IEEJ © December 2017. All Rights Reserved.

19 December 2017
The 428th Forum on Research Work

Economic and Energy Outlook of Japan through FY2018
Japanese economy/energy supply and demand heading to slower growth or decline
AOSHIMA Momoko, Y. Yorita, H. Arimoto, D.M. Kim, Y. Shibata, A. Yanagisawa, S. Suehiro, T. Ohiraand K. Ito

Summary of economy and energy outlook [Reference Scenario]
Macro economy and production activity | Japanese economy slows down its
expansion in FY2018. Trade balance’s surplus diminish.
Firm growth in both domestic and foreign demand expands the Japanese economy by 1.8% in FY2017.
Although FY2018 enjoys firm private consumption under favourable employment and income and strong
private capital investment, the GDP growth will decelerate to 1.1% due to the slower expansion of exports.
This year, the index of industrial production experiences its highest level since the Lehman shock (+3.3%),
with the chemical and machinery industries being large contributors. Although we are expecting firm
demand during FY2018 in anticipation for the 2020 Summer Olympics in Tokyo, some demand related to thesuperconducting maglev construction and last minute demand prior to the next VAT hike in October 2019,decelerated exports (such as machinery) leads to a slower growth of the index (+1.3%). Trade balance, which
turned positive at JPY4 trillion in FY2016, diminishes to JPY1.9 trillion in FY2017 and will almost plunge into
negative in FY2018 because of rising energy prices.

Energy supply and demand | increases after a long time in FY2017. FY2018 turns
into a decline again. CO2 emissions continue to reduce.
Total primary energy supply in FY2017 will increase (+0.7%) for the first time since FY2013 due totemperature factors and a favourable economy. On the other hand, FY2018 supply will decline by 0.3%, due
to a slow down of the economic growth. Natural gas reaches its lowest level since the Great East Japan
Earthquake due to the progressing shift from oil and natural gas to nuclear and renewable energies.
Although final energy consumption had decreased for six consecutive years, FY2017 turns to an increase of0.6%. Due to favourable production activities, the industrial sector is a large contributor to the increase.
FY2018 turns to a decrease in all sectors for an overall decline in consumption of 0.4%. The energy-related
CO2 emissions will be reduced to 1,104Mt in FY2018, or 10.6% less than in FY2013. The three main
contributors to the reduction are a decrease in energy consumption (-4.8%) and increases in nuclear (-2.6%)
as well as new energies (-2.5%).

Energy sales | Electricity and city gas growth will decelerate, the decrease in fuel oil
sales will further expand in FY2018
In FY2017, total electricity sales increase by 1.2%. Electricity sales for industry (high and extra-high voltage)
augment due to favourable production activities, and sales for lighting services and low voltage increases
because of a cold winter and the related increased use of air conditioners. Although electricity sales in
FY2018 will increase for a second consecutive year, the growth will only be of 0.2%. Sales for lighting services
will decrease due to continuous improvements in energy efficiency for lighting and household electric
appliances and a return to average temperature. Sales for high and extra-high voltage increase slightly
because of a moderate production growth in the machinery industry. Total city gas sales in FY2017 will
update their highest level (+2.9%) due to successes in demand development activities and enlarged
production and economic activities. FY2018 will further update its highest level for a third consecutive year,

Economic and Energy Outlook of Japan through FY2018|1IEEJ © December 2017. All Rights Reserved.

led by growing sales to general industry because of the continuous demand development activities.
Influenced by a slowdown of production and economic activities, however, the growth will be limited to+1.4%. In FY2017, total fuel oil sales decrease by 0.9%. Although the sales of naphtha increase because ofless periodic maintenance of ethylene plants than in the previous year, sales of gasoline and heavy fuel oildecrease. FY2018 will experience a decrease in sales of heavy fuel oil C for power generation (due to thereturn of nuclear power plants), a decrease in sales of naphtha (due to more periodic maintenance ofethylene plants), and a decrease in sales of kerosene and heavy fuel oil A (because of fuel switching toelectricity and city gas). Sales of all kind of fuel oils except for diesel oil decrease, and total sales will decreaseby 2.3% to close to a level below 170 billion litres.
Table 1 | Summary of Reference Scenario
Historical
Projections
Year-to-year changes
FY2010 FY2014 FY2015 FY2016 FY2017 FY2018 FY2016 FY2017 FY2018

513.5 472.9 465.5
232.3 217.1 211.4
Oil (GL)
73.6
91.5
86.9
Natural gas2 (Mt of LNG equiv.)
2184.7 190.0 190.1
Coal (Mt)
Nuclear (TWh)288.20.0
9.4
Hydro (TWh)
81.8
82.5
85.2
63.9
87.2
99.2
Other renewables3 (TWh)4Final energy consumption (Mtoe) 340.6 314.6 310.8
159.3 149.2 147.4
Industry5
Buildings
98.7
88.5
86.3
Transport
82.7
77.0
77.1
Petroleum products
176.2 158.4 158.5
Natural gas and city gas
34.4
34.3
33.8
Electricity
89.8
82.7
81.5
6(926.6)(851.4)(837.5)
Electricity sales (TWh)39.28 40.16 39.91
City gas sales7 (Billion m3)
Fuel oil sales (GL)
196.0 182.6 180.5
4Energy-related CO2 emissions (Mt) 1,131 1,186 1,150(FY2013=100)
91.5
96.0
93.1
Crude oil, import, CIF ($/bbl)
8489
49
LNG, import, CIF ($/MBtu)
11.3
15.4
8.8
Steam coal, import, CIF ($/t)
114
9376
Coking coal, import, CIF ($/t)
175
10988
Real GDP (JPY2011 trillion)
492.9 510.9 518.3
Industrial production (CY2010=100)
99.4
98.4
97.5
Exchange rate (JPY/$)
86.1 109.2 120.4
Cooling degree days
560
364
322
Heating degree days
1,077
994875
Primary energy supply (Mtoe)1

Economy &temperaturePricesEnergy

2463.5205.189.0
188.0
17.3
78.7
108.7
310.5
146.7
87.7
76.2
155.9
34.8
83.0
853.9
41.53
176.9
1,144
92.6
48
7.0
81
110
524.4
98.6
108.4
431966

466.7
202.4
86.9
188.9
32.3
80.4
118.2
312.4
148.3
88.4
75.7
155.9
35.8
84.0
864.5
42.71
175.4
1,132
91.6
56
8.8
98
145
533.9
101.8
112.5
397
1,043

465.3 -0.4%
195.2 -3.0%
84.9 2.5%
188.9 -1.1%
67.5 83.3%
81.5 -7.7%
126.8 9.6%
311.3 -0.1%
148.3 -0.5%
87.9 1.6%
75.2 -1.2%
154.1 -1.6%
36.3 3.1%
84.1 1.8%
866.4
n.a.
43.30 4.1%
171.4 -2.0%
1,104 -0.5%
89.4..
65 -2.5%
9.9 -19.8%
93 6.8%124 25.8%
539.6 1.2%
103.1 1.2%
115.0 -9.9%
380 33.8%
1,019 10.4%

0.7% -0.3%-1.3% -3.6%-2.4% -2.3%
0.5% 0.0%
86.4% 109%
2.3% 1.3%
8.7% 7.3%
0.6% -0.4%
1.1% 0.0%
0.8% -0.6%-0.6% -0.8%
0.0% -1.2%
2.7% 1.4%
1.2% 0.2%
1.2% 0.2%
2.9% 1.4%-0.9% -2.3%-1.0% -2.5%..
..
18.1% 14.8%
24.8% 13.2%
21.9% -5.4%
31.3% -14.2%
1.8% 1.1%
3.3% 1.3%
3.8% 2.2%-7.7% -4.4%
8.0% -2.2%

Notes:
1. Mtoe = 1013 kcal
2. Conversion factors for Oil: 9,126 kcal/L; Natural gas: 13,043 kcal/kg; Steam coal: 6,139 kcal/kg; Coking coal: 6,928 kcal/kg until FY2012.
2. Conversion factors for Oil: 9,145 kcal/L; Natural gas: 13,016 kcal/kg; Steam coal: 6,203 kcal/kg; Coking coal: 6,877 kcal/kg since FY2013.
3. Excluding large hydro 30 MW or more. 4. Estimated actual value for fiscal 2016. 5. Industry includes non-energy use.
6. Figures in parentheses are old statistical figures. 7. Conversion factor: 1 m3 = 10,000 kcal

Economic and Energy Outlook of Japan through FY2018|2

IEEJ © December 2017. All Rights Reserved.

Renewable power generation | Although the FIT revisions slow down the growth inrenewable power generation, the installation and burden continue to expand
The rapid increase in the approvals for renewable power seems suppressed by a fall in the purchasing pricefor solar PVs and the cancellation of previously approved but non-operated capacities. However, at the endof FY2018, the capacity will be 68 GW and the power generation will expand to 126.8 TWh; one eighth ofJapan’s total power generation. If all of the approved 105 GW (except for the expired capacities) become
operational, the cumulative amount of consumer burden will reach JPY42 trillion. This is equivalent to a risein electricity price of JPY2,400/MWh – 10% for the residential and 15% for the industry sector.

Topic | The effect of restarting nuclear power plants
We analyse the impact of the nuclear power plants’ restart on the 3Es – economy, energy and environment.
We assume a total of nine nuclear power plants to restart by the end of FY2018 in the Reference Scenario,
seven nuclear power plants in the Low Case, and 15 nuclear power plants in the High Case. Total fossil fuelimports spending could be decreased by about JPY0.9 trillion and the energy-related CO2 emissions could
decline by as much as 46 Mt in the High Case. The pace of restarting the plants has a significant impact of
the improvement of the 3Es.
Figure 1 | Effect of the nuclear power plants’ restart [FY2018, compared with the Zero Operation Case]
160 Share of total

power generation

120(9%)(7%)

80(3%)
40035-400-600

1.2-0.2-200

93

68

0.0

-0.4-276-800

Nuclear power
generation
(TWh)

-0.7

-0.8-735Electricity unitcost(JPY/MWh)

4

0.7

-10
3.0

3-20

-170.6

-1.0
00.8

-0.4

0
4.1

0.9

1.0-0.6-537

50.4-0.9

Total spending
on fossil fuelimports(JPY trillion)
Low Case

20.3-30

1.5

10.2
0.0

-40

0

Real GDP(JPY2011 trillion)

Reference Scenario-50

Self-sufficiency
rate (%)-34-46CO2 emissions(Mt-CO2)High Case

Contact: report@tky.ieej.or.jp

Economic and Energy Outlook of Japan through FY2018|3