Japan’s Role in the Global Economy -Before the G７ Summit

FPCJ Press Briefing 21 April 2016

Kazumasa Iwata President

Japan Center for Economic Research

1

Fig. 1 World Stock Market Capitalization

Note: The data was downloaded on 14 April, 2016.

Source: World Federation of Exchanges

2

Fig.2 International Comparisons of

Labor Productivity Growth

-10

-5

0

5

10(y-o-y, %)

1995-99 average: 1.1%2001-10 average: 1.0% average beyond 2011: 0.4%

-5

0

5

1995-99 average: 2.2% 2001-10 average: 1.5% average beyond 2011: 0.7%

【US】

(y-o-y, %)

-5

0

5

95:1 97:1 99:1 01:1 03:1 05:1 07:1 09:1 11:1 13:1 15:1

Source: Cabinet Office, Ministry of Internal Affairs and Communications (Japan);

Department of Commerce, BLS (US); Office for National Statistics, Eurostat (UK)

1996-99 average: 1.9% 2001-10 average: 1.0% average beyond 2011: 0.9%

(Quarterly)

【UK】

15:4

(y-o-y, %)

【Japan】

3

Fig.3 Real Long-term Interest Rates

Declining Across the World

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

85 90 95 00 05 10 15

Japan

US, UK, Germany & France(simple avg.)

(%)

15

(CY)

Note: The direct effects of the consumption tax hikes in Japan are excluded.

Sources: Ministry of Finance, Bank of Japan, OECD

4

Fig.4 The “Natural Rate of Interest”

and Real Interest Rate in Japan

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

85:1 90:1 95:1 00:1 05:1 10:1 15:1

Natural Rate of Interest

Real Interest Rate

（Quarterly）

15:3

(%)

Source: Estimated by JCER Financial Research Team

5

Fig.5 The “Natural Rate of Interest”

and Real Interest Rate in US

Sources: Federal Reserve Bank of San Francisco, JCER Financial Research Team

6

Fig.6 The “Natural Rate of Interest”

and Real Interest Rate in UK

Source: Estimated by JCER Financial Research Team

Fig.7 Cash in Circulation

(% of Nominal GDP)

7 Sources: Central bank websites, National Statistical Offices, Eurostat, Cabinet Office

8

Fig.8 Negative Policy Rates

Sources: Central bank websites

9

Fig.9 Japan’s “Shadow Short Rate (SSR)”

and Inflation Rate

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

01/01 03/01 05/01 07/01 09/01 11/01 13/01 15/01

(%)

(Monthly)

Shadow Short Rate (SSR)

Core CPI (All items less fresh food)

16/01

Note: The direct effects of the consumption tax hikes are excluded.

Source: Estimated by JCER Financial Research Team with reference to Bank of Japan, Bauer and Rudebusch (2016)

10

Fig.10 5year/5year Inflation Swap Rate

Note; Data is up to April 14, 2016.

Source: Bloomberg

11

Fig.11 Japan's Short term Economic

Outlook

Note: * indicates contribution to changes in GDP.

Source: Cabinet Office, "Quarterly Estimates of GDP"

(y/y change, contributions, %, % points)

Real Nominal Deflator Real Nominal Deflator Real Nominal Deflator

Gross Domestic Product 0.7 2.2 1.5 1.0 1.3 0.4 0.1 0.6 0.4

Domestic Demand* 0.7 1.1 ▲0.3

Private Consumption ▲0.4 ▲0.7 ▲0.2 1.4 1.3 ▲0.1 ▲0.6 0.3 0.9

Private Residential Investment 2.2 2.3 0.1 2.5 3.5 1.0 ▲5.7 ▲3.2 2.6

Private Non-residential Investment 2.4 3.0 0.6 2.7 2.8 0.1 0.3 1.1 0.8

Change in Private Inventories* 0.3 ▲0.3 0.1

Public Investment ▲1.4 ▲1.3 0.1 ▲2.0 ▲1.1 0.9 ▲2.2 ▲0.1 2.1

Net Exports* 0.0 ▲0.1 0.4

Exports of Goods & Services 0.1 ▲0.9 ▲1.0 1.4 ▲0.0 ▲1.4 3.2 5.5 2.2

Imports of Goods & Services ▲0.1 ▲8.8 ▲8.7 2.5 ▲2.0 ▲4.4 1.1 6.0 4.8

Gross National Income 2.7 2.7 0.1 1.7 1.6 ▲0.1 ▲0.3 0.6 0.9

F.Y. 2015 F.Y. 2016 F.Y. 2017

Fig.12 Japan's Economic Outlook for

FY2015-FY2030

12 Source: JCER's estimates based on "System of National Accounts" (Cabinet office)

13

Fig.13 Estimated Real GDP Growth

through Increased Software Investment

565

636

500

550

600

650

2010 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Baseline Scenario

Acceleration of ICT Investment Scenario

Forecast

(Tril. dollars)

Real GDP will increase by 70 tril. yen in FY 2030

(Additional 60 tril.yen in ICT investment from FY2015through 2030, incl. 50 tril. yen software investment)

(FY)

Source: Forecast by JCER

14

Fig.14 Level of labor productivity

Source: OECD

15

Fig.15 Education Standards

ＰＩＳＡ

(2012)

ＰＩＡＡＣ

(2012)

Note: Ranking shown in parentheses.

Source: OECD

16

Fig.16 Real Effective Exchange Rate

of the Japanese Yen

Source: Bank for International Settlements “The BIS Effective Exchange Rate Indices”

17

Fig.17 Real Effective Exchange Rate

of the US Dollar

Source: Bank for International Settlements “The BIS Effective Exchange Rate Indices”

18

Fig.18 Real Effective Exchange Rate

of the Euro(Euro area)

Source: Bank for International Settlements “The BIS Effective Exchange Rate Indices”

19

Fig.19 After QQE Supplementary Measures

Source: Estimated by JCER Financial Research Team

Previous analysis

(Scenario 1)

①Total

assets

(Tril. yen)

②Total

JGB

holdings

(Tril. yen)

②/①

Ratio (%)

Shift in ratio

（％）

③Total JGB

holdings after

shift

(Tril. yen)

④Supplementary

measures

②-③+④

JGBs available

for sale

(Tril. yen)

JGBs available

for sale

(Tril. yen)

Banks 1,004.6 98.9 10 5 50.2 13.9 62.6 74.4

Japan Post Bank 207.2 92.8 45 ― 59.2 0.0 33.6 40.0

Life insurance companies 281.1 101.9 36 36 101.9 0.0 0.0 0.0

Japan Post Insurance 84.9 46.7 55 34 28.9 0.0 17.9 19.2

Property insurance companies 30.8 5.8 19 13 4.0 0.0 1.8 1.8

Public pension funds 177.0 74.7 42 35 62.0 0.0 12.7 12.7

Total 1,785.6 420.8 24 合計 306.2 13.9 128.6 148.1

JGB holdings (End of Sept 2015) Scenario 2 (After QQE supplementary measures)

20

Fig.20 BOJ Necessary Amortization for

JGB Purchases on the Increase

Sources: BOJ, MOF

21

Sources: BOJ, ECB, FRB

Fig.21 Household Financial Assets

22

Fig.22 Nonfinancial Corporate Business

Financial Assets

Sources: BOJ, ECB, FRB

23

Fig.23 BOJ Purchases of Real Estate

Investment Trust is also reaching its Limit

Note: Maximum purchasable amount for the BOJ= Market value of AA-rated REIT x 5%

Sources: BOJ, NEEDS-Financial QUEST, Japan Credit Rating Agency, Ltd., Rating and Investment Information, Inc.

24

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please see our ＪＣＥＲ website.

http://www.jcer.or.jp/eng/index.html