share, accounting for 56.9% of Japanese
exports to China in 2000. Although Japan imports a substantial amount of these products, Japan
maintains a trade surplus in this category. According to the Japanese Foreign Trade Statistics,
exports of electronic devices including semiconductors rose significantly, whereas officeequipment and audio-visual equipment increased import. This shows that China is conducting aprocessing trade, importing parts from Japan and exporting finished products to Japan.
Chemicals and plastics account for 14.9% of exports to China, and Japan has the second largest
trade surplus in this product category. Transport equipment, including automobiles, has a small
share, accounting for only 3.5% of Japanese exports to China.
Japan has substantial trade deficits with China in textiles, agricultural products (animal
products and vegetable products) and processed foods.
Figure 2-12 breaks down the direct investment of Japan into China. Machinery and electricalappliances accounted for as much as 41.1% in 2000. Thus, processing trade in China seems to be
conducted by subsidiaries of Japanese firms. Transport equipment has a larger share in direct
investment (9.0%) than in exports. Chemicals have a 6.0% share. Services and commerce havesignificant shares among non-manufacturing industries.
Following China’s accession to the WTO, exports of parts are expected to increase inmachinery and electrical appliances through tariff reductions. Particularly, semiconductor export
will surge as its tariff will be cut to zero in 2005. Processing trade is also expected to increase as
direct investment continues to increase. As for the transport equipment, import quotas forautomobiles will be abolished but applicable tariff rates will remain relatively high. Model
regulations for locally manufactured automobiles will also be abolished. Therefore, direct
investment increase is expected for automobiles as well as exports to increase. Exports ofautomobile parts will increase for some time, thanks to lower tariffs. Exports and direct
Development Bank of Japan Research Report/ No. 22 17investment will both increase in chemicals and plastics, as production in China will remain unable
to meet rising domestic demand.
The Japanese trade deficit will continue in textiles, as its imports are expected to increase as
before. Imports will also increase in agricultural products and foods led by vegetables. As regards
the non-manufacturing sector, direct investment is expected to increase in commerce andservices, thanks to the abolition of non-tariff barriers including regulations on amounts andregions. So far, there has been no active entry into China from Japan in the field of finance.
Concerning trade as a whole, China’s accession to the WTO will accelerate the growth inexports to China compared to imports, with increased exports in parts and materials following
tariff reductions. As for direct investment, the removal of non-tariff barriers will result in a rapid
growth of investment in both manufacturing and non-manufacturing.
6. Development of Stock Market for Emerging Businesses and Increase in M&A (seep. 41 for figures)
As shown in the trend of money supply discussed in Section I-9, funds in Japan have been
increasing primarily through the purchase of government and foreign bonds, to the detriment ofcorporate lending and other money flows which support economic growth led by the private
sector. This section focuses on two of few active financing channels, namely stock markets for
emerging businesses and M&A.
Markets for emerging businesses in Japan have been expanding rapidly in recent years withthe relaxation of listing requirements on JASDAQ, an over-the-counter public market, in
December 1998, the creation of MOTHERS, a new market in the Tokyo Stock Exchange, in
December 1999 and the creation of Nasdaq Japan in June 2000. As a result, there has been asurge in new listings. As at the end of September 2001, 1,016 companies are listed on thoseemerging stock markets, equivalent to about 70% of the number of companies listed on the firstsection of the Tokyo Stock Exchange (Figure 2-13). The market capitalization of thesecompanies amounts to almost ¥10 billion, corresponding to over 3% of the market capitalizationin the TSE first section. This implies that venture businesses and other relatively small-sized
firms have listed on the emerging stock markets as the first step of Initial Public Offering.
Average trading volume per day amounted to ¥25 billion in January-August 2001, which was
only 3% of the volume in the TSE first section. It should be noted, however, that those markets
had a liquidity almost equivalent to that of the TSE first section during the same period, whenmeasured as a percentage of market capitalization.22 In the above-mentioned emerging stock
markets, 165 companies were newly listed in 2000. The number is expected to reach 128 in 2001
including those expected to be listed as at the end of October, the highest level since the mid1990s (Figure 2-14). Thus, market financing appears to have been functioning reasonably forsuch companies.
As regards investors, individuals account for more than half (53%) of the players in
JASDAQ, followed by foreigners with 10% and trust banks/investment trusts with 6%. Thus,
the market is characterized by little involvement of institutional investors as compared with the
TSE first section (Figure 2-15). This may be partly because the companies listed on JASDAQ are
too small for institutional investors to keep their exposure within a reasonable range. In addition,
the market is so underdeveloped that it is sometimes impossible to buy or sell shares promptly

22

Transaction turnover ratio (=transaction amount per day/market capitalization), an indicator of liquidity, stood at 0.25% in the
TSE first section and 0.24% in JASDAQ in 2000, and 0.22% and 0.18% respectively on average respectively in JanuarySeptember 2001. Although the differential between them is small under bullish markets, but the turnover ratio in JASDAQ
tends to drop relatively sharper under bearish markets.

18 Development Bank of Japan Research Report/ No. 22

due to lack of liquidity.23
Also, there has been a significant increase in M&A, which can promote efficiency in capital
allocation of the economy as well as in utilization of managerial resources (Figure 2-16). The
number of M&A has been increasing constantly since 1993 due to the progress in corporate
business restructuring, reaching 1,635 in 2000. In particular, M&A between domestic firms has
increased significantly, accounting for two thirds of the total in 2000. The number for 2001 is
expected to remain similar, reflecting the fact that M&A is becoming a common managerial
technique among Japanese companies.
7. Hopeful Development of Markets for Rented Houses, Used Houses and the
Housing Renovation (see p. 42 for figures)
Housing stock in Japan (Figure 2-17) exceeded 50 million units in 1988, of which owneroccupied houses accounted for 26.5 million units, housing for rent 15 million units and company
houses 1.72 million units. For example an unoccupied ratio is over 10%, the Japanese housing
market is well supplied.
However, markets for rented and used houses are not sufficiently developed in Japan, as
newly-built houses dominate the housing markets. This section examines the current situation ofrented and used houses in Japan.
As regards rented houses, the Japanese rented housing market lacks relatively large
properties for families. Figure 2-18 shows the shares of owner-occupied houses and housing forrent in the total number of existing houses by floor area. Housing for rent accounts for a large
share of properties of 69m2 or less, while almost all the properties of 100m2 or over are owneroccupied houses.
The construction starts of housing for rent (Figure 2-19) since 1998 indicate that most ofthem have been relatively small properties. Some of the houses for rent newly constructed in thelatest period, i.e. July-September 2001, were relatively large properties of 101-150m2. It is notcertain, however, if construction starts for relatively large housing for rent will continue in themonths ahead, in light of the difficult condition of the rental market including low rents.
Secondly the used housing market, Figure 2-20 indicates that the scale of the Japanese usedhousing market (the number of housing purchased as owner-occupied houses in principle) was
some 160,000 units in 1998. This corresponds to about 13% of housing starts.24 Although theshare has been rising, the figure is closely related to the reduction in housing starts in 1997 and1998.
In the US (Figure 2-21) on the other hand, 5.2 million units of used houses were purchased
as owner-occupied houses, 3.1 times larger than housing starts. Even taking into consideration
the fact that housing stock is about 2 times as large in the US,25 the Japanese used house market
has much more room for development than in the US.
The development of the housing renovation market is also important for development of
the rented housing market and the used housing market. Housing renovation represents a ¥5.1
trillion market in real terms in Japan (Figure 2-22). Its ratio to the total amount of housing
investment has been rising, as the latter continues to decline. This implies that the renovation
market has been gaining importance in relative terms.
23

In an effort to increase liquidity, JASDAQ has introduced a computerized system in view of establishing a market-makertransaction scheme. On the back of the deregulation of stock commissions fees, expanded transactions on the Internet and the
reduction in the unit price of transaction will facilitate the participation of individual investors in particular.
24
A comparison with housing starts was made here not only to see the relative share of newly built houses (including housing forrent) and used houses in the total housing purchased. Incidentally, the share of used houses purchased as owner-occupied
houses in the total number of housing stood at 0.3% in Japan in 1998, but 3.9% in the US in 1997.
25
The US housing stock amounts to some 112 million units as of 1997.
Development Bank of Japan Research Report/ No. 22 19

The development of the housing markets as a whole, including the rented and used housemarket, is important because it provides households a large choice. The development of the
housing renovation, accompanied by the rented and used house markets, may partially offset thefalling in housing investment resulting from the decline in housing starts.
8. Increase in Real Consumption of Durable Goods and Expansion of SecondhandMarkets (see p. 43 for figures)
Backed by sluggish consumption, it was argued repeatedly throughout the 1990s that the market
for durable goods in particular was already saturated. This section attempts to explain thechanges in consumer behavior in durable goods consumption. Figure 2-23 shows the index ofreal household consumption expenditure (1990=100). Total expenditure (excluding spending on
unspecified uses such as pocket money, gifts and remittances) was 96.9 in 2000, meaning a slightdecline in the past ten years. By product and service, the consumption of semi-durable goods
including clothing, futons and household goods fell by more than 20% during the same period,and its share in total consumption also dropped from 14% to 11%. Spending on services
recorded the biggest increase in nominal terms, reflecting slower price reductions than inproducts. In real terms, service consumption, along with the consumption of non-durable goods
including foods and daily products, stayed unchanged or even declined slightly.
Under these circumstances, the consumption of durable goods increased significantly. This
increase is partly because it is measured after deflating by falling prices, but spending on durable
goods also rose 5.1% in nominal terms, making it a leading component only second to services.
Although the consumption of durable goods is generally affected by short-term factors such as
business fluctuations and the renewal cycle, the trend for the past ten years is far from saturation.
Rather, durable goods have played an important role in helping the long-term growth of
consumption.
Despite increased purchases of durable goods, their period of use has become longer overthe past ten years (Figure 2-24). The years of use increased in video cameras, which saw rapid
technological advances during the process of diffusion, as well as in large-sized household electric
appliances, for which markets had matured by 1991. The same survey also showed that moreconsumers replaced durable goods for being out of order rather than for upgrading, thus
implying greater consciousness of savings and the environment among consumers. Considering
the increase in durable goods expenditure, it is estimated that their real stock increased not only
due to replacement for upgrading (passenger cars, television, etc.)26, but also due to introductionof new products (personal computers, portable phones, etc.) and additional purchases (airconditioners, fixed phones, etc.). As the increase of the real expenditure of durable goods imply,
the “use” of the accumulated stock of durable goods has been increased much faster.
Although durable goods are now owned and used for longer, a qualitative obsolescence may
occur apart from the functional degradation of goods, for reasons such as boredom and changes
in living environment. A more socially efficient distribution of resources could be achieved (i.e.
less wasteful) if the goods could be used by those who find higher value in them. In corporations,for example, efficient use may be achieved by increased use of lease contracts. However,individuals seem to have left such goods idle (ownership not accompanied by use) or disposed ofthem (no ownership and no use) in most cases. The expansion of the secondhand market, which
is discussed in the following section, provides a more effective use of durable goods inhouseholds, along with leasing and rental.
26

Shown in parentheses are typical examples in recent years according to the Survey on Consumption Trends, published by the
Cabinet Office.

20 Development Bank of Japan Research Report/ No. 22

The number of vehicles sold in the used car market (Figure 2-25) has become 1.5 times aslarge as the number of new cars sold. New car sales fluctuate according to change in taxation
systems and standards. On the other hand, the used car market has developed in parallel with thenumber of passenger cars owned (the line running from lower left to upper right in the figure).
Figure 2-26(1) presents a broader picture covering the whole retail industry. The scale of theindustry has recorded three consecutive declines since the survey in 1994. By size of store,
traditional small-sized stores including specialized stores and “central stores27” have consistently
recorded declines. Declines were also observed in other stores in the latest survey conducted in
1999. By type of store, however, retail stores dealing in secondhand goods have expanded
significantly in terms of the number of outlets and revenues (Figure 2-26(2)). The category
includes “retail in antiques” and “other retail in secondhand goods (not included in any othercategory)”. The former expanded until the 1991 survey during the so-called bubble economy,
then the latter emerged, led by various recycling shops dealing in clothing, furniture and books
among others. This trend cannot be seen if the data is observed by size of store, as the retailers insecondhand goods mostly consist of specialized stores and central stores, which represent a
declining category in the data.
Expansion of secondhand markets can also be observed in the growth of Internet auctions,i.e. direct transactions between individuals.28 Internet auction services in Japan were initiated byseveral firms around 1999. The number of registered participants (ID numbers) is thought toexceed one million, which corresponds to 1 in 100 persons in the population.
Although the expansion of secondhand markets has improved social efficiency, some argue
that the trading of secondhand goods itself does not contribute to GDP and actually has anadverse effect on consumption by reducing the need for purchasing new products. For the
purpose of national accounts, the transactions of secondhand goods between households would
have no effect whatsoever on the calculation of income and consumption in the household
sector as a whole.29 By definition, production equals to income and we cannot see whether there
happens a negative impact on consumption in that period. This would apply in cases where ahousehold purchases a secondhand product instead of a new one and the selling household does
not spend all of the money received, or where a household purchases a new product by recycling
a used product.
However, the following three considerations suggest that the expansion of secondhand
markets has no adverse effect on consumption and may even encourage the consumption of new
goods and services. First, according to the permanent income hypothesis, consumption isdetermined by expected income and hence the expansion of secondhand markets does not affectthe level of consumption as a whole. Yet, under this concept the composition of consumption
could change, perhaps in favor of services and to the detriment of durable goods. Second, thepurchase of new durable goods may be encouraged by facilitating subsequent transfer which
increases the liquidity or market value of assets. For instance, automobiles may be purchased asassets with a certain liquidity, because the buyers may expect to recover part of the money paidby selling them in the already established used car market. Third, the expansion of thesecondhand retail industry will increase the consumption of ancillary services including the27

In the Statistical Survey on Commerce, central stores refer to the non-self service stores other than large-sized stores, and inwhich the sales of clothing, foods or housing account for 50% or over but less than 90% of total sales. They include the socalled traditional general stores located at city centers.
28
Although not all the participants are individuals and not all the traded goods are secondhand products, the significance ofInternet auctions lies in the fact that an efficient market was created to enable individuals to sell secondhand goods forthemselves.
29
By definition, any sales of secondhand goods overseas are not included in exports for the purpose of GDP calculation. It is truethat the money received for such goods is added to financial assets of households, they have no effect in terms of flow.
Development Bank of Japan Research Report/ No. 22 21

maintenance of secondhand goods, the trading and exchange of information as well as packaging
and delivery, which will in turn contribute to the growth of GDP. On the supply side, this meansthat markets related to secondhand goods constitute a promising industry. Finally, it should be
stressed that the creation and expansion of formerly underdeveloped markets will widen therange of options for consumers and improve the welfare of the nation as a whole.
9. Strong Willingness to Spend on Education (see p. 44 for figures)
Figure 2-27 shows the trend of spending on school education as the simple average of index(1982=100) by type of education ranging from kindergarten to college. The spending has
increased almost at an undisturbed rate, rising 53% in 16 years to 1998. It has increased acrossthe board in all types of school, but the rising share of students attending private schools is partly
responsible for this riseparticularly for junior high.30 Counting in extramural educational
expenditure for cram schools, etc. and the ratio of students in each generation, which are notcovered in the data, education-related expenses of households with children attending school orcollege rose 90% in the same period.31 The strong increasing trend in educational expenditures isclear compared with the 30% increase in total consumption expenditure.
In addition to child education, an increasing number of people are now participating inlifelong education. Figure 2-28 shows the number of participants in lectures, etc. by organizer,
according to the Ministry of Education, Culture, Sports, Science and Technology. The number ofparticipants has been increasing across the board, whether in events organized by boards ofeducation, in culture centers run by newspaper companies, department stores, etc., or those heldby other entities involved in lifelong or social education. The government has been promoting
lifelong education and learning since the late 1980s. Lifelong education has become diversified,
ranging from job training to culture and sports.
Most of the expenses related to education are classified as service expenditure. But how are
they different from other types of service expenditure? Figure 2-29 shows the trend of diffusionindex on willingness to spend in the coming three months. Since 1992, when the survey waslaunched, willingness to spend on “supplementary education including cram school” has beenstable at the highest level, followed in most cases by “monthly fee for lessons,” whichcorresponds to lifelong education. Spending on education is different from other recreational
consumption expenditures in that it increases consumption (=utility) in the future through thegrowth of disposable income, rather than providing utility at the time of service consumption.
Spending on lifelong education, etc., which does not directly increase future income, may also beconstrued as a lump-sum payment for utilities to be obtained in the future.32 In contrast,
willingness to spend on recreational services such as eating-out, fashion and amusement parks
has been declining. Even the relatively strong willingness to spend on concerts and sports is more
susceptible to economic fluctuations than the two indicators related to education.
Of course, educational expenditure has an obligatory and defensive nature as competition
intensifies in society as a whole, although some even question the value of lifelong education as a
fad in the mid-1990s that has now subsided. Although it is difficult to quantify the quality of30

Data for elementary school only covers public schools because sufficient data are not available concerning educational
expenditure for private schools.
31
Since the number of college students, who require substantial expenses for education, increased throughout this period, aweighted average using the number of college students results in a higher growth rate. Here, the increase of 90% perhousehold was obtained by adjusting the educational expenditures in the Family Income and Expenditure Survey (a 51%
increase from 1982 to 1998) for the decline in the number of pupils and students nationwide (by about 20%).
32
This is typically expressed in the idea that expenses related to education represent investments in children or in oneself. Even if
little effect on income may be expected, education differs substantially from concerts, sports and other recreational services,
whose utilities are mostly obtained at the time of consumption, or are very low in durability.
22 Development Bank of Japan Research Report/ No. 22

education, as in the case of other services, education-related prices included in the consumer
price index have been rising in parallel with the increase in expenditure, indicating that theconsumption of education has stayed on a par in real terms. In this sense, education is thediametrical opposite of durable goods, whose prices have fallen following qualitative
improvement, thus resulting in the growth of real consumption.33 There is little doubt that
education plays important role in creating values. Educational opportunities need to be
diversified still further in response to the strong demand. On the other hand, the efficiency andquality of education must be improved, measured and evaluated.
Finally, Figure 2-30 shows spending items of the greatest and least growth over the past five
years according to the Family Income and Expenditure Survey. The products mentioned in thissection, such as IT-related durable goods and tuition fees, are included in the items thatexperienced the fastest increase. Changing lifestyles in the recent five years are evident in otherincreasing items such as foods, insurance premiums and housing facilities, as well as in thedecreasing items. Total consumption usually does not fluctuate much, but its composition
naturally reflects various changes on both demand and supply, and it is worth to evaluate
resulting changes in consumption mix.
(as of December 10, 2001)

33[by Economic Research Group (e-mail: report@dbj.go.jp)]

According to consumer price index, the prices of education including supplementary lessons rose 76% from fiscal 1982 to fiscal
1998, while the prices of recreational durable goods including personal computers and audio-visual equipment fell 54% in thesame period.
Development Bank of Japan Research Report/ No. 22 23

I. The Japanese Economy Amid Serious Adjustment
Overview: Continued Drop in Production with a Risk of Further Decline
Figure 1-1. Trends in Real GDP (Year-on-year change by component)
(％)
8

91/2

7

97/3

93/10

99/4

(00/10)Year-on-year change in GDP

6
5
4
3
2
Imports (reverse sign)1

Government consumption
Plant and equipment investment0

Housing investment
Public investment
Exports‑1‑2
Inventory
investment‑3

Private consumption

‑4
90

91

92

93

94

95

96

97

98

99

Notes: 1. 1995 as base year. Government consumption includes the contribution of public inventories.
2. The most recent economic peak (October 2000) is estimated by DBJ.

00
01
(CY quarterly basis)

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

97/3

93/10

91/2

99/4

(00/10)Industrial production index(1995=100, weight 22.4%)

110

100

90

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

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

80
90

91

92

93

94

95

96

97

98

99

00

01
(CY quarterly basis)

Notes: 1. Weights represent shares in all industry activity index (GDP from the supply side) and add up to 100 in sum with agriculture,
forestry and fishery production index (weight 1.8%) and public service activity index (8.2%) which are not indicated in the figure
above.
2. Industrial production index for 4Q/01 represents forecast based on actual data for October and the Survey on the Forecast of
Manufacturing Production. However, the forecast index tends to be revised downwards.
Sources: 3. The most recent economic peak (October 2000) is estimated by DBJ.
Various indices reported by the Ministry of Economy, Trade and Industry.

Development Bank of Japan Research Report/ No. 22 25

Substantial Decline in Shipments and Protracted Inventory Adjustment

00/10‑1200/1‑3
99/7‑9000/7‑999/4‑6
99/1‑3

01/1‑3‑5

01/4‑6
98/4‑6

98/10‑12

98/1‑3

98/7‑9‑10

01/7‑9(3.3,△10.5)

‑15
‑15

‑10

‑5

0

5

10

Change in shipments on previous year (%)

10

00/4‑600/1‑3500/7‑901/1‑3

99/10‑12

0 99/7‑9

01/4‑6

01/7‑9（1.0,△13.2）‑5

98/1‑3

99/4‑6‑10

98/7‑998/4‑6

98/10‑12

99/1‑3

‑15
‑20

‑10

0

10

20

Change in shipments on previous year (%)

Figure 1-6. Inventory Cycle of Consumer Goods
10
97/1‑35

0‑5

99/7‑999/10‑1200/7‑900/4‑6
99/4‑600/1‑3
99/1‑300/10‑12
01/1‑3
98/10‑12
98/7‑9‑10‑15

98/4‑6‑10

01/4‑6

Unintended
accumulation
Recoveryphase

Adjustment

Figure 1-5. Inventory Cycle of Construction
Materials

00/10‑12

97/1‑345-degree line
Buildup phase

15

Figure 1-4. Inventory Cycle of Capital Goods(Excluding transport equipment)
15

Concept

Change in shipments on previous
year (%)

5

00/4‑6

97/1‑3
99/10‑12

Change in shipments on previous year (%)

10

98/1‑3
01/7‑9（0.6,△3.7）

‑5
0
5
10
Change in inventories on previous year (%)

Source: Ministry of Economy, Trade and Industry, “Industrial

26 Development Bank of Japan Research Report/ No. 22

50

97/1‑300/7‑900/10‑1200/4‑6
01/1‑300/1‑3

01/4‑6‑5

99/1‑3

99/10‑12
99/4‑6
99/7‑998/10‑12

01/7‑9
(2.6,△8.6)‑10
98/7‑998/1‑3

98/4‑6

‑15
‑15

‑10

‑5

0

5

10

Figure 1-7. Inventory Cycle of Producer Goods
Change in shipments on previous year (%)

Change in shipments on previous year (%)

Figure 1-3. Inventory Cycle(Mining and manufacturing sector)

1510

99/10‑12
99/7‑900/1‑300/4‑600/7‑900/10‑125
99/4‑6

97/1‑30
99/1‑3

98/1‑3‑5
98/10‑12

‑10
‑15
‑10

‑5

01/1‑3

98/7‑998/4‑6
01/7‑9（5.2,△14.4）

01/4‑60
5
10
15Change in inventories on previous year (%)

Employment Conditions: Deteriorating
Figure 1-8. Trends in Ratio of Job Offers to
Applicants and Unemployment Rate
0.9 (Times)(％) 5.5

100

5.0

80

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

0.8

Figure 1-9. Year-on-year Change in
Unemployment by Reason for Job-seeking

0.7

4.5

0.6

4.0

0.5

3.5

(CY quarterly basis)

0.3
95

96

97

98

99

00

(10,000 persons)
350
300

Total number of
unemployed (right

60

250

40

200

20

150

0

100

‑20

3.0

0.4

(10,000 persons)(CY quarterly basis)

‑40
95

2.5

96
97
98
Involuntary severance
School graduates
Change on previous year

01

99

50
0

00
01
Voluntary severance
OthersNote: Seasonally adjusted.
Sources: Ministry of Public Management, Home Affairs, Posts and Note: Total number of unemployed is seasonally adjusted.
Telecommunications, “Labor Force Survey;” Ministry of Source: Ministry of Public Management, Home Affairs, Posts and
Health, Labor and Welfare, “Statistics on Placement
Telecommunications, “Labor Force Survey.”
Activities.”

Figure 1-10. Trend of Year-on-Year Change in Number Employed by Component(1) By industry
150(2) By status(10,000 persons)

150

100

100

50

50

0

0

‑50

‑50

(10,000 persons)

‑100

‑100

(CY quarterly basis)

‑150
95
96
97
98
Construction
Wholesale/retail and restaurants
Services
Total

99
00
01
Manufacturing
Transport/communications
Others(3) By size of corporation (excluding agriculture,
forestry, fisheries and government)(10,000 persons)

50

95
96
97
98
Self-employed and family workers

99
00
01
Employees (regular)

Employees (temporary and daily)

Total number employed

Figure 1-11. Overtime Hours (Seasonally adjusted)
125

500 workers or over
30-499 workers
1-29 workers
Total

100

(CY quarterly basis)‑150(Index, 1995=100)

120

All industries

115

Manufacturing

110
105

0

100
95

‑50

90
85

‑100

(CY quarterly basis)

80
95

96

97

98

99

00

01

Source: Ministry of Public Management, Home Affairs, Posts
and Telecommunications, “Labor Force Survey.”

95

96

97

98

99

00

01

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

Development Bank of Japan Research Report/ No. 22 27

Consumption: Weak due to Deteriorating Income and Employment Conditions
Figure 1-13. Spring Wage Increases andChange in Bonuses on Previous Year

Figure 1-12. Year-on-Year Change in
Wages and Salaries per Person

(％)
4

(％)
4

2.83

3

3

2.86

2.90

2.66

2.21

2.06

2
2

2.01

1

1

0

0

‑1
‑2

‑1

Summer bonus
Year-end bonus
Spring wage increase

‑3
‑2

‑4

Bonus and special earnings
Overtime pay
Regular wages and salaries
Total wages and salaries

‑3
‑4
95
Note:
Source:

96

97

98

(FY)

‑5
95

(CY quarterly basis)
99

00

01

Firms employing five or more workers.
Ministry of Health, Labor and Welfare, “Monthly Labor
Survey.”Figure 1-14. Trend of Household
Consumption Expenditure

96

97

98

99

00

01

Notes: 1. Summer bonus and year-end bonus include wages and salaries paid assuch in June-August and November-January respectively in firms
employing five
2. or more workers.
Spring wage increase covers listed companies with trade unions
employing
Source: Ministryof Health, Labor and Welfare, “Monthly Labor Survey.”
1 000 or more workers and capitalized at see ¥2 billion or overFigure 1-15. Real Consumption (Change on
previous year by component)

(％)
6

(％)
4
Real
Nominal4(CY quarterly basis, moving averagewith two subsequent periods)

3
2

2

1

0

0
‑1

‑2

‑2
‑3

‑4

‑4

Consumption propensity factor
Tax and charges factor
Income factor
Real consumption‑6‑5(CY quarterly basis)

‑8

‑6

95
Notes:

Sources:

96

97

98

99

00

01

95

96

97

98

99

00

01

1. Excludes automobiles, gifts and remittances. Adjusted for Notes: 1. Conversion into real terms was made using the composite
consumer price index excluding imputed rent.
change in the number of household members.
2. Factor resolution was made as follows (all in real terms):
2. Conversion into real terms was made using the consumer
price index (composite index excluding imputed rent and∆C = α ･∆Y (income) – α ･∆T (tax and charges) +∆α ･
automobiles. Excludes the effect of the consumption tax(Y – T) (consumption propensity)
hike in 1997.
C: consumption expenditure, Y: income, T: tax and charges,
α: consumption propensity
Ministry of Public Management, Home Affairs, Posts andTelecommunications, “Family Income and Expenditure
Sources: Ministry of Public Management, Home Affairs, Posts andSurvey” (all households) and “Consumer Price Index.”
Telecommunications, “Family Income and Expenditure
Survey” (workers’ households) and “Consumer Price Index.”

28 Development Bank of Japan Research Report/ No. 22

Figure 1-16. Retail Sales Index(Seasonally adjusted)

Figure 1-17. New Car Registrations(Seasonally adjusted)(Annual rate, 10,000 vehicles)

120

400
(95/1Q=100)

115

97/1Q

380
360

01/4Q
00/2Q

340
110

Retail industry
totalHouseholdmachines/appliances
and automobiles

105

320
300

99/4Q

98/1Q

280

(CY quarterly basis)

260

100

95

96

97

98

99

00

01

01/4Q represents October-November average.
Note:
Sources: Cabinet Office, “Indexes of Business Conditions;”
Japan Automobile Dealers

95

Figure 1-18. Tourism Sales

90(Change on previous year, %)85
Textiles, clothing, personal
items, foods and beverages

80(CY quarterly basis)

75
95

96

97

98

99

00

01

Retail sales index except for total represents the average of
published seasonally adjusted figures weighted by the salesof each industry.
Source: Ministry of Economy, Trade and Industry, “Report of theCurrent Survey of Commerce.”
Note:

20
10
0
‑10
‑20
‑30
‑40
‑50

Overseas tours
Internal tours(CY quarterly basis)

95

98

01

(Monthly basis)

1
01

4

7

10

Source: Ministry of Land, Infrastructure and Transport,“Tourism Sales of 50 Major Tourist Agencies.”

Figure 1-19. Consumer Confidence Indicators(1) Quarterly change in consumer confidence index(seasonally adjusted)(2) Living Insecurity Index

(％)
20

160

15

150
140

10

130

5

120

0

110

‑5

Employment
Willingness to buy durable goods
PricesIncome growth
Overall livelihood
Consumer confidence index

‑10
‑15
‑20
97

98

99

00

100
95
(CY quarterly basis)

01

96

97

98

99

00

01

Consumer confidence index is based on questionnaire surveys
for the coming six months. Figures for individual components
were redistributed from seasonally adjusted data.
Sources: Cabinet Office, “Consumer Confidence Survey;” Japan
Research Institute, “Survey on Consumer Psychology.”
Note:

Development Bank of Japan Research Report/ No. 22 29

Plant and Equipment Investment: Decreasing with No Sign of Recovery
Figure 1-20. Year-on-Year Change in Plant and Equipment Investment andReturn on Investment (Corporations of all sizes)
Non-manufacturing

Manufacturing
(％)

91/2

30

93/10

97/3

(％)
99/4 (00/10)

15

20

(％)

91/2

30

93/10

99/4 (00/10)(％)

97/3

10.0

20

7.5

10

5.0

0

2.5

‑10

0.0

‑20

‑2.5

10
10
0

5

‑10
0
‑20
(CY quarterly basis)

‑30

‑5

(CY quarterly basis)‑30

90 91 92 93 94 95 96 97 98 99 00 01‑5.0

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

Year-on-year change in plant and equipment investment◆

Return on investment (right 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 revisedin December 1998).
3. The most recent economic peak (October 2000) is estimated by DBJ.

Sources:

Ministry of Finance, “Quarterly Report of Statistical Survey of Incorporated Enterprises,” etc.

Figure 1-21. Orders Received for Machinery (Trend of year-on-yearchange by industry)
Manufacturing

(％)

35
30
25
20
15
10
5
0
‑5
‑10
‑15
‑20
‑25
‑30
‑35

OthersIron & steel
Chemicals
Automobiles
General machinery
Electric machinery
Manufacturing

95

96

97

98

Non-manufacturing

(％)

35
30
25
20
15
10
5
0
‑5
‑10
‑15
‑20
‑25
‑30
‑35

99
00
01
(CY quarterly basis)

Note: Cabinet Office estimate for 4Q/01.
Source: Cabinet Office, “Orders Received for Machinery.”

30 Development Bank of Japan Research Report/ No. 22

OthersReal estate
Construction
Wholesale/retail
Finance/insurance
Telecommunications
Non-manufacturing (excluding ships and electricity)

95

96

97

98

99
00
01
(CY quarterly basis)

Housing Investment: Decreasing
Figure 1-23. Floor Area of Housing Starts

Figure 1-22. Trend of Housing Starts(Seasonally adjusted annual rate, in 1,000 units)(Seasonally adjusted annual rate, in million m2 )

1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800

110
100
90
80
70
60
50

(CY quarterly basis)
95

96

97

98

99

00

40

(CY quarterly basis)

30

01

95

96

97

98

99

00

01

Source: Ministry of Land, Infrastructure and Transport,“Building Construction Started”

Source: Ministry of Land, Infrastructure and Transport,“Building Construction Started”

Figure 1-24. Housing Starts (Trend of year-onyear change by component)

Figure 1-25. Floor Area of Housing Starts(Trend of year-on-year change by

(％)

（％）

30

30

Housing for sale
Issued houses
Housing for rent
Owner-occupied houses
Total

20
10

20
10

0

0

‑10

‑10

‑20

‑20
(CY quarterly basis)

‑30
95

96

97

98

99

00

95

01

1,800
Real housing investment

97

98

99

00

01

Figure 1-27. Contract Rate and Completed Inventories
of Condominiums (Tokyo metropolitan area)(Thousand units)
Housing starts (right scale)

96

Source: Ministry of Land, Infrastructure and Transport,“Building Construction Started”

Figure 1-26. Real Housing Investment andHousing Starts
30(CY quarterly basis)‑30

Source: Ministry of Land, Infrastructure and Transport,“Building Construction Started”(¥ trillion)

Housing for sale
Issued houses
Housing for rent
Owner-occupied houses
Total

1,600

(Thousand units)

12
10

(％)

100

Term-end inventories
系列1
Contract rate
系列2(right scale)

95
90

1,400

25

1,200
1,000

20

85

8

80
75

6

800
600

15

400
(CY quarterly basis)

10

200
0

95

96
97
98
99
00
01
Note: Housing starts and real housing investment are bothseasonally adjusted.
Sources Ministry of Land, Infrastructure and Transport,:“Building Construction Started;” Cabinet Office,“Annual Report

70
4

65
60

2
(CY quarterly basis)

55

0

50
96
97
98
99
00
01
Note: Contract rate represents the quarterly average ratio of units
soldin the month to units marketed in the month. Completed
Sources inventories are measured at the end of each quarter.
:
Real Estate Economic Institute Co., Ltd., “Trend of
Condominium Market in Tokyo Metropolitan Area.”Development Bank of Japan Research Report/ No. 22 31

Public Investment: Declining due to Financial Difficulties
Figure 1-28. Trend of Public Investment(¥ trillion)

Figure 1-29. Trend of Contract Value for
Public Works
（％）
10

50

(Change on previous year, %)25
CentralOthers

20
45

9

40

Local
Total

15
10

8
5

35
7
30

0
‑5

6

Public fixed capital formation25

As % of GDP (right scale)(CY quarterly basis)

20
91

94

97

‑10
‑15

5

00

(FY)

(Quarterly basis)

‑20
91

93

95

97

99

4‑6
00年
2000

10‑
12

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

Note:

Figure 1-30. Long-term Outstanding Debts
of Central and Local Governments

Figure 1-31. Outline of Fiscal 2001
Supplementary Budget (November)

4‑6
01年
2001

In the legend, “Local” represents the total of prefectures andmunicipalities. “Others” represent the total of central andlocal public business entities.
Source: Surety Association for Construction Companies, “Public
Works Prepayment Surety Statistics.”(¥ Trillion)

700
650
600
550
500
450
400
350
300
250
200
150
100
50
0
‑50

Debts of local governments
Debts of central government
Duplication
Total

Additional outlay(¥ trillion)

Financing
Items
1. Additional government bond issues
2. Carryover from previous fiscal year
3. Reduction in expected tax revenue
91

92

93

94

95

96

97

1.1

Items
1. Pilot reform program
1.0(¥550.1 billion for facilitating employment, etc.)
2. Other additional outlay
2.0(¥313.9 billion for disaster restoration, etc.)
3. Savings of allocated expenses
▲ 1.9

98

99

00 01
(FY)
Note: Figures for fiscal 2000 and 2001 represent estimates after
supplementary budget.
Sources: Ministry of Finance, “Budgetary Data (November 2001);”
Ministry of Public Management, Home Affairs, Posts andTelecommunications, “Annual Report of Statistics on Local
Budgets,” etc.
32 Development Bank of Japan Research Report/ No. 22

1.1
1.7
0.5
▲ 1.1

(Ref.)
Additional allocation of ¥0.5 trillion to public works
Sources: Ministry of Finance and Cabinet Office data.

Exports and Imports: Both Dropping
Figure 1-32. Trend of Real Effective
Exchange Rate (1990=100)

Figure 1-33. Export and Import Volume Indices(1995=100)

130

130

120

Currency appreciation

US

110
Japan

100
90

Euro

Exports

125

Imports

120
115
110
105
100

80

(Monthly basis)

95

70
Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ
97
98
99
00
01
Note: Exchange rate was converted into real terms with the pricelevels of the country and its 44 trading partners and thenweighted for trade in industrial products in 1990.
Source: J.P. Morgan, “World Financial Market.”

97

98

99

00

01

Note:

Three-month moving average of seasonally adjusted
values based on X-11.
Source: Ministry of Finance, “Trade Statistics.”

Figure 1-34. Trend of Export Volume (Year-on-year change by component)a. Export volume by countries
15

(％)

7
World

10

（％）

b. Shipment for exports by type of industrial goods(seasonally adjusted)

5
3

5

1
‑1

0

‑3

‑5
US
Asia

‑10

‑5

EU
Others

‑7
‑9

‑15
Ⅰ
97

Ⅲ

Ⅰ
98

Ⅲ

Ⅰ
99

Ⅲ

Ⅰ
00

Ⅲ

Ⅰ
01

Capital goods
Construction materials
Consumer durable goods
Consumer non-durable goods
Production goods
Total

ⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡ
97
98
99
00
01

Ⅲ

Figure 1-35. Trend of Import Volume (Year-on-year change by component)
20
15
10
5
0
‑5
‑10

a. Import volume by origin
US
Asia

EU
Others

World

13
11
9
7
5
3
1
‑1
‑3
‑5

Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ
97
98
99
00
01
Sources: Ministry of Finance, “Trade Statistics;” Ministry of Economy,
Trade and Industry, “Analysis of Industrial Production Activities.”b. Imports by type of industrial goods (seasonally adjusted)
Capital goods
Construction materials
Consumer durable goods
Consumer non-durable goods
Production goods
Total

ⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡⅢⅣⅠⅡ
97
98
99
00
01

Development Bank of Japan Research Report/ No. 22 33

Lending Declines under Low Interest Rates through Quantitative Monetary Easing
Figure 1-37. Trends in Monetary Base andMoney Supply

Figure 1-36. Trends in Selected Market
Interest Rates(Change on previous year, %)

（％）

2.5

Yield on long-term government bonds
Three-month CDs
Inter-bank overnight lending rate (unsecured)

2.0

1.5

(Times)

45

14

40

13

35

12

30

11

25

10
Monetary base20
1.0

Credit multiplier (right scale)

15

Guidance of BOJ current account balance started (Mar. 19)

0.5

0.0

9

Money supply (M2+CD)

8

10

7

5

6

0

5

‑5
99/1 47

10 00/1 4

Guidance rate raised (Aug. 11)

Guidance rate reduced (Mar. 1)

7

10 01/1 4

7

10(Daily basis)

BOJ current account balance
guided upward, etc.
(Aug. 14, Sep. 18)

Notes: 1. Yield on long-term government bonds represents that on
10-year bonds.
2. Three-month CDs are represented by the quotation (buy)rate on new issues.
Source: Nihon Keizai Shimbun

Figure 1-38. M2+CD (Contribution by credit
component to year on year change)

4
01/2 01/10(Monthly basis)

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

1. Change on previous year in average balance.
2. Credit multiplier = money supply (M2+CD)/monetary
Source: base. Seasonally adjusted.
Research and Statistics Department, Bank of Japan,“Financial and Economic Statistics Monthly.”

Figure 1-39. Trends in Bank Loans(Change on previous year, %)(Change on previous year, %)

9

3

6

1

3
‑1
0
‑3
‑3
‑5

‑6
(CY quarterly basis)(CY quarterly basis)
‑7

‑9
95

96

97

External assets
Lending to private sector
Other

98

99

00

01

Government bonds
Corporate bonds & stock
Total

Note: Year-on-year change in term-end balance.
Source: Research and Statistics Department, Bank of Japan,“Financial and Economic Statistics Monthly.”

34 Development Bank of Japan Research Report/ No. 22

95

96

97

98

99

00

01

Outstanding bank loans
Outstanding bank loans (after adjustments for
extraordinary factors)

Notes: 1. Change on previous year in average balance.
2. Real deposits do not include deposits in long-term trustbanks and trust banks.
Source: Bank of Japan, “Trends in Absorption of Lending.”

Downturn in Wholesale Prices and Continued Decline in Consumer Prices
Figure 1-40. Trends in Commodity Prices and Wholesale Prices(Domestic demand goods)(Change on previous year, %)5(Change on previous year, %)25International commodities (excluding crude oil)(right scale)

4

Final goods
Intermediate goods
Raw materials
Wholesale prices (domestic demand goods)

3

20
15

2

10

1

5

0

0

‑1

‑5

‑2

‑10

‑3

‑15
(CY quarterly basis)

‑4
90

91

92

93

94

95

96

97

98

99

00

‑20

01

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

Figure 1-41. Trends in Consumer Prices (Excluding Fresh Foods) and Corporate Service Prices(Change on previous year, %)4Agriculture & aquatic products and industrial products
Private services, etc.
Public services, etc.
Consumer price index (excluding fresh foods)
Corporate service price index

3
2
1
0
‑1
‑2

(CY quarterly basis)

‑3
90

91

92

93

94

95

96

97

98

99

00

01

Notes:

1. Private services, etc. include publications, rent and eating-out. Public services, etc. include electricity, city gas and water charges.
2. Corporate service price index excludes ocean freight transportation and international freight transportation .
Sources: Bank of Japan, “Monthly Report on the Wholesale Price Indexes;” Ministry of Public Management, Home Affairs, Posts and Telecommunications,“Monthly Report on Consumer Price Index.”

Development Bank of Japan Research Report/ No. 22 35

II. The Japanese Economy under Deflation and Prospects of Evolution
Concerns about the Japanese Economy and Prospects of Evolution

Figure 2-1. Macroeconomic Change in Output and Prices Level(Horizontal axis = real GDP (¥ trillion), vertical axis = GDP deflator)
101
Price inflation

93/Q4

100
97/Q1

99

99/Q2

98
91/Q1

97
96

(00/Q4)

95

01/Q3

90/Q1

94
440

460

480

500

520

540

Production growth

Notes:

1. Real GDP and GDP deflator are both seasonally adjusted. (Seasonal adjustment of the deflator was
conducted by DBJ based on the implicit deflator calculated from the original series of nominal andreal GDP data.)
2. The most recent economic peak (October 2000) is estimated by DBJ.

Source: Cabinet Office, “Annual Report on National Accounts.”

Typicalconcerns
about
Typicalconcerns
about
thetheJapaneseJapanese
economy
and
signs
of
economy and signs of change○ Can the corporate sector recover on its own?
Steady progress in businessrestructuring and changing
industrial○ Are financial markets malfunctioning?
Signs of movement toward therevitalization of financial cycle:
emerging stock○ Will the trade surplus keep shrinking?
Prospects of trade balance○ Has household expenditure saturated?
Toward the formation of broader
housing markets

Effect of China’s accession to the
WTO

Emergence of a new consumption
trend

36 Development Bank of Japan Research Report/ No. 22

Trends of Business Restructuring and Prospects of Revitalization of the Corporate
SectorFigure 2-2. Trend of Year-on-Year Change in Operating Rate Index by Component(CY quarterly basis, %)Manufacturing

10
5
0
-5
-10
-15
97

98

99

Electric machinery

15
10
5
0
-5
-10
-15
-20
-25
-30

00

10
5
0
-5
-10
-15
97

01

Transport equipment

15

Contribution of Capacity Change

98

99

00

97

01

Contribution of Production Change

98

99

00

01

Year-on-year change in operating rate index

Note: Based on the relationship of operating rate = production level/capacity, year-on-year change in capacity index (reverse sign) is construed as thecontribution of capacity change and the residual as the contribution of production change.
Source: Ministry of Economy, Trade and Industry, “Industrial Index.”Figure 2-3. Ratio of Liquidity of Existing Equipment to Investment in New Equipment（％）
30

Large- and medium-sized firms（％）
60

ManufacturingNon-manufacturing

25

Small-sized firms
ManufacturingNon-manufacturing

50

20

40

15

30

10

20
10

5
(CY quarterly basis)

0(CY quarterly basis)

080 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01

Note: 1. Ratio of liquidity of existing equipment ≡ sale, loss and transfer of tangible fixed assets excluding construction in progress andland/investment in new equipment. The denominator and numerator both represent moving average with four preceding periods.
2. The amount of sale, loss and transfer in July-September 1999 was excluded from the calculation of moving average, because of anomalies as
NTT became a holding company.
Source: Ministry of Finance, “Quarterly Report of Statistics of Incorporated Enterprises.”

Figure 2-4. Coincidence/Lagging Ratio of Business Condition CI and Year-on-Year
Change in Ordinary Profits of Incorporated Enterprises
1.1
1.0
0.9
0.8

Coincidence/lagging ratio
Year-on-year change in ordinary profits

0.7
80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

（％）
50
40
30
20
10
0
-10
-20
-30
CY quarterly basis -40-50
98 99 00 01

Notes:

1. Figures for coincidence/lagging ratio represent quarterly average of coincidence CI/lagging CI.
2. Shaded parts represent recession and white parts represent business expansion. The most recent economic peak
(October 2000) is estimated by DBJ.
Sources: Cabinet Office, “Indexes of Business Conditions;” Ministry of Finance, “Quarterly Report of Statistics of Incorporated Enterprises.”

Development Bank of Japan Research Report/ No. 22 37

Incessant Transformation of Industrial Structure

Figure 2-5. Cumulative Contribution to Change in Industrial Production Index since1995 by ProductAs of July-September 2001 (i.i.p=94.4 ) compared with 1995 average (i.i.p=100)

Top 20 positive contributors
Active liquid crystal devices
PHS/portable phones
Large sized passenger cars
Lithium ion batteries
Personal computers
Optical fiber products for wires and cables
Digital color copiers
Midrange computers
MOS integrated circuits (logic devices)
Chassis/body parts
Midget automobiles
Plastic containers (hollow molded)
Fixed condensers
Transmission and steering devices & parts
Transformers
General-purpose steam turbines
Car navigation systems
Applied electronic toys
Chillers for passenger car air-conditioners
Fixed telecommunication devices

Top 20 negative contributors
MOS integrated circuits (memory devices)
Medium and small sized passenger cars
Outfit of woven fabrics
Cathode-ray tubes for computers
Shovel type excavators
Static indirect copiers
Plastic machine devices and parts
Small-sized trucks
Color TV
Switching and controlling devices
Ordinary trucks
Boiler parts
CementCar stereos
Food cans
VCRs
Word processors
Facsimiles
Knitted outfit
Powder metallurgical magnetic materials

Notes: 1. Cumulative contribution by product is defined as share in value added in 1995×(Jul.-Sep/01 index – 100), which differs fromthe cumulative contribution in a strict sense.
2. Excludes industries for which data are not available by product (rolling stock, pharmaceuticals, foods/tobacco, wood & wood products,
newspaper/publishing). Arrows indicate generational change or replacement in spending.
Source: Ministry of Economy, Trade and Industry, “Industrial Production Index.”Figure 2-6. Cumulative Contribution to Change in Tertiary Industry Activity
Composite Index since 1995 by Industry
As of September 2000-August 2001 average (composite index=107.4) compared with 1995 average (composite index=100)
Top 10 positive contributors
Mobile telecommunication
Domestic telecommunications(excluding mobile telecommunication)

Top 10 negative contributors
Wholesale of clothing and personal goods
Retail of woven fabrics,
clothing and personal goods

Public services
Software development and programming
Restaurants
Real estate rental
Securities
Banks, depositories, etc.
Other business services
Wholesale of machinery and appliances

Retail of foods and beverages
Truck freight transport
Wholesale of construction materials
Wholesale of minerals and metal materials
Engineering
Real estate sales and brokerage
Sport facilities, playgrounds & amusement parks
Wholesale of agricultural, livestock and marine products

Notes: 1. Cumulative contribution by industry is defined as share in value added in 1995×(Sep./00-Aug./01 average index – 100), which differsfrom the cumulative contribution in a strict sense.
2. Excludes the Bank of Japan, postal savings and other public entities included in finance/insurance. Arrows indicate generationalchange or replacement in spending.
Source: Ministry of Economy, Trade and Industry, “Tertiary Industry Activity Index.”

38 Development Bank of Japan Research Report/ No. 22

Reduction of Trade Surplus due to Sluggish World IT Market
Figure 2-7. Trade Balance (Trend of year-on-year change by component)
12000(Shaded parts indicate recessions. The most recent recession is estimated by DBJ.) (%)(¥billion)

12

8000

8

4000

4

0

0

-4000

-4

-8000
Surplus reduction phase①87/Ⅱ〜88/Ⅲ-8②94/Ⅲ〜97/I③00/Ⅱ〜-12000-12

Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
Export volume
Export prices
Import volume
Import prices (excl. mineral fuels)
Import prices of mineral fuelsYear-on-year change in trade balanceYear-on-year change in world economy

World economy represents average real GDP of the US, UK, Germany, China, Korea, Taiwan and Hong Kong weighted byexports from Japan in 1995.
Sources: Ministry of Finance, “Trade Statistics;” OECD, “Int’l Trade by Commodities Statistics.”
Note:

Figure 2-8. Year-on-Year Change in Exports by Figure 2-9. Trend of Export Volume by
Products, April-September 2001
Destination (1996=100)① Video projectors（％） 800

Product

VolumeContribution
to value

Value

Total exports (100.0)

‑

▲ 6.1

▲ 6.1

Electric appliances (23.4)‑▲ 18.1▲ 4.8(Television (0.7))(▲11.6)(5.7)(VCRs (1.9))(▲17.6)(▲4.0)(▲0.1)(Telecommunication equipment (1.6))‑(▲30.4)(▲15.5)(▲21.5)(▲0.3)(▲1.2)(Integrated circuits (4.8))
General machinery(0.0) 200

0
Ⅰ
96

▲ 9.5

▲ 2.0

(3.1)

(Metalworking machines (1.6))‑(▲9.8)(0.1) 800(▲0.2)

Precision machinery (5.6)

‑

▲ 3.2

▲ 0.2

Chemicals (7.6)

‑

▲ 3.2

▲ 0.2

Non-metal mineral products (1.2)

‑

▲ 4.5

▲ 0.1

Metals and metal products (5.9)

‑

▲ 0.6

▲ 0.0

Textiles and textile products (1.9)

‑
‑

1.4
2.1

0.0
0.4
(0.4)

(Automobiles (14.8))(▲5.7)(3.3)

Foods (0.9)

‑

105.5

Others (10.4)

‑

4.1

Ⅲ

Ⅰ
97

Ⅲ

Ⅰ
98

Ⅲ

Ⅰ
99

Ⅲ

Ⅰ
00

Ⅲ

Ⅰ
01

Ⅲ

② Color liquid crystal TV (mainly for automobiles)‑

Transport equipment (22.5)

Hong Kong+China World

US

400

(▲1.4)(Data processing (3.1))

Korea

600

400

US

Korea

600

World

Hong Kong+China

200
0
Ⅰ
96

0.4 600
0.4

400
Note: 1. The share of each product in total exports is in parentheses.
2. Video projectors and color liquid crystal TVs account for 200
58.1% and 8.0% of television exports in the first half of2001, respectively.
0
Sources: Ministry of Finance, “Foreign Trade Statistics.”
Ⅰ
96

Ⅲ

Ⅰ
97

Ⅲ

Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ Ⅲ Ⅰ
98
99
00
01
③ Automatic data processors(personal computers and peripheral equipment)
Hong Kong

China
World

Ⅲ

Ⅰ
97

Ⅲ

Ⅲ

Ⅰ
98

Korea

US

Ⅲ

Ⅰ
99

Ⅲ

Ⅰ
00

Ⅲ

Ⅰ
01

Ⅲ

Development Bank of Japan Research Report/ No. 22 39

Export of Parts and Materials to China Expected to Increase Following Its
Accession to WTO
Figure 2-10. Principal Requirements for Accession to WTO
GeneralAgricultural
Industrial
TextilesMachinery

Deregulation of international trade by domestic and foreign companies within three years. A transitional safeguard of 12 years to
Tariff reduction (average of 977 products) from 22.7% to 15.0%. Subsidies limited to 8.5% of total production.
Tariff reduction (average of 6,174 products) from 16.6% to 8.9% (by 2010).
Safeguard for textiles maintained until 2008.
Tariff reduction on air-conditioners from 25% to 15% by 2004. Tariff on semiconductors to be reduced from 6% to 0%, and on
IT products (semiconductors/PC, PC equipment, telecommunication facilities) from 13.3% on average to 0%, both by 2005.

Transport
Enlargement of import quota by an annual rate of 15% from $6 billion. Current tariffs of 70-80% to be reduced to 25% on
equipment
passenger cars, 10% on parts and 0% on trucks by 2005. Abolition of restrictions on car models and on foreign capital(automobiles) participation i
Abolition of restrictions in terms of operating area, volume, ownership and after-sales service.
Commerce
Finance/insura Banks: Restriction on customers in foreign exchange operation to be abolished at the time of accession. Transactions in the
Chinese yuan to be fully liberalized in two to five years. Geographical restrictions to be lifted within five years.Insurance: Al
nceServices

Telecommunic Foreign ownership to be granted up to 51% for value-added telecommunications and 49% for other services within four years
from accession. All services to be authorized in Beijing, Shanghai and Guangzhou at the time of accession. Geographicalationsrestriction

Sources: WTO Homepage, “Working Group Report” on September 17; various press reports.

Figure 2-11. Trade between Japan and China (2000)($100 million)
150

Japanese exports
Japanese imports
Balance

100
50
0
‑50
‑100

Miscellaneous
Miscellaneous

Artworks

Sundries
Sundries

Arms

Optical

Optical instruments
instruments

Source: Chinese Overseas Trade Statistics (2000)

Transport equipment

ElectricalElectrical appliances
appliances

MachineryBasemetalsBasemetalsPrecious metals

Stone

Stone materials
materials

Footwear

TextilesTextiles

Pulp

Wood
Wood

Hides and skins

Plastics
Plastics

Chemicals

Mineral products

Processed foods

Fats
Fatsand
andoilsoils.

Vegetable productproducts

AnimalAnimal products‑150

Figure 2-12. Japanese Direct Investment in China by Industry (Report basis, FY 2000)
400

40
Value

300

Number of projects (right scale)

30

Source: Ministry of Finance, “External Direct Investment.”
40 Development Bank of Japan Research Report/ No. 22

OthersOthersRealReal
estateestateTransport
Transport

Services
Services

Finance/insurance
Finance/insurance

Commerce
Commerce

Construction
Construction

MiningMiningFisheries/marine
Fisheries/marine
production

Agriculture/forestry
Agriculture/forestr

OthersOthersTransport

Transport equipment
equipment

Electricalappliances
Electricalappliances

Machinery
MachineryIron/non-ferrous
Iron/non-ferrous
metalsmetals0
Chemicals
Chemicals

0Wood/pulp
Wood/pulp

10
TextilesTextiles

20

100
Food
Food

200

Development of Stock Market for Emerging Businesses and Increase in M&A
Figure 2-13. Scale of Stock Markets for Emerging Businesses in Japan(¥100 million)
TSE Section 1 Emerging markets total

(a)
1,495
2,870,187
8,318

Listed companies
Market capitalization
Trading per day

(b)
1,016
94,814248

JASDAQ(b)/(a)
68.0%
3.3%
3.0%

902
80,176
205

Nasdaq
Japan
69
9,113
27

Mothers

Others

37
5,422
15

8
103
n.a.

Notes: 1. The number of listed companies and market capitalization are as at the end of September 2001. Trading per day represents
average for January-August 2001. JASDAQ excludes the Bank of Japan and shares placed under control.
2. Others include the New Market Section of the Osaka Stock Exchange (six listed companies), Centrex of the Nagoya Stock
Exchange (one), Ambitious of the Sapporo Stock Exchange (one) and the Q Board of the Fukuoka Stock Exchange (0).
Sources: Tokyo Stock Exchange, “TSE Monthly Statistics;” Securities Dealers Association of Japan, “Annual Report of Statistics on
OTC Stock,” and “Security Dealers Report;” Nagoya Stock Exchange, “NSE Monthly Statistics,” etc.

Figure 2-14. Trend of Newly Listed Companies in
Emerging Stock Markets(Number of companies)
180
Others160
Nasdaq-J
140
Mothers120
JASDAQ
100
80
60
40
20
0
91 92 93 94

Figure 2-15. Transactions by Type ofInvestor
TSE Section 1

JASDAQ

Securities houses on their own accounts
16%

33%

96

97

98

99

00

10%

53%

13%

13%
Trust banks & investment
trusts

01
(CY)

6%

Individuals

Foreigners

95

18%

30%

8%

Other
corporations

Note: Coverage rate is 87% for TSE Section 1 and 69% for NASDAQ.
Sources: Tokyo Stock Exchange, “TSE Monthly Statistics;” Securities
Dealers Association of Japan, “Annual Report of Statistics on
OTC Stock.”

1. 2001 includes the companies slated for listing within the year
as at the end of October.
2. Others include the same markets as in Figure 2-13
Sources: Securities Dealers Association of Japan, “Annual Report ofOTC Stock;” Web Site of each market.
Notes:

Figure 2-16. Trend of M&A(Number)
1800
Involving a foreign firm partially owned by a Japanese firm
Acquisition of a Japanese firm by a foreign firm
Acquisition of a foreign firm by a Japanese firm
Between Japanese firms

1500
1200
900
600
300
0
91

92

93

94

95

Note: Figure for 2001 represents 12/9 of January-September total.
Source: Lecof, Co. Ltd., “marr.”

96

97

98

99

00

01
(CY)

Development Bank of Japan Research Report/ No. 22 41

Hopeful Development of Markets for Rental Houses, Used Houses and Housing Renovation
Figure 2-17. Housing Stock and Unoccupied
Ratio

Figure 2-18. Housing for Rent in
Housing Markets (1998)(10,000 units)
6,000

(%)
12

100

5,000

11

80

4,000

10

3,000

9

2,000

8

1,000

7

20

6
1993
1998 (FY)
Housing for rent
Others

0

0
1978
1983
Owner-occupied houses
Issued houses
Unoccupied ratio

1988

(%)

60
40

30

30 〜
49

50 〜
69

Housing for rent

Note: “Unoccupied houses” do not include “secondary houses.” “Others”
include unidentified housing and housing with no inhabitant households.
“Unoccupied ratio” only covers densely populated areas.
Source: Ministry of Public Management, Home Affairs, Posts andTelecommunications, “Housing and Land Survey .”

70 〜
99

100 〜
149

150 (㎡)

Owner-occupied houses

Note:

The share of housing for rent (owner-occupied houses) in eachfloor area segment. Housing for rent does not include issued
houses.
Source: Ministry of Public Management, Home Affairs, Posts andTelecommunications, “Housing and Land Survey .”Figure 2-20. Trends in Used Housing Market
in JapanFigure 2-19. Construction Starts of
Housing for Rent (Change on previous
r)
(%)
15
10

(1,000 units)
180(Times)

160

0.12

0.14

140

0.10

120

5
0

100

0.08

80

0.06

60

‑5

40

‑10

20

(CY quarterly basis)

‑15
99

00
〜30
71〜100
Total

90
51〜70
150〜

0.02

91

92

93

94

95

96

97

0.00
98 (CY)The number of used houses for 1998 represents an estimatebased on January-September data. “Comparison with housing starts”
represents used houses purchased/housing starts.
Source: Jutaku Sangyo Shimbun, Co. Ltd., “Data on Housing Economy.”

Source: Ministry of Land, Infrastructure and Transport,“Building Construction Started.”

Figure 2-22. Trends in Housing Renovation
MarketFigure 2-21. Trends in Secondhand Housing
Market in US
3.2
3.1

500

Comparison with housing starts (right scale)

Note:

(㎡)

600

0.04

0

01
31〜50
101〜150

Used houses purchased as owner-occupied houses

6(%)(¥ trillion)

30

5

3.0
400

2.9

300

2.8
2.7

200

Used houses purchased as owner-occupied
housesComparison with housing starts (right scale)

100

2.5
2.4

91

92

93

94

95

96

97

98

20

3
2

10

2.6

0
90

4

1

“Comparison with housing starts” represents used houses
purchased/housing starts.
Source: U.S. Census Bureau, “Statistical Abstract of the United States.”

42 Development Bank of Japan Research Report/ No. 22

(CY)

0

99 (CY)

Note:

Scale of housing renovation market
Ratio of market scale (right scale)090Notes:

91

92

93

94

95

96

97

98

99

1. Scale of housing renovation market is converted into real terms by housing
deflator.
2. Ratio of market scale represents the scale of housing renovation
market/real housing investment.
Sources: Cabinet Office, “Annual Report on National Accounts;” Center for Supportof Housing Reform and Conflict Resolution, “Annual Report on Housing
Reform.”Increase in Real Consumption of Durable Goods and Expansion ofSecondhand Markets
Figure 2-23. Real Consumption Expenditure Figure 2-24. Period of Use of Durable Goods
Index by Product and Service
before Replacement
140(Index, 1990=100)

12Four large-sized household electricalappliances

11
120

10
TV and video

9
100

8
Video cameras

7

80

6

Automo560
90

92 Durable94
96
98
goods
Services
Total consumption expenditureSemi-durable goods
Non-durable goods

00

4
91

Note:

Converted into real terms with the consumer price index
excluding imputed rent.
Sources: Ministry of Public Management, Home Affairs, Posts andTelecommunications, “Family Income and Expenditure
Survey” and “Consumer Index.”

92

93

94

95

96

97

98

99

00

01

(CY)
Notes: 1. Average number of years of use before replacement of
durable goods (annual average).
2. Four large-sized household electrical appliances represent
simple average of refrigerators, room air-conditioners,
washing machines and vacuum cleaners.
Source: Cabinet Office, “Survey on Consumption Trends.”

Figure 2-25. Sales of New and Used Passenger Cars
(Times)
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
00

(10,000 vehicles, 100,000 vehicles for total number)
800
New cars
700
Used/new car ratio (right scale)
Used cars
600
Total number of owned cars
500
400
300
200
100
0
70
75
80
85
90
95
Source: Japan Automobile Manufacturers Association, Inc., “Monthly Statistics on Automobiles.”(CY)

Figure 2-26. Emergence of Secondhand Retail Industry(1) Number of stores by category

(％)

50

(Index, 1972=100) (2) Trend of Secondhand Retail Industry
250
Real sales
Number of stores200

1991-94
1994-97
1997-99

40
30

150

20
10

(Survey year)

Central stores

50
Specialized stores

Other supermarkets

Convenience stores‑40

Specialized supermarkets‑30

General supermarkets‑20

Retail total‑10

Department stores

100

0

70

75

80

85

90

95

Note:

Sales are converted into real terms with the consumer
price index (excluding imputed rent).
Sources: Ministry of Economy, Trade and Industry, “Commercial
Statistics;” Ministry of Public Management, Home Affairs,
Posts and Telecommunications, “Consumer Price Index(1995 as base year).”Development Bank of Japan Research Report/ No. 22 43

Strong Willingness to Spend on Education
Figure 2-27. Trend of School Education
Expenditure per Person
160
150
140
130
120
110
100
90

Figure 2-28. Number of Participants in
Lifelong Education(Index, 1982=100)

3500(10,000 persons)Various schools and institutions
Boards of education
Culture centers

3000
2500
2000
1500
(FY)

1000

82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

500

Notes: 1. Exclude extramural education (cram schools, private
lessons, etc.)
2. Simple average of index for kindergarten, elementary school,
junior and senior high school and college, weighted by the
number of students in public and private schools.
Source: Ministry of Education, Culture, Sports, Science and Technology,“Survey on Child Learning Expenditure.”

0

(FY)
89

92

95

98

Source: Ministry of Education, Culture, Sports, Science andTechnology, “Report of Survey on Social Education.”

Figure 2-29. Trend of DI on Service Expenditure (Seasonally adjusted)
105Supplementary education
including cram schools
Monthly fees for lessons

0Admission to concerts, etc.

‑5Sport activities
Housework services‑10

Eating-out, fashion, amusement
parks, etc.

‑15
(CY)

‑20
92

93

94

95

96

97

98

99

00

01

1. Data represents planned “increase” – “decrease” (%) in expenditure for the coming three months.
Average of 3Q and 4Q for 1992.
2. Eating-out, fashion, amusement parks, etc. represent simple average of the three components.
Source: Cabinet Office, “Survey on Consumption Trends.”
Notes:

Figure 2-30. Products with Widest Fluctuation in Household Consumption(2) Products with sharpest decline(1996-2000, annual rate)(1) Products with fastest growth (change on previous year, %)1 Wine2 Personal computers/word processo
3 Eating-out of other noodles
4 Works related to water and sewage
5 Video cameras
6 Charges related to housing
7 AV disks
8 Mackerel
9 Non-life insurance premiums
10 Private elementary schools

19.3
19.1
16.7
14.7
14.3
12.2
11.4
10.5
10.0
9.8

11 Fixtures
12 Plastic bags and wraps
13 Bananas
14 Phone bills
15 Private junior high schools
16 Automobile goods
17 Cameras
18 TV games
19 Batteries
20 Others in miscellaneous beverage

9.5
8.9
8.2
7.7
7.5
7.4
7.3
7.3
6.9
6.8

Note: Average of annual growth rates for the five calendar years.
Source: Ministry of Public Management, Home Affairs, Posts and Telecommunications.

44 Development Bank of Japan Research Report/ No. 22(change on previous year, %)1 Imported whiskies
2 Women’s clothing
3 Marriage ceremony expenses
4 Interior decorations
5 Canned processed foods
6 Thermos
7 Other rent
8 Electric kotatsu
9 Domestic whiskies
10 Hair setting

▲13.4
▲11.8
▲11.1
▲10.8
▲10.7
▲10.5
▲10.3
▲9.9
▲9.8
▲9.6

List of Back Numbers (Including JDB Research Report)
No. 22 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation and Prospects ofEvolution (this issue)
No. 21 Survey on Planned Capital Spending for Fiscal Years 2000, 2001 and 2002, December 2001
No. 20 Current Situation and Challenges for Cable Television in the Broadband Era, October 2001
No. 19 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation, August 2001
No. 18 Introduction of a Home Appliance Recycling System: Effects & Prospects: Progress towards Utilisation of
Recycling Infrastructure, June 2001
No. 17 Survey on Planned Capital Spending for Fiscal Years 2000 and 2001, June 2001
No. 16 Revitalization of Middle-aged and Elderly Workers in Japan’s Labor Markets: Requiring the Expansion of
the Vocational Training Functions, March 2001
No. 15 Risk-Averting Portfolio Trends of Japanese Households, March 2001
No. 14 Consumption Demand Trends and the Structure of Supply: Focus on Retail Industry Supply Behavior,
March 2001
No. 13 Recent Trends in the Japanese Economy: Weakness of Current Economic Recovery and Its Background,
March 2001
No. 12 Empirical Reassessment of Japanese Corporate Investment Behavior: Features and Changes since the1980s, based on Micro-level Panel Data, March 2001
No. 11 Survey on Planned Capital Spending for Fiscal Years 1999, 2000 and 2001, October 2000
No. 10 Job Creation and Job Destruction in Japan, 1978-1998: An Empirical Analysis Based on Enterprise Data,
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, June 2000

No. 6

Current Status and Future Perspective of the Japanese Remediation Industry: Technology and Market 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 AsianCountries, 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 Japanand 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.82

The Significance, Potential, and Problems of DNA Analysis Research: Establishing Public Acceptance isEssential, May 1998

No.81

The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996, 1997 and 1998
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 the Construction 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 Datefrom 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 theElectric 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 the Current
Economic Recovery, September 1996
No. 59 Analysis of the Primary Causes and Economic Effects of Information: Related investment in the UnitedStates 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 and 1996
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 and 1995
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 and 1994
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 and 1993
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 and 1992
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 and 1991
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 and 1990
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 and1989 Conducted in February 1989, March 1989
No. 13 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1987, 1988 and 1989
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 ASEAN

Countries, 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