Dear Readers,
This will be the last miyakodayori of the 20th Century. We still discuss the future of our economy.
Do we have to worry that much? Following are good news and bad news. Again, this is my personal view and and is it not MITI's opinion.
The cabinet meeting on November 19 concluded that the real GDP growth rate for the FY 2000 would be 1.2% (1.7% for the FY 2001). Starting the period between November and December, Japan's national income statistics switched to new standards, namely 93SNA (System of National Account) and other seasonally adjusted standards. Considering this fact, simple comparison may not be appropriate, but you probably are thinking, "See, Japan's economic recovery is a fake." In fact, EPA announced the GDP growth rate would be 1.5% increase in October. What happened?
It may sound counterintuitive but this 1.2% growth rate can be welcomed as a reflection of tremendous change in the economic structure. Why? And if you paid close attention to the revision process, there is also possibly bright side. That is, politicians and bureaucrats who were possessed with the idea "higher growth rate is everything" are changing their attitudes. This may work positively for Japan's economy in the longer term. (See the attached graph)
There is a technical aspect that brought down the growth rate. We usually use the Financial Statements Statistics of Corporation by Industry (FSSCI) as primary statistics to calculate non-residential investment for the Quarterly Estimate of GDP (QE). Yet for the period between July and September, the Business & Investment Survey of Incorporated Enterprises (BISIE), which deals fewer samples were substituted because updated FSSCI was not available then. Weak figure of the latest FSSCI on July-September investment record dumped the growth estimate for FY 2000 with an expectation of future downward revise of QE for the same period. On the other hand December Tankan survey of BOJ shows that corporate sector still hold robust investment plan for the current fiscal year. There is a possibility that the genuine economic growth rate in the fiscal 2000 as a whole will be higher than 1.2% that the Japanese government announced in the Economic Outlook for FY 2001.
There is also political aspect behind this. The Democratic Party of Japan, the rival party to the LDP politicized GDP growth rate by attacking the administration in the Diet when FY1999 growth rate announced in July was 0.5%. The Cabinet meeting concluded that the rate as 0.6% in March, the end of FY 1999. The incumbent LDP had to be cautious, the Upper House election on their mind.
So, what is bad about this 1.2%? If you look at the Japanese economy only through macro indices, this represents only "gradual" recovery. Yet, more importantly, recovery in private demand is accompanied by fundamental transformation in the economic structure. We are now seeing essential changes in consumers' tastes or Japanese firms' business practices backed by such factors as deregulation, globalization and IT revolution. The distinct of winners and losers is clear. Winners understood such transformation properly through managerial innovation. They are leading capital investment increase.
Specifically what is the structural change in Japan? First, not only IT manufacturers, but distribution firms that are responding keenly to the needs of consumers in their quest for goods and services are in good shape. Those firms have something in common. They are making good use of fruit of IT revolution. Second, as I mentioned in the past miyakodayori, information-related investment is steadily increasing. According to a MITI's survey on capital investment, information-related investment will further increase. Japan is now only 2 years behind US when it comes to the share of information-related investment in all the capital investment, and we are steadily catching up with US. Third, there is tremendous change in consumers' behavior caused by increased choice, higher quality, and lower price of goods and services. This was enabled by IT innovation and vigorous managerial efforts. Although nominal income is showing only modest recovery, people are spending more money on IT- related goods and services simply because they are "appealing to their taste." These include i-mode, PC, DVD. Firms that are introducing newer business models are increasing in their sales. Such examples include Seven Eleven (You may be surprised to see how Japanese convenience stores evolved into high-tech multi-purpose shops!) and internet securities firms.
Going back to the political aspect, we can point to the fact that conventional worship for higher growth rate for the Economic Outlook is withering. With better Economic Outlook, the authority can boast its good steering. It can also encourage consumption by firms and households. On the other hand, higher Economic Outlook indices can urge the financial authority to conduct big spending policy. This time however, even with 1.2% growth rate, lower than previously expected, there was no political pressure to upward this figure. The Upper House election in the scope, politicians could well argue for this point, but they did not.
The reason behind this is simple. First, concerns for Japan's serious debt issues and tight budget reality are now shared widely, including politicians. As a result, there is not much advantage in announcing higher growth rate than the real growth rate. Second, Japanese people after the "lost 10 years," showed off IT success story by US, the Japanese public started to shift their interests from short-term growth rate to longer-term sustainable growth rate. These shifts can promote Japan's financial structural reforms, and urges businesses fundamental managerial innovation.
Have a happy holidays. We certainly wish we will have a better Century.
Nobuo TANAKA
MITI/RI
Exective Director
