Download Fierce competition in efficient sectors

Structural Roots of Japan’s
Malaise
Richard Katz
The Oriental Economist Report
[email protected]
Brookings Institution
April 9, 2002
1
I. How Bad Is It?
2
Private Recovery Never Happened
Index (1991-Q1 = 100)
115
115
110
110
Total GDP
105
105
100
100
Private Dom estic Dem and
95
95
90
91
92
93
94
95
96
97
98
99
00
01
3
5-ye ar GDP growth av erage
Five-Year Growth Turning Negative
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
7478
7680
7882
8084
8286
8488
8690
8882
9094
9296
9498
9600
9802
4
Japan’s Lost Decade vs. Others’
Ireland
Norw ay
Belgium
UK
U.S.
France
Italy
Holland
Canada
Greece
Spain
Sw eden
Finland
JAPAN
Sw itz.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Average per capita GDP grow th during w orst 11-year period
5
Share of Rich Country GDP Falls
Share of World GDP
9%
8%
7%
6%
Actual
Forecast
5%
4%
1975
1980
1985
1990
1995
2000*
2005*
2010*
6
Japan Share of World Exports Down
10%
9%
% of World Exports
8%
7%
6%
5%
4%
3%
Actual
2%
Forecast
1%
0%
1960
1965
1970
1975
1980
1985
1990
1995 2000* 2005* 2010*
7
Index, 1997 = 100 (in real 1995 yen)
Slow Income = Slow Spending
105
105
Personal Consum ption
100
100
95
95
Em ployee
Com pensation
90
90
85
85
80
80
90
91
92
93
94
95
96
97
98
99
00
01
8
ZIRP Erodes Household Income
12%
12%
Gross Interest Incom e
Share of National Income
10%
10%
8%
8%
6%
6%
Net Interest Incom e
4%
4%
Interest paym ents
2%
2%
0%
0%
80
84
88
92
96
9
Excess Capacity = Weak Investment
Capital:GDP Ratio (1990 yen)
3.0
3.0
G a p = 1 7 9 T ril. Y e n
= 1 3 % o f c a pit a l s t o c k
= 37% o f GD P
2.8
2.8
Gap
2.6
2.6
2.4
2.4
2.2
2.2
1976-90 Trend Line
2.0
2.0
1.8
1.8
1976
1980
1984
1988
1992
1996
10
Investment, % of real GDP
Investment Still Below 1991 Peak
20%
20%
18%
18%
16%
16%
14%
14%
12%
12%
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
11
II. The Causes
12
Lost GDP: ¾ Supply, ¼ Demand
5%
% of Potential GDP
0%
-5%
-10%
-15%
-20%
-25%
1988
1990
Demand Gap
1992
1994
Demographic Gap
1996
1998
2000*
Supply Gap
The horizontal zero line shows where GDP would be if 1975-90 growth had continued. Grey area
shows lost GDP due to demand shortfall. Black area shows lost GDP due to slowdown in potential
growth—not counting slowdown in labor force growth which is shown in diagonal stripes.
13
Competition in Efficient Sectors...
40%
Market Share: Integrated Circuits
35%
NEC
Toshiba
MItsubishi Electric
Sharp
HItachi
Matsushita Electronics
Fujitsu
30%
25%
20%
15%
10%
5%
0%
73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90
14
...But Not in Inefficient
18%
Okura Kogyo
Wada Chem Ind
Takigaw a kagaku
Market Share: Polyethylene film
16%
14%
Sekisui Chem
Nakagaw a Seitaikako
12%
10%
8%
6%
4%
2%
0%
77
78
79
80
81
82
83
84
85
86
87
88
89
90
15
Low Trade Means Low Productivity
120%
Productivity Relative to U.S.
Machinery
100%
Chem icals
Metals
80%
60%
Other Mfg.
Textiles
Food
40%
20%
R2 = 0.64
0%
0%
5%
10%
15%
Trade Openess Ratio
20%
25%
16
More Imports Leads to Higher
Productivity Growh
Change in GDP Per Worker, 91-97
6%
5%
Textiles
Chem icals
Machinery
4%
Metals
3%
Other
2%
1%
Food
R2 = 0.48
0%
0%
1%
2%
3%
4%
5%
6%
Change in Im port Ratio, 91-97
17
Wages, Interest, Dividends (% of GDP)
Low Consumption From Low Income
67%
67%
65%
65%
Nom inal
63%
63%
61%
61%
59%
59%
Inflation-Adjusted
57%
57%
78
80
82
84
86
88
90
92
94
96
98
00*
18
Savings or Borrowing as % of GDP
Chronic Excess Business Savings
Net Household Savings
12%
9%
Excess Savings
6%
3%
Net Corporate Borrow ing to Invest
0%
-3%
-6%
1970
1974
1978
1982
1986
1990
1994
1998
19
III. Banking Crisis
20
NPLs Keep Rising
...
16%
% of Total Loans
Cum ulative NPLs
12%
8%
4%
Current NPLs
0%
Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01
21
... As Banks Slacken on Disposal
60%
% of Current NPLs
50%
40%
30%
20%
10%
0%
Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01
New Writeoffs
Outstanding Reserves
22
Non-Performing Borrowers
% of Total Corporate Debt
(Divided According to Firm Profit:Debt Ratio)
4%
8%
24%
4%
9%
6%
7%
Profits as
% of Debt
<0
<1
<2
<3
<4
<5
<6
<7
<8
<9
<10
>10
8%
14%
7%
6%
3%
23
Govt Guarantee of Private Loans
12
10
8
6
4
2
0
71
73 75 77 79
81 83 85 87 89
91 93 95 97 99
01
24
IV. Fiscal and Monetary
25
Lost Taxes At Heart of Deficit
100
100
Govt. Spending
Trillion Yen
90
90
80
80
70
70
60
60
50
50
40
40
30
30
Tax Revenue
20
20
10
10
0
90
91
92
93
94
95
96
97
98
99
00
01*
0
02*
26
ZIRP Enables Govt to Fund Debt
400
25
350
Total Govt Bonds Outstanding (left scale)
20
Trillion yen
300
250
15
200
10
150
100
5
50
Govt Interest Paym ents (right scale)
0
0
75
77
79
81
83
85
87
89
91
93
95
97
99
01
27
Koizumi Budget: Asking For Trouble
4%
2.0%
Change
in Deficit
3%
1.5%
2%
1.0%
1%
0.5%
0.0%
0%
GDP Growth Rate
Change in Budget Deficit, % of GDP
2.5%
-0.5%
-1%
-1.0%
GDP
-1.5%
-2%
92
93
94
95
96
97
98
99
00
01* 02*
Since stimulus operates with a lag, the chart shows how changes in GDP follow from changes in
the deficit one year earlier. 1998 shows GDP growth in 1998 and budget change in 1997.
28
BOJ Printing Money; Economy
Not Responding
10%
Annual Grow th Rate
8%
6%
4%
2%
0%
-2%
80-I to 91-I
Monetary Base
91-I to 93-I
93-I to 97-I
Money Supply
97-I to 98-IV 98-IV to 01-IV
Real GDP
Nom inal GDP
29
Deflation Symptom of Weak Demand
3%
5%
Deflator
4%
2%
3%
1%
2%
1%
0%
0%
-1%
-1%
GDP Deflator
Dem and--Supply Gap (1-year lag)
6%
-2%
-3%
Dem and-Supply Gap
-2%
-4%
-5%
-3%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
30
V. Weak Yen No Panacea
31
Sum of Trade Surpluses -- $ U.S. billion
Shrinking Share of Global Surplus
$500
$500
$450
$450
$400
$400
$350
$350
$300
$300
$250
$250
$200
Other Surplus
Countries
$200
$150
$150
$100
$100
$50
Japan
$0
$50
$0
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
32
U.S. Trade Deficit, $ billion
Shrinking Share of U.S. Deficit
$500
$500
$450
$450
$400
$400
$350
$350
$300
$300
$250
$250
$200
$200
Rest of World
$150
$100
$100
$50
$150
Japan
$50
$0
$0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001*
33
Yen and Stocks Move in Tandem
24,000
95
Yen/$ rate (right)
105
115
16,000
125
135
12,000
Stock index
(left)
8,000
1996
Yen/$ rate
Nikkei Index
20,000
1997
1998
145
1999
2000
2001
2002
34