Country Report 1St Quarter 1999 © the Economist Intelligence Unit Limited 1999 2 Japan
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COUNTRY REPORT Japan 1st quarter 1999 The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent Street The Economist Building 25/F, Dah Sing Financial Centre London 111 West 57th Street 108 Gloucester Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.171) 830 1000 Tel: (1.212) 554 0600 Tel: (852) 2802 7288 Fax: (44.171) 499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: http://www.eiu.com Electronic delivery EIU Electronic Publishing New York: Lou Celi or Lisa Hennessey Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 London: Jeremy Eagle Tel: (44.171) 830 1183 Fax: (44.171) 830 1023 This publication is available on the following electronic and other media: Online databases Microfilm FT Profile (UK) NewsEdge Corporation (US) World Microfilms Publications (UK) Tel: (44.171) 825 8000 Tel: (1.781) 229 3000 Tel: (44.171) 266 2202 DIALOG (US) Tel: (1.415) 254 7000 CD-ROM LEXIS-NEXIS (US) The Dialog Corporation (US) Tel: (1.800) 227 4908 SilverPlatter (US) M.A.I.D/Profound (UK) Tel: (44.171) 930 6900 Copyright © 1999 The Economist Intelligence Unit Limited. 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ISSN 0269-6681 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Japan 1 Contents 3 Summary 4 Political structure 5 Economic structure 6 Outlook for 1999-2000 13 Review 13 The political scene 17 Economic policy 22 Trends in demand and sectoral trends 27 Industry and construction 30 Transport, communications and infrastructure 32 Employment, wages and prices 35 Money and finance 39 Foreign trade, payments and aid 44 Quarterly indicators and trade data List of tables 8 Forecast summary 10 Global assumptions 11 Current-account balance 12 Economic results and forecasts 14 LDP faction strengths 18 Recent fiscal packages in Japan 19 Outline of proposed tax changes for 1999/2000 20 General account budget 22 Expenditure on gross domestic product, year on year 23 Expenditure on gross domestic product, quarter on quarter 24 Contribution to real gross domestic product growth 25 Consumption indicators 26 Machinery orders, private and domestic 28 Industrial production indicators 29 Housing starts and construction orders 32 Employment trends 34 Wages and productivity indices 35 Inflation indices 36 Money supply 37 New reserves guidelines 39 Exports of selected commodities 41 Imports of selected commodities EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 2 Japan 42 Merchandise trade in dollars and merchandise trade volumes 42 Balance of payments, IMF basis 44 Quarterly indicators of economic activity 45 Foreign trade 47 Trade with main partners List of figures 12 Gross domestic product 12 Yen real exchange rates 34 Domestic wholesale, export and import prices 36 Government and corporate bond yields 40 Steel export volumes EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 Japan 3 February 9th 1999 Summary 1st quarter 1999 Outlook for 1999-2000: The ruling Liberal Democratic Party (LDP) will call the next lower-house election in 2000. The prime minister, Keizo Obuchi, will face a tough fight for the LDP presidency in September this year. Fiscal policy will remain loose. Monetary policy will also remain loose, but could become politicised. Real GDP will contract by 0.9% in 1999, but grow by 0.6% in 2000. Domestic demand will remain weak. Inflationary pressures will be absent. Large current-account and merchandise trade surpluses will be recorded. The political scene: The LDP has formed a coalition with the right-leaning Liberal Party led by Ichiro Ozawa who has, however, declined a cabinet seat. Minshuto, the largest opposition party, has been marginalised. Trade friction with the US has increased, but relations with South Korea have improved. Economic policy: Another stimulus package and more tax cuts were an- nounced at the end of 1998. The government has published its draft 1999/2000 budget. Spending is forecast to rise by more than 5%, the fastest rate of increase since 1980/81. Spending on social security items will increase by 8.4%. Reve- nue is forecast to fall by nearly 20%. To cover the shortfall the government will double new bond issues. Japan has proposed a new world financial system. Trends in demand and sectoral trends: Real GDP contracted by 3.5% year on year in the third quarter of 1998. Private consumption and business investment remained depressed. Net exports contributed 0.8 percentage points to growth, owing to weak imports of goods and services. Machinery orders and industrial production continue to fall year on year. Carmakers and construc- tion companies are suffering particularly badly from the economic slowdown. Employment, wages and prices: Officially recorded unemployment rose to 4.1% in 1998 from 3.4% in 1997. The job offers to job seekers ratio, mean- while, fell to 0.53. Wages have fallen as companies try and cut costs. The recession has hurt the unions. Deflationary pressures continue to build. Money and finance: Money-supply growth has remained lacklustre, as banks have cut lending. Government financial institutions have stepped up lending to less creditworthy companies. Nippon Credit Bank has been nationalised. Government bond yields have surged, because of the government’s plan to double bond issuance in 1999/2000. The government wants the yen to be used more internationally, but much needs to be done before this will happen. Foreign trade, payments and aid: The merchandise trade surplus (fob-cif) rose by 40% year on year in 1998 in yen terms. Car exports held up well during the year. Japan’s falling merchandise imports have hit Asian countries hard. The current-account surplus rose by nearly 42% year on year in January- November 1998. Although foreign investors were net buyers of Japanese secu- rities in the same period, the amounts were sharply down on year-earlier levels. Editor: Robert Ward All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023 EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999 4 Japan Political structure Official name Japan Form of government Representative democracy The executive The prime minister is chosen from a ballot of the Diet (parliament) and appoints a cabinet, a majority of the members of which must also be members of the Diet Head of state Emperor Akihito National legislature Bicameral Diet comprising the 500-member House of Representatives, elected every four years, and 252-member House of Councillors, elected for six-year terms, with half of its number elected every three years. Under 1994 legislation, there are 300 single-seat constituencies and 200 seats filled by proportional representation in the House of Representatives Legal system A US-style Supreme Court, appointed by the cabinet, heads a legal system of lesser courts divided into four arms: the High Court, district courts, family courts and summary courts Last national election July 1998 (half of House of Councillors) Next national election By October 2000 (House of Representatives) National government As of February 8th 1999 the ruling Liberal Democratic Party (LDP) held 266 seats and the Liberal Party held 39 seats in the 500-seat House of Representatives. Minshuto (Democratic Party of Japan) held 94 seats. The second largest opposition group, New Komeito/Heiwa Kaikaku, held 52 seats. A new cabinet was installed in January 1999 Main political organisations Government—coalition of two parties: the LDP and the Liberal Party Opposition—Minshuto; New Komeito/Heiwa Kaikaku; Japan Communist Party (JCP); others Main members of the cabinet Prime minister Keizo Obuchi (LDP) Chief cabinet secretary Hiromu Nonaka (LDP) Key ministers Agriculture, forestry & fisheries Shoichi Nakagawa (LDP) Construction Katsutsugu Sekiya (LDP) Finance Kiichi Miyazawa (LDP) Financial reconstruction Hakuo Yanagisawa (LDP) Foreign affairs Masahiko Komura (LDP) Home affairs Takeshi Noda (Liberal Party) International trade & industry Kaoru Yosano (LDP) Labour Akira Amari (LDP) Post & telecommunications Seiko Noda (LDP) Transport Jiro Kawasaki (LDP) Directors-general of Defence