Germany and Japan
-
A Central Banker's Perspective on their Past and
Future Relationship
Speech at the Dinner meeting hosted by Deutsche Bundesbank
Regional Office in Berlin and Brandenburg
Hiroshi Nakaso
Deputy Governor of the Bank of Japan
Introduction
Vielen Dank für Ihre sehr freundlichen Worte. Es ist mir eine große Freude und Ehre, hier
heute im schönen Berlin und Brandenburg vor Ihnen sprechen zu dürfen! Ich würde mir
wünschen, meine Ansprache weiter auf Deutsch halten zu können. Um Ihnen aber meine
Gedanken besser vermitteln zu können, werde ich nun auf Englisch fortfahren. (Thank you
very much for your kind words. It is my pleasure and honor to speak to you here today in
the beautiful city of Berlin and Brandenburg. I wish I could go on with the speech in
German. But in order to better convey my thoughts to you, I will now continue in English.)
I. Relationship between Germany and Japan
Germany and Japan have a longstanding diplomatic relationship of more than 150 years. I
think the phrase that best describes this is Ferne Gefährten (distant companions). This is
because we have many things in common, although our countries are geographically distant.
The diligence of our populations has overcome limitations of natural resources,
transforming our two countries into economic powers. Today, the labels ''made in Germany''
and ''made in Japan'' are a guarantee of quality and excellence. And as mature economies,
we face similar challenges in the future, with societal aging being one example.
The central banks of Germany and Japan also developed a friendship over the years. The
Bank of Japan established an office in Frankfurt am Main in 1956. The Bundesbank opened
its Tokyo office in 1987, as the only overseas office besides New York. In 2012, the role of
the Tokyo office was expanded to include foreign exchange reserve management. The
history of our bilateral relationship traces back to the time of the Reichsbank and the Bank
deutscher Länder. In this context, let me tell you an extraordinary story involving a former
governor of the Bank of Japan.
II. Mr. Mayekawa's Extraordinary Experience
In the very early part of my career at the Bank of Japan, I worked for Mr. Haruo Mayekawa.
He was a legendary central banker who served as the 24th Governor of the Bank of Japan,
from 1979-84. He passed away in 1989 but is still remembered as the man who brought the
Bank of Japan back into the international central banking community during the post-war
era. His long international experience, which dated back to the prewar period, won the trust
of his fellow central bankers. In October 1988, I had a chance to dine with Mr. Mayekawa
and his wife at a traditional German restaurant in Berlin. He was invited as a special guest
to the International Monetary Fund (IMF) Annual Meeting held here in Berlin that year.
Over a good wine, he became a little more eloquent than usual and started to tell us the
following story.
Berlin was a special place, he began. The Bank of Japan, after its foundation in 1882, had
established several overseas offices. In 1941, Mr. Mayekawa was assigned to the Bank of
Japan's Rome Office. World War II had broken out. After the surrender of Italy, he moved to
the Bank of Japan's Berlin Office, where he stayed until the final days of the war in Europe.
He described to us what life was like in the bunkers of Berlin in those days. Then, after the
fall of Berlin, he fled via the Siberian Railway to Manchuria, a part of China under Japanese
control at the time. From there he took a ship back to Japan. Had he decided to remain in
Manchuria, he might have been caught up in the military offensive by the Soviet Union
following its declaration of war on Japan in August 1945. When Mr. Mayekawa finally
returned home and stood in his doorway, Mrs. Mayekawa told us, she was so surprised that
she first looked to see whether he had feet -- because in Japan it is thought that ghosts do
not have feet. She had assumed he was no longer alive, because he had been reported
missing. Mr. Mayekawa is probably the only governor in the history of central banking who
experienced three unconditional surrenders in wartime; in Italy, Germany, and then in Japan.
At the restaurant, looking at the colorful and prosperous lights of the Kurfürstendamm, he
concluded his story by telling us how much he cherished peace and how much he thought
sound economic development mattered.
Let me add that for me, too, personally, Germany is a very familiar place. As a young boy in
the late 1960s, I was brought up in beautiful Hansestadt Hamburg. It was during this period
that my father took me to West Berlin for the first time. My second visit was in 1988, when,
as I mentioned, the IMF held an annual meeting in West Berlin and I attended the Japanese
delegation. So, this is my third visit. But this visit is very special as it is my first one to the
capital city of the united Germany.
III. Origins of Japan's Economic Ordeal
The two central banks, the Bundesbank and the Bank of Japan, have had the reputation as
tough inflation fighters. However, the policy priority started to diverge in the 1990s. Our
mission became focused on ending deflation and bringing Japan's economy back on track to
sustained growth. This is the topic that I now want to talk about. Let me begin with the
background to the difficulties that Japan has faced.
I think the root cause of Japan's economic ordeal is the bursting of asset bubbles in the early
1990s. Slide 1 looks at the magnitude of the bursting of asset bubbles. As you see in the left
panel, the cumulative capital gains during the bubble years in Japan amounted to more than
450 percent of nominal GDP. The bursting of the bubble resulted in a brutally large swing in
the opposite direction, with the cumulative capital losses equivalent to almost minus 230
percent of nominal GDP. In the United States, which was the epicenter of the Global
Financial Crisis, the corresponding numbers were 300 percent and minus 100 percent,
respectively. In both cases, the economic impacts were destructive.
In Japan's case, the toll was almost exclusively on the banking sector, which often had been
compared to the Invincible Armada during the bubble era. Slide 2 shows the cumulative
credit losses experienced by Japanese banks. This figure climbed constantly until it reached
almost 100 trillion yen, which corresponds to about 20 percent of Japan's nominal GDP.
During the decade of Japan's financial crisis, more than 180 financial institutions, including
internationally active ones, went under. The banking sector was broken. This meant the loss
of the credit intermediary function, which was badly needed at the time to support economic
recovery.
When Japan's economy overcame the aftermath of the homegrown financial crisis of the
1990s, it was struck by another major shock, triggered by the U.S. subprime loans problem
and accentuated by the collapse of Lehman Brothers: the Global Financial Crisis. The left
panel in Slide 3 shows that the parallel shift of GDP to the downside took place in Japan.
This also was the case for other major economies, including the U.S. economy. Although
the GDP recovered to pre-crisis levels, for reasons we do not precisely know, it has not
returned to the original trends in the Japanese economy and many other advanced
economies. On the contrary, the German economy, which you see in the right panel, was
exceptional in that it reverted to the original trend rather quickly with higher growth rates.
The difference may be an interesting topic to be further explored.
Therefore, the financial crisis was the root cause for Japan's ordeal. But the country's
problem was compounded by other factors; namely, deflation and demography. Slide 4
shows Japan's potential growth rate with a solid red line and its determinants in bars of
different colors. The protracted period of deflation that lasted for almost 15 years after the
homegrown financial crisis in the 1990s prevented firms from investing in capital, and
capital input remained sluggish because the corporate strategy under deflation was to sit on
cash. Meanwhile, labor input has negatively contributed since the 1990s as a result of the
shift in demographics. This has much to do with Japan's aging society, where the birth rates
remained low and the baby boomers reached their retirement age.
As the solid red line in the graph shows, the potential growth rate in Japan has been on a
declining trend, coming down from around 4 percent in the late 1980s to almost 0 percent
before bouncing back to 0.8 percent recently. What this chart implies is that, in order to
elevate Japan's potential growth rate, we need to raise all three determinants: total factor
productivity (TFP), labor input, and capital input. Another way of expressing this is that we
need to raise labor productivity and labor input in order to elevate Japan's potential growth
rate.
Slide 5 provides a decomposition of Japan's GDP growth rates into labor productivity
growth and rate of change in the number of employed persons. It is quite obvious from the
chart that the decline in labor force forecast for the next decades must be more than offset
by improvement in labor productivity if the Japanese economy is to maintain positive
growth. What this chart suggests is that, for a country like Japan, or any country with a
shrinking population, improving labor productivity is the number one policy priority.
An interesting question in this regard is how Japan's situation compares with Germany, the
economy of which is known to face similar demographic challenges sooner or later. Slide 6
compares the economic performances of Japan and Germany over the last decade, from
2006 through 2016, and the contributing factors. The average annual economic growth rate
in Germany was 1.5 percent, which was more than twice as high as Japan's growth rate of
0.6 percent during the same period. The improvement in labor productivity was more or less
equivalent in both economies. The major difference appears to be in terms of labor input.
While labor input declined in Japan, it has shown positive growth in Germany.
Slide 7 shows why this is the case. While the hours worked by an employed person declined
in both economies, falls in the unemployment rate and increases in the labor force
participation rate have been more pronounced in Germany than in Japan as far as this period
is concerned. But challenges lie ahead for both economies. The right panel in Slide 8 shows
that Japan has already turned into what is called a "population onus society," in which the
working age population declined at a faster pace than the total population. As the left panel
suggests, this is forecast to be followed by Germany, albeit in a less conspicuous manner, in
the coming decades.
The decline in the working age population may be partially offset by an increase in the
number of foreign workers. This seems to typically have been the case with Germany,
which you see in the panel of Slide 9. Even for Japan, the number of foreign workers has
climbed in recent years by more than one million against the backdrop of an acute labor
shortage.
Even if a decline in the working age population is inevitable, the negative impact on labor
input can be mitigated by raising labor participation rates. In this regard, Japan has made
tangible achievements in recent years. Slide 10 offers an international comparison of labor
force participation rates. The lower left panel shows Japan's labor participation rate for
women by age group over the past two decades. You see that more women in the age group
of 25-34 years (typically young working mothers) work today than ever before, offsetting
the overall decline in the working age population. The labor participation rate for this age
group has climbed to 77 percent in 2016, and as a result, the notorious M-shaped curve
largely has been corrected. An international comparison shown in the lower right panel
reveals that Japan's participation rates for women in 2016 are generally higher than in the
United States, although not as high as in Germany or Sweden.
Thus, of the two supply-side determinants of economic growth, labor input can be upheld
by raising labor participation rates. What about the other determinant, labor productivity?
Slide 11 provides us with some insight. The left panel compares the level of labor
productivity in the G7 countries. If you place the U.S. productivity level as the benchmark
at 100, Japan's productivity level is around 70 percent of the U.S. level. The German
productivity level stands highest in the G7 economies. Thus, for Japan to catch up to the
U.S. productivity level, it has to close a gap that amounts to 30 percent. As a matter of fact,
the right panel shows that Japan achieved one of the highest productivity growth rates
among the G7 countries between 2000 and 2015. This suggests that there does remain room
to catch up, and it is actually catching up. We know that our manufacturing companies are
competitive on a global standard. So, it is mainly the services industries that need to
accelerate their catch-up process, possibly through a wider use of information and
communication technologies.
IV. Bank of Japan's Monetary Policy
Now let me talk about the monetary policy. The Bank of Japan did not just sit by and watch
Japan's economic difficulties. In fact, as the nation's central bank, we went through an
all-out struggle. Slide 12 shows that the problem with Japan was that the policy rate had
reached 0 percent in the early 2000s long before other central banks in the major economies
faced the same problem. This meant that there was no room for the Bank of Japan to reduce
the short-term policy rate. Japan was faced with the zero-lower bound ahead of other
industrialized economies.
When room for further policy rate cuts was exhausted, we introduced a number of new
monetary policy measures that are described today as unconventional monetary policies.
The Bank of Japan originated quantitative easing and was the first to employ forward
guidance. We have literally been an inventor of various sorts of new forms of monetary
policies. The latest version of such new policies is called Yield Curve Control (YCC). Slide
13 shows the outline of the policy. It intends to facilitate the formation and thus the shape of
a yield curve that is considered most appropriate for maintaining the momentum toward
achieving the price stability target of 2 percent.
Under YCC, the operational target is the interest rate. The novelty is that we have two target
rates. The short-term policy interest rate is set at minus 0.1 percent and the target level of
the 10-year Japanese government bond (JGB) yields at around 0 percent. We are buying a
necessary and sufficient quantity of JGBs to maintain the rate targets. I think the policy has
been quite effective. The left panel in Slide 14 shows that Japan's yield curve generally
stays lower than those in the United States and Germany. A comparison with the German
yield curve reveals that, while shorter rates are lower in Germany, long-term rates are kept
lower in Japan than in Germany. The right panel compares 10-year bond yields in the major
economies. While the U.S. Treasury rates moved up after the presidential election in
November 2016, dragging the German Bunds rates in the same direction, the JGB yields
remained at lower levels under YCC.
I now turn to economic and inflation development in Japan to show that the monetary
policy has worked quite effectively. Slide 15 provides the Bank of Japan's latest economic
and inflation outlook. As you see in the table, Japan's economy is forecast to grow 1.9
percent in fiscal 2017 and 1.4 percent in fiscal 2018. This is well above Japan's potential
growth rate, which is estimated to be around 0.8 percent. Therefore, the output gap is
expected to improve further into positive territory. This is supposed to exert upward
pressure on prices. However, on the inflation front, consumer price index (CPI) inflation
rates remain weak and are only expected to reach 1.8 percent in fiscal 2019, still falling
short of the price stability target of 2 percent.
In the meantime, the economy has never been better balanced in the recent past. As we see
in the left panel of Slide 16, corporate profits have climbed to record high levels. The labor
market is very tight with the unemployment rate, shown in the middle panel, all the way
down to 2.7 percent, which implies full employment. Meanwhile, job opening rates, as
shown in the right panel, rose to historically high levels. So, the question is why the prices
are so weak when the macroeconomic fundamentals are so favorable. As a matter of fact,
this may be a common question to be asked of the economies of the United States and the
Euro area.
My answer to the question in Japan is that, against the backdrop of acute labor shortage,
corporate firms in Japan are trying to absorb wage cost pressures without passing them on
to sales prices, through such measures as labor-saving capital expenditure, and streamlining
their business processes, by doing away with excessive or unnecessary services. In both
cases, labor productivity improves and exerts downward pressure on inflation. As a matter
of fact, as you see in the left panel of Slide 17, a macroeconomic perspective tells us that
labor productivity is on a steady upward trend recently, while real wages are moving almost
sideways. Thus, the gap between them, which we label the real wage gap, has declined, as
you see in the right panel. This means that real wage increases have not caught up with
improvements in labor productivity.
In sum, I think weak inflation in Japan has to do with higher productivity, which can be
regarded as a supply-side shock. Assuming that wages eventually catch up with labor
productivity improvement and the wage gap reverts to zero over time, we can expect
inflation rates to pick up accordingly. I think it is a matter of time before we start to witness
inflationary pressures gather momentum. To the extent that good things are happening to the
economy, I think we do not need to be overly frustrated about the low inflation. We can be
patient and continue with the current monetary policy without any further easing.
V. Lessons from the Japanese Experience
What lessons, if any, does the Japanese experience have for the Euro area, which now faces
similar challenges ranging from low inflation to demographics? I wish I could offer you a
full answer, but our own mission to overcome deflation and bring the economy back on
track toward sustained growth is not fully completed. So, what I'll offer here are three
interim suggestions.
First, you definitely need to avoid a financial crisis. We have learned that a financial crisis
inflicts lasting damage on the economy. Therefore, it is essential that the soundness of the
financial system is maintained through adequate regulation and supervision. It is just as
important to have an operational safety net, including a deposit insurance system and
resolution framework that prevents a failure of a financial institution from developing into a
systemic crisis. In this regard, the completion of the Basel III regulatory reforms that began
following the onset of the global financial crisis is a significant achievement.
Second, monetary policy alone cannot achieve the ultimate goal of overcoming deflation
and bringing the economy back on track to sustained growth. Monetary policy must be
pursued in tandem with the growth strategy, or structural policies more broadly. Monetary
easing raises potential GDP through an increase in the capital stock as well as labor input,
thus affecting the supply side. Moreover, accommodative monetary conditions should
mitigate any frictional costs that might otherwise accompany the necessary structural
reforms. What we in Japan and the Euro area have in our hands is a golden opportunity to
upgrade our economies. We should not miss this chance to promote much needed structural
reforms.
Third, the central bank needs to maintain its credentials as a deflation fighter as much as an
inflation fighter by showing a clear and unequivocal commitment to battle deflation. Should
this be lost, our experience suggests that the credentials would be extremely difficult to
recover.
I am sure that the policy makers in the Euro area, including the Bundesbank, recognize
precisely these points and therefore require no advice from me. The cumulative wisdom we
have built up over the years in addressing the challenges should collectively and fully be
utilized in guiding our economies in the right direction.
Closing Remarks
One summer day in the late 1960s, when I lived in Hamburg, my father drove me to the
border of what was then the Deutsche Demokratische Republik (DDR). At the border in the
middle of a meadow, a Bundeswehr border guard approached me and said ''Look boy, also
beyond here is Germany-auch drüben ist Deutschland.'' What Germany has achieved
since then is a truly admirable Wirtschaftswunder (economic wonder). I understand it has
embarked on the ''Industrie 4.0'' initiative to create yet another Wirtschaftswunder.
In the five decades since my boyhood in Germany, the social and economic environments in
both countries have changed quite dramatically. Today, an average Japanese person has a
life expectancy that is 15 years longer than people did in 1960. An average Japanese worker
today works 50 hours less per month compared with 1960. Similarly, in Germany, life
expectancy today is 13 years longer and a German worker works 70 hours less compared
with 1960. This is a big change for the people in the two countries, whose common virtue
used to be diligence in the 1960s. But this is not necessary a bad thing, because people have
more time to enjoy life. It also means that we have more time to get to know each other
even better.
I have a father, who is now fully retired and is one of those enjoying longer life. When I
visited him over the New Year holiday, he told me he still regularly exchanges updated
family history with his alten Kameraden (old comrades) fifty years on since his days in
Germany. Old friendship never dies. I now know it is the responsibility of our generation to
not just inherit the friendship with Germany, but foster it and pass it on to the generations to
come.
Thanks to technological innovation, we can learn a lot more easily about each other's
history and culture these days. In addition, traveling has become far easier, enabling ''seeing
is believing'' for many people. Thus, I believe the relationship between Germany and Japan
is entering a new stage beyond the traditional sphere, where economic and cultural
interaction has become an everyday affair, making geographical distance less meaningful. I
would like to conclude my speech this evening by expressing my sincere hope that our
friendship develops from Ferne Gefährten (distant companions) to what can be called Enge
Gefährten (close companions). This concludes my speech this evening.
Ich danke Ihnen für Ihre Aufmerksamkeit. (I thank you for your attention.)
Germany and Japan
A central banker's perspective on their past and future relationship
Speech at the Dinner meeting hosted by Deutsche Bundesbank
Regional Office in Berlin and Brandenburg
January 9, 2018
Hiroshi Nakaso
Deputy Governor of the Bank of Japan
Slide 1
Scale of Asset Price Bubbles
Japan United States
ratio to nominal GDP, % ratio to nominal GDP, %
500 500
456
Financial assets
Financial assets
70
400 400
Real estate Real estate
305
300 300
182
200 200
386
100 100
123
0 0
54
▲
48
▲
▲ 100 ▲ 100
208
▲
▲ 102
▲ 200 ▲ 200
20
▲
228
▲
▲ 300 ▲ 300
2008-2012
CY 1986-1990 1991-2000 CY 2003-2007 2008-Present
Slide 2
Loss on Disposal of Non-performing Loans
Among Japanese Financial Institutions
%
(兆円) tril. yen (%)
25
120 120 25
Loss on disposal of non-performing loans
不良債権処分損
Nominal GDP ratio (right scale)
100 100 名目GDP比率(右目盛)
20
20
80 80
15
15
60
60
10
10
40
40
5
5
20 20
0
0 0 0
1992 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
19 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
FY
年度
2
Slide 3
Real GDP
Japan Germany
2008/Q1=100 2008/Q1=100
115 115
110 110
105 105
1.29% per annum
100 100
1.14% per annum
95 95
1.29% per annum 1.83% per annum
Slide 4
Potential Growth Rate
y/y % chg.
5
Total factor productivity
4
Capital input
Labor input
3
Potential growth rate
2
1
0
-1
-2
85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17
FY
Note: Based on staff estimations. Figures for the first half of fiscal 2017 are those for 2017/Q2. 4
Source: Bank of Japan.
Slide 5
Japan's Real GDP Growth
avg., y/y % chg.
6
Labor productivity growth
(rate of growth in real GDP per employed person)
5
Rate of change in the number of employed persons
4
Real GDP growth rate
3
Forecast
2 +1.1%
+0.8%
1
0
+0.5%
-0.0%
-0.2%
-1
-0.7%
-1.0%
-2
1970s 1980s 1990s 2000s 2010s 2020s 2030s
Note: Fiscal-year basis. The rates of change in the number of employed persons from 2017 onward are calculated using the population outlook
(medium variant) and projected labor force participation rates (assuming the labor force participation rate for each age/sex group remains
the same as in 2016).
Sources: Cabinet Office; Ministry of Internal Affairs and Communications; National Institute of Population and Social Security Research.
Slide 6
Real GDP
2006-2016 avg., y/y % chg.
2.5
Labor input
Labour input
Labour productivity
2.0 Labor productivity
Real GDP
1.5
1.5
1.0
0.5
0.6
0.0
-0.5
Japan Germany
∆
∆ ≡ × ∆
∆
ΔLabor productivity
ΔLabor input
6
Sources: HAVER; Cabinet Office; Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare.
Slide 7
Labor Input
2006-2016 avg., y/y % chg.
2.0
Hours worked per person employed
Unemployment rate
1.5
Labour force participation rate
Labor force participation rate
Population
Labour input
Labor input
1.0
0.6
0.5
0.0
-0.3
-0.5
-1.0
Japan Germany
∆ ∆  ∆
∆ ≡ × × × ∆
∆ ∆ ∆
ΔHours worked per
ΔUnemployment rate ΔLabor force
person employed
participation rate
Sources: HAVER; Cabinet Office; Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare.
Slide 8
Total Population and Working Age Population
Germany Japan
avg., y/y % chg.
avg., y/y % chg.
2.5
2.5
Total population
2.0 Total population
2.0
Working age population
Working age population
1.5 1.5
1.0
1.0 Forecast Forecast
0.5 0.5
0.0 0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
-2.0
-2.0
1960 80 00 20 40 60 80
1960 80 00 20 40 60 80
Sources: Eurostat; United Nations; Ministry of Health, Labour and Welfare.
8
Slide 9
Foreign Workers
mil. persons
5
Germany Japan
4
3
2
1
0
Slide 10
Labor Force Participation Rates
Japan
In 2016
%
%
100
100
Male Male
90
90
80
80
70
70
60
60 Japan
50
50 1990
Germany
40 40
2000
United States
30 30
2010
United Kingdom
20 20
2016
Sweden
100
100
100
100
Female
Female
90 90
80 80
70 70
60
60
50
50
40
40
30
30
20
20
100
100
65-
65-
1519 2024 2529 3034 3539 4044 4549 5054 5559 6064
1519 2024 2529 3034 3539 4044 4549 5054 5559 6064
age group
age group
Sources: Ministry of Internal Affairs and Communications; OECD.
10
Slide 11
International Comparisons of Labor Productivity
Productivity Level Productivity Growth Rate
avg., y/y % chg.
US=100
120
1.6
1.4
100
1.2
80
1.0
60 0.8
0.6
40
0.4
20
0.2
0 0.0
Slide 12
Policy Interest Rates in Major Economies
%
16
15
14
Japan
13
12 United States
11
Euro area
10
9 United Kingdom
8
7
6
5
4
3
2
1
0
-1
CY 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Note: For Japan, for the period when no target interest rate was adopted, figures for the policy rate are the interest rate applied on excess reserves.
12
Sources: Bank of Japan; Federal Reserve; European Central Bank; Bank of England; Bloomberg; Haver.
Slide 13
QQE with Yield Curve Control
BOJ facilitates the formation of a yield curve that is considered most appropriate for
maintaining the momentum toward achieving the price stability target of 2 percent, taking
account of developments in economic activity and prices as well as financial conditions.
%
1.4
1.2
JGB yield curve
1.0
0.8
0.6
Short-term policy
0.4
interest rate
"minus 0.1 percent"
0.2
0.0
Target level of the
-0.2 long-term interest rate
"around zero percent"
-0.4
Slide 14
Conduct of Yield Curve Control
10-year Government Bond Yields
Yield Curves in Major Economies
in Major Economies
%
%
3.5 3.0
United States United States
3.0
Germany
2.5
Germany
Japan
2.5
Japan
2.0
2.0
1.5
1.5
US presidential election
(November 8th)
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
1 2 3 5 7 10 20 30 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18
year
14
Source: Bloomberg.
Slide 15
Outlook for Economic Activity and Prices
(October 2017)
y/y % chg.
CPI
Real GDP
(all items less fresh food)
Fiscal 2017 +1.9 +0.8
Forecasts made
+1.8 +1.1
in July 2017
Fiscal 2018
+1.4 +1.4
Forecasts made
+1.4 +1.5
in July 2017
Fiscal 2019
+0.7 +1.8
Forecasts made
+0.7 +1.8
in July 2017
Slide 16
Corporate Profits and Labor Market Conditions
Job
Corporate Profits Unemployment Rate
Openingsto-applicants Ratio
s.a., % s.a., % s.a., ratio
7 6 2.4
New job
Ratio of current profits to sales 2.2
openings-toapplicants ratio
(all industries and enterprises)
6
2.0
Active Job
Openingsto-Applicants Ratio
5
1.8
5
1.6
4
1.4
4
1.2
3
1.0
2
0.8
3
0.6
1
0.4
0 2 0.2
CY 05 06 07 08 09 10 11 12 13 14 15 16 17 CY 05 06 07 08 09 10 11 12 13 14 15 16 17 CY 05 06 07 08 09 10 11 12 13 14 15 16 17
Note: Figures for corporate profits are based on the Financial Statements Statistics of Corporations by Industry, Quarterly. Excluding "finance and insurance."
16
Sources: Ministry of Finance; Ministry of Internal Affairs and Communications; Ministry of Health, Labour and Welfare.
Slide 17
Real Wage Gap
Real Wages and Labor Productivity Real Wage Gap
1980/Q1-2017/Q2 avg. =100 %
125 20
120
Real wages
15
115
Labor productivity
10
110
105 5
100
0
95
-5
90
85 -10
CY 85 88 91 94 97 00 03 06 09 12 15 CY 85 88 91 94 97 00 03 06 09 12 15
Notes: 1. Real wages = personnel expenses / number of employees / GDP deflator.
2. Labor productivity = (operating profits + personnel expenses + depreciation expenses) / number of employees / GDP deflator.
The data used to compute labor productivity except for the GDP deflator series are based on the "Financial Statements Statistics of Corporations
by Industry, Quarterly," and do not cover the finance and insurance industry.
3. The real wage gap is defined as the deviation of real wages from labor productivity.
4. Shaded areas indicate recession periods.
5. Data for real wages and labor productivity are seasonally adjusted.
Sources: Cabinet Office; Ministry of Finance.