RESTRICTED Report No. FE-47c This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION THE CURRENT rCOT0If STUTATITlTn AND PROSPECTS OF JAPAN November 23, 1965 CURRENCY EQUIVALENTS $1.00 V 360 S10 0 $0.0028 'Y 1, 000, 000 = $2,t777.78 CONTENTS Page Nwo bAbU STATISTIb SUMhARY ADD CULUUIii Section I. Introduction Economic Growth Since the War 1 Economic Development by Sector 2 II. Recent Economic Develorments The Cyclical Pattern of Growth The Role of Monetary Policy 7 The Current Account of the Balance of Payments 13 Thp Inflow of Foreign Capital Il) TIT. Some AnnPnts of thp nurrpnt Recession Tho (ivrrPn.Rpozznn 18 The Labor Market 20 The Finanncial Stutrif Bu inessc 23 * P.'., 4--n +er JIUSorL, A.. Longer-term Prospects and the Need Vmtm ,rT1TO A T A nn1 kTrrV BASIC DATA (Fy 196 5 1 A-wl 10AC 1 Mqov 1 10.4, A Up UjUL U.L%.JL1 Total, April 1965 97,690,000 tUIUC.L -CLUIU U.J. G1UJV ~Lij -LUJ'Ll .L* Density per square mile 687 T. u u I nLanona rouc%e 1964, current market prices $69.5 billion Per capita $72U Annual rate of real growtth, 1951-1958 7.53 1962-1964 10.3. Private fixed investment, l96 $15.o billion Industrial production, 1964 (1960 = 100) 169 Agricultura.sForestry, Fisheries Production 1963 (1960 = 100) 105.2 4. Public Finance, FY 1965 (budget) (billion dollars) Current Revenues 9.96 Current expenditure 7.40 Internal funds of Capital expenditure 5.47 Government Enter- Capital transfers to prises 2.85 Private Sector 0.94 Borrowing 0.93 Error 0.07 Total Finance 13.81 Total Expenditure 13.81 Tax Burden: In FY 196h, taxes amounted to 22.2% of the national income. 5. Balance of Payments Tin millions of US$) (Preliminary) 1963 1964 Exports, f.o.b. 5,392 6,706 Imports, f.o.b. 5,557 6,358 Trade balance -15 348 Current invisibles -530 -737 Current account -695 -37 Net capital inflow 893 348 (to be continued on next page) BASIC DATA (rontinued) 6o Moneyj Credit and Prices End of' 1962 1963 196h Money supply (million $) 17,103 22,875 26,145 sector (million $) 53,930 67,461 77,996 (million $) 3,408 3,750 3,576 Japan 6.57 5.80 6.57 Dak lending rate U*33 7.f35 7.7 Wholesale prices(1960=lCO) 99 102 101.5 (. External rublic eb (May 31, 190)J External public debt $2.6 billion Estimated debt service in 1965 $260 million Debt service as ;% 01 export earnings 3; SUMMARY AND CONULUSIUNS i. The year 1964 proved to be another boom year for Japan. GNP which had expanded by 12% in real terms in 1963, increased by 14% in 1964. This continuation of the exceptionally high growth rate of the post-war era has raised. Japan's per capita GNP from a very low level just after the war to around. $720 a year which is close to the level prevailing in Italy but still far less than in the more advanced countries of Western Europe and North America. An unusually high rate of investment averaging 38% of GNP - chiefly financed by domestic savings - and a large labor supply have been the most important factors associated with this growth record. Able entre- preneurs who were eager to introduce more advanced technology in Japan, a diligent labor force and a government which regards economic growth as its prime objective are further explanatory factors. ii. Economic development has proceeded in a marked cyclical pattern showing very wide fluctantions in nrtivitv. In the nast. monetary restric- tions resulting from the need to correct balance of payments difficulties have rnusuma nenrodin slowdown in economic arowth. During 196h1 however. monetary restrictions imposed because of a large and rapidly growing current ac ou, de i i n"^+ r irr; :riulch less V-Pnt'+J -um in rl!ny ngzni~ ry ~An. nnnmie-~ t a r-iTr ity than on previous occasions. Credit restrictions were enforced from the beg,inning of 110614 onwMrds bDUt ,~i4a+,, gproduction kep on- xp n-n at an extremely rapid rate until the last quarter of the year. The decreased substantial increase in business liquidity which had occurred during the U ~i'1i. ULLy~AJdLZ~ A _LL1 I-~dI U ~ ~ 1L1UL4t1L .LCI%UVI U± L'J Ll~ I-OLI 11I'LU Vl less counter to the direction of monetary policy towards the private sector was the change from 173 onwards from a balanced to a deficit position in overall public finance, as government increased its efforts to catch up with Tne b@CKLOg in the social infrastructure especially in transporT lacilit.es, urban development and housing. iii. While the relatively mild monetary restrictions initially did not affect the overall level of economic activity, they did cause a slowdown in the accumulation of imported raw materials. This slowdown and rapid export growth led to significant balance of payments improvement from the middle of 1964 onwards. The overall level of economic activity stopped rising during the last quarter of 1964 and has since then remained approximately constant. While the recession was probably brought on by the monetary restrictions finally taking effect, the real causes appear to be of a structural nature. The emerging labor shortage in Japan has led to strongly increased production costs, especially higher administrative selling and distribution costs, which together with a rigid interest rate structure, have led to a marked deterio- ration in the profitability of business in Japan. In 1964, the profit margin on sales in manufacturing dropped to about 77% of the level in 1961 in spite of booming sales. At the same time, it became clear that sales, in spite of rapid expansion. had grown far slower than fnal inveteMn in productive capacity and many industries suffer from an over-expansion of caDacity. The result has been a mn nfh +.1i or profi+ + +oa1 --------------------------------- - 11 - assets in 1964 to only 60% of the level in 1960. This drop, occurring at the height of very rapid sales expansion, has disturbed Japanese business circles. In the last half of 1964 sales of the manufacturing industry rose by 6o, but the total amount of profits dropped by 6.5%. iv. Improvement in the current account of the balance of payments enabled the authorities to relax monetary restrictions from the beginning of this year. By the end of the first quarter, restrictions had been completely lifted and in June the official discount rate had been brought down to .h7%, the lowest level since the war. However, in marked contrast to previous periods of monetary relaxation, economic activity has so far fnilar fn rponnd to these mansures,. Reflecting its belief that the current recession is chiefly due to structural factors and not to a temporary defi- cseninor dem3a novernment. nitialily rearad stimulation of business by further monetary or fiscal action with caution, but in order to prevent a,t-- ++- ,- A~ a q 4MA -f;vnr-An 1 A1--9f'Ami1~tAa.t gn rnti na wifi.r it -4 jA.V. J JJ - --B VIflA -0---d -1.4..L - - - - - ------ - - decided in July on a substantial deficit spending program. It is too soon a very depressed state, has reacted favorably to the Government's measures, and at least until recently, declining business investment plans give the impression that the growth rate in 176) will be comparatively luw anu that recovery may not gather momentum until well into 1966. However, in contrast with earlier periods of economic recovery, it is not likely that balance or payments difficulties will arise, calling once again for restrictive policies. This is mainly due to the extremely high rate of export growth which amounted to 2b% over the preceding year in 1964 and accelerated to around 35% in the first seven months of this year. The slowdown in domestic demand, favorable world. trade developments and increased competitiveness of Japanese products are the causes of this unusually impressive performance. Import growth on the other hand has been sluggish due to a slowdown in inventory accumulation caused by the recession. As a result, a current account surplus is expected during 1965. This will probably offset unfavorable developments on capital account which are chiefly due to the tight situation in the world's capital markets. v, The growth prospects of the economy for the loneer run remain favorable but the Government appears intent on achieving a slower and more stable growth rate without unduA interruntion of economin dveloPnment by recurrent balance of payments crises. The Government also wants to achieve L:reater flexibility in .Tpnnlq IA'? -nnA f-nn+.n1 m!2-rc,.c Ij ^"rT tor reducen the danger of cost-push inflation and improve the financial health of business. 0n'~+.y gvenmn ofIiasth~-kthe achievement of --eO- VUU%,VesVU would.be compatible with a growth rate not exceeding 6 to 7% a year. vi. Such a growth rate may be consistent with financial and balance Of payments staLIny, uuUtiderbUg Japan's export strength, its unusually high rate of saving and the prospect of continuing private capital inflows. 'ay Ltdal inflows, [owever, are likely to be consideraDly less for some time than they have been in the past few years and it is not clear that they will - iii - be adequate to cover entirely the substantial capital outflow that is characteristic of Japants balance of payments. Hence it may be necessary to curb the rate of economic growth to something less than 6 or 7y in order to balance both the current and capital accounts. Nevertheless, prospects for exports and capital inflow are such that Japan should be able to maintain without balance of payments difficulty rates of economic expansion which are high by world-wide comparisons. Japan's creditworthiness is ample for substantial additional borrowing of foreign capital on conven- tional terms and the Japanese authorities have demonstrated their intention and capacity to keep the level of economic activity within the bounds of a manageable financial and balance of payments situation. I. INTRODUCTION The Bankts last economic report on Japan:±/ revieWed econcmic developments until the middle of 196L. The main conclusions of the report were: (i) The Jaoanese economy continues to be capable of achieving high rates of economic growth in the future. Some decel- eration in technologicallv mature manufacturing fields might occur but large investment opportunities existed in infrastructure, housing and the modernization of small-scale manufacturing and distribution. (ii) The balance of payments would continue to be the most ipnnorant rta+.int. nn ecnnnmn arnth. Thp nAt inflow of capital would have to be modest because of the limita- inflow of capital into Japan because of her proven ability ment and for that of the raw-material producing countries .Lor w[ichnse proviudeu d[I _UjJUj dLiU OrU AnudL L iDVU.L%,t±- UoL capital. There was no doubt about Japants ability to service a substatial increase in her present mdUesu long- term foreign debt. Not only were her export performance and prospects excellent but Japan had in the past also given proof of her will to use monetary policy to correct effectively balance-of-payments difficultieso 20 The purpose of the present paper is to yiew developments which have occurred since the provious economic report 3o The fast growth of the Japanese economy in the post-war years is well known. By 1951 war damage had been overcome and output was restored to pre-war levels. From that time onwards economic expansion has been rapid. During the years 1951-1958 the annual growth rate of GNP averaged 7.5%. After a slowdown in 1957-1958 caused by balance of payments difficulties, economic expansion accelerated to an average of 15% in the years 1959-1961. Since 1961, GNP growth has averaged about 10o a year. Per capita GNP is now around $720 per annum. rlose to the level prevailing in Italy but still far less than per capita GNP in the more advanced countries of Western Eurone and North Aminn The growth of the economy in the post-war years is illustrated by the following figures: Current Economic Position and Prospects of Japan (FE-39a) dated September 23, 1964. - 2- Table 1 Indicators of Economic Growth (average percentage increase per year) 1951-1958 1959-1961 1962-1964 Gross National Product (constant prices) 7.5 15.0 10.3 Industrial Production 12.5 22.5 12.1 Agricultural ruuuUULvULn ., V Export 11.4 13.7 16.5 Import 6.2 24.0 11.0 h. Various factors have been associated with this unusual growth record. The most important among these are probably the following: (i) An abundant supply of investible funds. During the IQ950tc grossnsvincm, -roseq frorm n rmarte_r ton a third o)f GNP. In the 1960ts the proportion has risen further: 3ROL in 1Q92 171 in 9QA' andl 3RI in19. (A,- ~,~ 4 A1~' raf' ...vv -4 r,+henn n-Ai resources from agriculture, mining and small scale manu- prises with substantially higher labor productivity. (iii) The rapid introduction of advanced technology in a relatively backward economy. At the beginning of the 1950ts only a few industries such as cotton textiles and steel had been developed up to or near the techno- logical level then prevailing in the industrialized countries of the West. japanis entrepreneurs have filled this technological backlog with audacity and eagerness.. In this they were helped by a government which regarded fast economic growth as its prime objective and a diligent, well educated labor force with high traditions of workman- ship and substantial industrial experience. Economic Development by Sector 5. In the course of the economic development of the post-war years important changes have occurred in the composition of production. Agri.- culture has dropped in significance and the relative contribution to national income of industries, utilities and services has grown. - 3- Table 2 National Income and Employment by Sectors National Income EMloyment 1951 1960 1963 1951 1960 1963 Agriculture, Forestry, Fisheries 25% 15% 13% 43.5 28.5% 2500 Manufacturing, Mining, Construction 32% 38% 39% 23.5/ 29.C% 32.5% Utilities 7% 10% lo07 5.5 5.51 6.0% Services 36% 37% 38% 27.5, 37.0 36,0% Total 100) 100% 100% 100.0% 100.0% 100.0% 6. Agricultural production has increased by an average of less than ca yemnr zince 191 Thin n as much smaller than the annual expansion rate of the industrial sector. However, JapanTs small cultivated S(. ,-1v4 I 4 ^-r' +Il~e, +-+nI nn 'i n )nn- 'hoon c~h nk-ri na n inlv hp_nnimp of the demands for industrial sites and residential building. The increase in4 Produ, tion1 therefo re,~ s+e,r on+-; r el -J*I Prom* V.ur. 'in" 5.! in, 51 in the. _nlready.LAJ high yields. These gains have been made possible by increased mechanization C~~~ LL- LIyJ JV~. L VJ-AVCL.L.L 14%_.W&A %A'~ 4LJ-.,L LV,.A U'.. 1 6 -4' - ~ a 'A . labor productivity. There are, however, large opportunities for further improvemen .J~ILLU Mechan. i a t --L '., L. 0% Ia - JAIIJU.6 IJJ.VV.1 .1.UW Lt;V~ L LA.L VIaA average farm holding of less than one hectare is far below the economic 7. The leading sector in the economic expansion since the war has been the manufacturing industry. Between 1951 and 1955 manufacturing increased by aCOut -ul buT since then the pace of expansion nas accelerated and between 1955 and 1964 total manufacturing output multiplied four times over, This rapid development has placed Japan among the largest industrial producers of the world. In the field of such major industries as iron and steel, cement and heavy electrical equipment, Japan now ranks third in the world. Since 1957 she has been the world's largest ship builder and in recent years she has come to rank first or second in the production of buses and trucks, rolling stock and locomotives, synthetic fibers, tele- vision sets and radio receivers. 8. Before the war Japants industrial production was characterized by a relatively large production of light consumer goods. After the war. however, the composition of production changed in favor of heavy and chemical industries, which now account for two-thirds of the total valup added of industrial production and about half of the industrial employment. In recent years 80% or more of plant and eouinmpnt invRtmPnt has been taking place in heavy and chemical industries. The change in the composition of JaDanfs manufacturing outnut is !ummari.Pi in the fonllowing tale. -4- Table 3 Structural Change of Manufacturing Employment (thousand) Value added billion Y) 1935 150 1955 -LY0 -LY50 15 Y 1961O- 2,629 ,261 5,517 8,751 2,030 5,831 1,61 C0M1PONENT (%) Foods 7.0 10.7 12.5 10.7 8.2 11,4 8.1 Textiles 4303 23.6 21.8 17.0 20.4 14.8 9.7 Chemicals 9.8 7.9 6.7 5.3 14.9 13.8 10.6 Metals 9.4 11.3 11.7 13.5 15.4 15.3 17.1 Machinery 16.1 19.7 18.3 26.7 17.5 18.5 32.3 Heavy & chemical Innt e / (A7 0,1 (Ll.< 0,0-7 0,9-11) ( 1-6) (E,4.7) (6q-91 others 100.0 100.0 lC0.0 100.0 100.0 100.0 10010 1/Includes chemicals, metals, machinery, coal, petroleum products, pulp for paper. Source: 1inistry of International Trade and Industry. 9. Progress in the services sector has been slower. The contribution of this sector to national income (lid not change very much, but the total proportion of employment jumped during the 1950ts from 27.55% to 37% of the labor force. Distribution especially is among the least efficient parts of the economy. In spite of recent concentration tendencies and modernization of facilities as evidenced by the establishment of super.- markets and new department stores, there is still abundant scope for further improvement which should lead to productivity gains and a release of ranpower for other occupations. II. RECENT ECONOMIC DEVELOPMENTS The C2ylical Pattern of Growth 10, Economic development in Japan in the post-war years has followed a cyclical path in which periods of hectic expansion have alternated with short balance of payments crises necessitating downward adjustment of the level of economic activity. Since 1951 Japan has gone through four business cycles, the recession periods of which occurred in 1953, 1958., 1962 and 1964/65. 114 The post-war boom periods have followed a fairly regular seouence of events with the exception of the last one. At the end of a recession period when the balance of trade has become favorable monetary restrictions are lifted, Tn view of the abundant onnortunities for profit.. able investment which have characterized the post-war period, this is soon followed by an unsurne of invetme n+ac+.v4+, The need for a renlenisN ment of raw materials stocks which have been run down in the preceding ra eesion period, aAnd .l, th incn.r aing demarnd fo caia god lead.A. to an increase in imports. The increase in domestic demand causes, at the same tie a~ UL slwdw ithe grawt ofL exprt an.)±~~d leds toA. spJcu.l~ative iniven- tory accumulation. A deterioration of the balance of payments sets in, whdch soon fuoces the auUoriies to restrain economic activiy y mone- tary measures. Typically the duration of the upswing has been two to three years. The downturn has never come about spontaneously by a subsiding of demand. It has always been necessary to restrain the pace of economic activity because of external payments difficultieso -. 6 -. fluctuations in Econoric Indicators (Annual. Percentage Change) 1964 1/ 1965 19 1960 1961 1962 1963 1964 1 2 3 4 1 2 GNP (real terms) 17.9 13.2 14.C0 Y5. 1 12.1 13.9 2.7 2.7 4.8 0.7 n.a. n.a. Industrial Production 20.0 24.6 19.4 8.3 10.0 17.2 3.7 3.3 3.2 1.6 0 0 Inventory Level 2/ 10.7 11.4 21.6 -8.7 8.6 4.4 4.8 0.3 -0.8 1.1 -0.5 0.8 New Equipment Investment Loans 25.0 32.0 20.3 11.4 43.5 7.0 -1.5 2.3 3.4 -3.5 11.0 1.5 Exports 18.9 17.0 4.2 17.2 11.0 24.3 18.2 23.5 23.0 30.5 39.4 35.3 Imports 22.0 21.8 26.7 -5.3 24.5 14.5 316 19.4 5.7 4.2 -0.8 3.2 1 Quarterly data are seasonally adjusted. Comparison is with preceding 3-month period, except quarterly exPort and iiport data which are not seasonally adjusted and which show the percentage change over the corresponding period in the preceding year. 2/ Raw and finished materials for manufacturing. - 7 - 12. The upswing period which started in 1963 has deviated from the pattern of post-war trade cycles in that a recurrence of balance-of- payments difficulties followed only half a year after the lifting of monetary restrictions. Partly this was caused by factors such as trade liberalization (under agreements with the IF and OECD), a deterioration in the terms of trade and higher freight rates on international shipping. Although the balance-of-payments difficulties were therefore not entirely due to monetary factors, the last economic report judged that the authorities had removed monetary restrictions too quickly and that they were tardy in coping with the situation as it developed late that year. Because of the prevalent belief that the balance-of-payments difficulties could be tided over without a reversal to drastic tight money policies, restrictions were initially mild. Reliance was chiefly placed on the moral influence of the Bank of Japan in persuading the banks to restrict their operations. As the e!onomy however continued its course of rapid expansion and the balance-of-payments difficulties assumed more serious proportions more strinoent meannure were taken. In January 196h. the Bank of Japan resumed direct control over the banks' lending volume ("window guidance" policy) and in M_arch, the discount r"ate n and n+ a rionm -. nfn nc!+. iTmn-+.q we-re raised. Especially this last measure brought a rapid improvement in the trade balance but Manufacturng pouto otne ocirbrpdyu of the third quarter of the year. The slow response to monetary restrictions was LJd .LY UUV J% 'U "t -LI1 tI UU-L.L-tJJ V-L _LL_ULULY LA ULIU jJLt-V.LWU easJ0y money phase, as will be explained in para. 15 below. However, economic acti-Vituy has l1eve'led of.f since thIe fa.l of last, Year. The Role of Monetary Policy 13. The measures applied in 196l to obtain the required sLowdown in bank lending were approximately the same as used in previous cycles. Because of the "neutral" fiscal policy pursued in Japan since the monetary reform of 199 the most important instruments of control are in the field of monetary policy. Of the usual control instruments, changes in reserve requirements and in the Bank of Japan's discount rate have had more significance as a signal of change in official monetary policies than because they directly affected the cost of central bank credit. Even at its highest level (6.57% from March 1963 to January 1964) the official disccunt rate has been well below the interest rates applied by the commercial banks. All the same, however, monetary policy has proven to be extremely effective in regulating economic activity. This effective- ness stems from the unusually high dependence of business firms on bank credit and of commercial banks on central bank support. The way in which monetary policy is implemented is however not through the conventional instruments of monetary control but chiefly by direct central bank deter. mination of the quarterly maximum of the lending operations of the banking system. This so called window-auidance nnliy has ben v er ci i adjusting the activity of an overheated economy and bringing about a balance of Payments imnorovement. In recent yers the .o, .toi. have tried to reduce the importance of the window-guidance policy which leaves nothing to the play nf market foce a to -pa . - ~ ~ ~ ~ ~ CA L- -a - --- v w u ov V.-Cu 11ore reliance - 8 , on open market operations. In the absence of a free bond marketl{ and because this volume of outstandUn goverm o ecuritiesis -ted, nArket operations have been small. In 1963, however, the bonds of power companies and banks were added to the list of eligible securities and operations now also extend to financial institutions other than banks. So far the net impact of market operations by the Bank of Japan on overall monetary development has however been fairly small, In order to eliminate the need for "window guidance" and give market operations due importance as an instrument of monetary control, it will be necessary to establish a free bond market with sufficiently attractive rates and to allow the Bank of Japan's discount rate to become an effective penalty rate. 14a The reliance of business on bank credit arose from the rapid expansion of industrial capacity which surpassed by far the internal generation of investment funds from depreciation allowances and profit retention. About 6O-6% of the total supply of industrial funds during the last six years has hn ohtained from outside sources. In the absence of a sufficiently developed capital market, new equity capital accounted for a minor part (around 0%) orf' the +total sup-' of fuds Th gap wa filled by banks and other financial institutions, mostly in the form of rvorlvir,ngV shrtte-M, es 159 Th willingness ad abi ityo ute lndLig inttuin to ~etend credit has been the chief determinant in the total amount of bank credit by buaunes. unU Ive veen hruniclly s[ort in supply au vusiness in general has scrambled to obtain as much bank credit as possible for financing 1/ Chiefly because the Government has persistently fixed the interest rate on bonds at 6.5-7%, which is far below the interest rate for bank credit. The purchaserts yield on bonds has therefore been unattractive and as a result the public has not been interested in them. The author- ities have solved the problem of selling the bond issues of government enterprises, power companies and certain industries of national importance by periodically allotting these to the financial institutions. Under these circumstances no bond market of any importance could develop. Purchasers usually hold on to the bonds until they reach maturitye This bond rate policy is part of the official interest rate policy, which has aimed at a comparatively low cost of capital. The result of this policy has been that the official discount rat i at+he bottom, the bond rate somewhere in the middle and the short-term commercial bank rate at the toi of the interest rate structure. Under these conditions the general public has not developed the habit - and has had insufficient opportuni- = to invest savings~ in long-term-1 securities. It has continued to deposit its money with financial instAitions which chaneled these funds inth form of call mon[ey to the city banks. Together with savings deposits these funds have enabled the city banks to fulfill their dominant role in the financing of industrial investment in Japan. - 9 - invesiment plans underway or under consideration and to some extent as a precaution against a future period of monetary stringency. During successive periods of monetary ease in the 19601s inspired by the government's high-growth policies this situation has changed remarkably, however, and an imoortant increase occurred in the liouidity of corporate enterlrises. The ratio of liquid means (currency, deposits and securities) tonIP. rn-r frnm le.s than 2M in the late 195O's to 25-30% in the 1960s. An important result of this increase in business liquidity has been that mnt.ry nnt.rol annrl aonot-imlly nnntrnl nvpr fhn hnksl lpnlin vulnmp proved to be much less effective than on previous occasions in dampening doT.Tn t he 1v e 1 m-P ennim nctijrvt,rdu_ yr tiii he p nq+. year, -prfrom an initial hesitant attitude on the pBrt of the authorities in reintroducing took a longer time for monetary restrictions to affect the level of econorac activity thaind t pre-V.Vus$ perLi of' restraL-i.LLIn -197V prouct,.i k3pt on expanding extremely rapidly until October, more than a year after the central bank revised its policies and ten months after the re-introduc- tion of the Fank of Japan's "window guidance". 16. Another aspect of the increase in liquidity is the increasing importance of inter-industry credit. The increase in wage and interest payments in recent years has raised the break-even point of many industries and this has led to intensified sales efforts. Mainly as a result of this, an increasing percentage of sales has been made on credit. According to official flow-of-funds statistics trade credit outstanding expanded between 1961 and 1964 from 7 to about 19 trillion yen. This was much faster than the overall rate of growth of the economy. Trade credit outstanding rose from 50o% of GNP in 1960 to roughly 75% in 1964. 17. The recent fast increase in general liquidity of the economy is summarized in the changing ratio of money and quasi money to GNP. As the following table shows the money supply has risen, since 1961. from 31 to 38% of GNP while the sum of money supply and time and savings deposits rose during the same period from 95 to 114% of GNP. - 10 - Table 5 Factors Affecting the Iioney Suppl (Billions of TL?en) 1959 1960 1961 1962 1963 1964 A. Eoney Supply (end o' vear) 3,711 4,420 5,258 6,157 8,23$ 9,12 Increase in Money 3upply $26 709 838 899 2,078 1,177 Per Cent Increase Over Frevious Year 16.5 19.1 19.0 17.1 33.8 14.3 Factors 1. Increase in Bank Credit to Private Sector 1,786 2,581 3,509 3,038 4,871 3,790 Less increase in Savings and Time Deposits 1,366 1,701 2,1 5 2,26. 2,88h 2,772 Net Increase in Private lnk Credit 420 880 1,351 773 1,987 1,018 2. Inerease in Bank Credit ton PUblic Sector 146 57 -106 71 241 727 3.. Other Internal Factor- -199 191 1 -293 TalInternal Factors 367 618 1,123 753 2,039 1,452 a. ~ ~ ~ ~ ~ ,C Forig Setr191 28) 9 -7 TOTAL 526 709 F3S 899 7 7I B. l-cøney Supply as % of !Mone±y S)upl + Qu'~asi z-oney as 5 of GNP 90 95 95 103 l14 1-.4 Source: IFS and Economic Planning Agency. - 11 - 18. A factor which has run counter to the overall direction of monetary policy and thereby considerably weakened the effectiveness of monetary policy is the recent change in public finance from a balanced to a deficit position. The overall monetary effect of this deficit was still modest in 1963 (about 12% of the increase in the money supply in that year). In 1964, however, it came to be almost as important as the ch;nrn in orivate bank credit. which hitherto had been almost the sole cause of monetary change. 19. A rapid increase in government capital expenditure especially for infrastructure investments, has been the most important cause of this change. Total investment in the public sector has gone up from around 8% of N iue h la+ iodn9 s +. -ii<% in 196. This increase is in response to the acute need for investment in social infrastructure which during the 1950's has ben Inaing severely behind the general increase in production ca0acity. Although the emphasis on investment in directly productive activities has made for a very favorable cantal onutu+.t ratio in +he na+. (e An. Table IiTT) an acute shortage has arisen in transport and telecommunications facilities accumulated arrears and keepingpace with the further growth of the economy w.L. conL±L U ~ LA) . -ULV LLd v I1LidciiLb ULI -LLIVt::;jU11LfZ;:Lj U L 1t W it ±1 LLU : of the economy. 20. While government capital expenditure is rising rapidly the growth of revenue is however being forced down to a slower-pace. Owing to Japants progressive tax system, revenue has in the past easily kept pace with the growta of the economy leaving even room for sizeable annual reductions in tax rates.while maintaining total tax revenue at 21 to 22 per cent of national income. The recent fall in corporate profits is however leading to slower growth of revenue than anticipated in the budget. The total anticipated shortfall of revenue below budget expectations during the current fiscal year is not of startling dimension (about -100 billion or less than 3% of current revenue) but at the same time pressure is building up to improve the financial condition of business by a drastic cut in corporate tax rates. This is leading to an increasing expansionary monetary effect of overall public finance. The following table shows that the amount of public savings plthough declining as a percentage of national income,is still very considerable. - 12 - Table 6 Government Finance (Biii-ons of Yen, FiscaL Years) Revised Estimate Budget 1960 1961 1962 1963 196 .96 Central Government , / Current Revenue: 1,861 2,293 2,495 2,840 3,265 3,58 Current Expend- isure 13225 1,567 1,919 2,302 2,467 2,66b Cu:rent Surplus 536 731 576 538 798 924 Public Enterprises finds generated by operations of public and finan- -;:l - Ins it uti o 4.S.3 -3 7 -,25 -1 n2 r, sub-otal7 6L 1,27 1,89 1,.317 1,823 1,9,49 Other Public Sector Savings2/ 272 354 62 490 Total Public Sav-Lngs 1,236 1,628 1,692 1,807 % of National 3/ Incomre 10-4 11.5 10.7 10.0 9e4-' 1/Exluding "receipts from surplus " of the preceding yearo 2/ From Appendix Table 9. During calendar year 1964. Sour .* .* e: J Miitr .f iance and~, 4'i. - 13 - T1,A r.irrpn+. Apnmin+. nf' +.lip Rnlnnop nf Pnympnt..c 1963 continued well into 1964. In the first half of 1964 exports incrJ. CID _CU dyU VU ri LU1J Uve tV h sMm perCd~AL jAioJ14A L in A. torced.S-AngJ_lar - imports went up by an even higher proportion and a trade deficit of 1IU o iU P maJIH [ w4s Une Ue u.L. uueLl oni oimpodu sU UJ LuA m&Iu LV restrictions import growth was however virtually brought to a halt after the middle of tFe yedr -1le tNe export expansion kept Un accelerating. This led to a favorable trade balance in the second half of the year of over 70 million. This favorable development Has con- tinued in 1965. In the first half of the year exports have been over 367% higher than in the same period last year and imports have continued to remain virtually constant. The current account as a whole swung sharply to a surplus position in the last half of 1964 and it has continued to be in surplus in the first half of 1965. The full year 1964 however showed a deficit of close to $400 million. Table 7 Current Account of the Balance of Payments (Millions of U. S. Dollars) Calendar / Years 1961 1962 1963 196 1965' Jan-June Extorts f.o.b. L.1,9 ).861 __.92 6.702 .883 Imports f.o,b. 4,707 4,459 5,557 6,328 3,276 Trade Balance -558 402 -165 374 +608 Transport and Insurance -496 -427 -44 -489 -284 Tnvestment Tnnme -,A -Q 119 -1QA _Q4 Other Services and Foreign Military ) -77 Invisibles -326 -366 -530 -772 -454 Total Current Account -884 36 -695 -398 +154 1 Preliminary Source: IMF; Ministry of Finance for 1963 and 19614; Bank of Japan for 1965. M 14 - 22. The increase of exports in 1964 and 1965 has surpassed the expectations of observers in and outside Japan. Several factors have contributed to the amazing performance. Firstly, economic development in the most important buying countries, especially North America and Western Europe, continued to be generally favorable. World trade in 1964 increased by 12%, far in excess of the 7% average increase of the preceding decade. Secondly, the enormous investments in modern production facilities in recent years have improved Japan's international competitive- ness in a long line of products, especially in the field of steel products, machinery, transport equipment, electrical equipment and petrochemicals. Thirdly, from the middle of 1964 onwards there has been a slowdown in domestic demand. Even if most of the weight would have to be accorded to the third factor, i.e. the current slowdown in domestic demand. the recent export performance remains proof of the surprising flexibility of JaDants industril and trading firms in switrhinp n nap proportion of their trade from the domestic to export markets. 23. Since the end of the 1950's Japan has been confronted with a less-susceptible to cyclical swings than the trade balance, because it is MCT! o less dueC t4. stuitu Ma -a-S Th.__ mms*t - .iM.portatic -emen.t.I in th... deficit has been, for a long time, the deficit on international shipping, Vj-^1 -.,ai~ ,.,,.- +4on- by~ the,. Goven,rnrnn of4 +1,.e grtl.4 of4 +-, ,-aanesem,, + V.&64 &- pr novi W V.L LJJ J U~ J i iL4U ~JL ifii 5i. 1W.& tJJ W&LV -4c A*'' .bc marine which had been almost completely destroyed during the war, has however J-"-" U C1 ISLI.AU1 . IILI .1 ULIAij UUe±±LU.LU L.U Vvut lu YtdL.b d u C1 .L eel Of soACILU over $400 million a year. Other categories of invisibles payments such as royalty payments on technical assistance agreements witn oreign firms and interest and dividends on foreign investments are however growing quite rap-Lay. Thi is also the case wlin a set of miscellaneous expenses connected with foreign trade such as agents' fees and expenses of foreign branch offices. After taking account of the slowly declining foreign exchange receipts of U*Sq military expenditure in Japan, these factors have combined to an increase in the total invisibles deficit by $200 million annually in 1963 and 1964 to an annual level of over $700 million. This amount was large enough to lead to an overall current account deficit for the full year 196h of almost $400 million (although the second half of the year showed a favorable balance of $379 million). Preliminary data indicate that the current account in the first half of 1965 showed a small surolus. ;.hich in view of the seascnal character of commodity export , is a highly favorable ramult, sbarpay contrasting with the 8767 million deficit in the first half of iL964. The Inflow of Foreign Capital 21L. The net inflow of canital han f1nut.tt.PA n ant inni T+ reached a record level in 1963 of almost $900 million, but developments in the wor1rj.s long a-ndi schort+ term canpital mnrkets andt-Auc mle extent - deliberate Japanese policy to reduce short-term liabilities have -roA . tao. i-nothin i te first"A +^ V .-4, halof 19a6ou LLA .L7U14 d probably to almost nothing in the first half of 1965* - 15 - Table 8 Capital Account of the Balance of Payments.: (in U. S. $ million) Canit,1 OutfIcw 1960 1961 1962 1963 1964 l- Reparations, aid 81.3 1_5 8.6 85.7 84.9 2. Di-re+ Tnvetntc+. 79.3 93.A 77.3 122 0 5 3.Exor oedis e.6 -6. 19. 1-3. 335.8 h. AmArtization, other 56Ah 698 1i./ 173.8 160.2 Tota070 2 I37.1 61. l 7 ).. 637 7 oapi-ta 'L Inf LPom -lo f,ov'. and Govt. o t,VU dLu uO 1,9 Guarantee Bonds - 20 18 64 82 2. IBRD Loan Disburse- ments 80 73 64 h9 20 3. Direct, Private Investment 6 59 58 102 109 h. Other Private Long and Medium Term Capital 57 172 388 646 45h 5. Short-term Credit (net) 378 573 122 517 304 Total 521 897 650 1,378 969 Net Inflow of Capital 241 460 188 893 331 Central. Monetary Changes -h98 ho5 -230 -2h3 56 Errors and Omissions 33 19 6 45 il Total Capital Account -224 884 -36 695 398 1/FIncluding transfer payments of the central government. Source: -MF Yearbook; Ministry of Finance. - 16 - 25. The increasing strength and creditworthiness of the Japanese economy on the one hand and a gradual liberalization of capital transactions on the other have encouraged a rapid increase in the inflow of long-term capital since 1960. Direct private investment and portfolio sales of securities to foreigners rose from very small amounts in 1960 to $200 million in 1963 and bond issues by government and private institutions went up to about the same level. The introduction of the Interest Equali- zation Tax in the United States which had been the major source of these funds caused the Japanese Government to divert issuing activities from the U.S. market to Europe. Especially the response in Germany was very favorable and total bond issues in 1964 were approximately at the same level as in 1963. The Interest Equalization Tax also led to an increase in loans from U. S. banks of less than three years on which loans the tax would not be applicable. The balance of payments measures taken early this year by the United States have, however for the time being, vir- tually put an end to the increased lending activity of U. S. banks in Japan while the impact of these measures on the European market has made it much more difficult for Japan to obtain bank loans or issue bonds out- side the U.S.A. An annual exemption from the U. S. Interest Equalization Tax of bond issues of a total amount of $100 million, which was granted when the new measures were introduced, would not be large enough to stem the reduction in the inflow of U. S. capital. 26. Short-term credit has also played an important role in financing Japan's needs for foreign capital. Attracted by higher interest rates, there has been in the past four years, a substantial inflow of short-term funds. mostly in the form of Euro-dollars and convertible yen deposits. Since the beginning of the 1960's short-term liabilities other than trade credits have eraduallv risen to a total amount of about 1A billion. (See Appendix Table 23) Although this rise has been marked by fluctuations there has been no indication that these funds have had an unduly volatile character. Partly this is due to the Government's regulations since early 1961, regarding the diffPrentiA1 htuwPen the Tondon Ern-dollar rate and the rate naid by Japanese banks. In addition to this, Government raised in early 1963 the nercentage of foreian exchange liabilities Jananesp hanks are renuired to hold in the form of liquid foreign assets from 20% to 35%. In the middle of 100L +.hp Rank f .Tnnn fiur+.hP inrinnp iq t-nnt.rnl mrw +.hn infmna of these funds by tying further increases in banks' short-term non-trade foreig,n exchange liabilit-les to the row-fth1 of +11aj pertina fov,reIgn exchange assets. Since then there has been a slowdown in the growth of thes labilties a. Af+,m +1nei UT.. neo pam ntsmasures ea"r this year the Euro-dollar market has become tighter and a slow outflow of Euro- do.1 l-.ar .n' +o _..W e -rr- ._oAl -&" 4 w-. -Lnna A7_k %&aW 4-n 41W n. aL+~ A-lyr disturbed the Japanese authorities because it coincides with a very favor- Government's policy of gradually reducing dependence on short-term non-trade I _'~ _11 4.2 - - - 17 - 27. Capital outflows have grown steadily mostly due to a gradual rise in anortization payments and in export credits. The total ant has r-isen from around $300 million at the beginning of the decade to al-- most $600 MiI^n a+ presn. Repraio payments whi use ton n theAr4 major outflow during the 1950's are now slowly tapering off ($59 milliorn inI 1O6A A4 commintsNn howeer ar nhi c Th-Se are nlmost entirely in the form of export credits and tied to the delivery of Japanes goods and servces. nomm-Itlments in the, India and Paki,1stan con- sortia in 1964/65 were respectively $60 and $30 million. Normalization f r tin.s.> wLh.LI 11.orea is celed to lead t an anL-nuaClI. outL.VW UA. of$ million in Japanese goods and services during the next ten years. Recently, an agreemientl. wadece~itlawnfr 10i on, on- to e di.:- aý WCLO IJtdAIUÅJU W-LIjl IdI.LIVLLA LUI- i:L U M IJU.LIL[ .ucILI 5U Ou U10~- bursed in the next five years. Aid comritments in a nunber of other de- veloping countrIes have also been inceiasing. In additionto this there has been an increase recently in direct investment in foreign subsidiaries and in establishments abroad which should ensure stable sources of raw materials such as iron ore, wood,pllp and petroleum. - 18 - III. SOTE ASPECTS OF THE CURRENT RECESSION The Current Recession 28. After the apparent 1cooling off" of the economy in the last part of 1.964 monetary restrictions were gradually lifted. The first step towards monetary relaxation was taken in December 1964 with a reduction in the reserve requirements of the commercial banks. This was followed in January 1965 by a reduction in the Bank of Japants discount rate. The Bank of Japan1s "window guidance" was meanwhile being applied in an increasingly liberal fashion and has in fact not acted as a restraint on credit since the first quarter of the year. In April and June there were further cuts in the Bank of Japants discount rate down to 5.h7% which is the lowest level in the post-war years and 1.1% below the rate prevailing during the 1964 tight money period. Reduction in commercial banks' interest rates have followed in the wake of this central bank action. As a result of these moves all monetary restrictions on an increase in private sector credit and a general recovery of economic activity have been with- drawn. 29. In contrast to nrvious neriods of monetary relaxation. economic acti1vity has so far however failed. to respond to these measures. Industrial first three quarters of this year. Acute marketing difficulties -~j~ . - A - r- -1) i,+ .~~,,+~j ~'1C.~ v~r, ivh~,.. iron and steel, petroleum, cement, paper and pulp and cinematographic equip- the heavy electrical equipment industry and the electrical appliances indus- ry. L spite of the stagnatuon in production and rapiday increasing exports, inventories of finished products have however continued to go up, Raw materials inventories stopped declining around March and April. W1.Le this might indicate that the recession is at its bottom, the stagnant pattern of department store sales and orders for new machinery during the course of 1965 suggest that the basis does not yet exist for an upturn. 30. An indication of the difficult financial situation of many firms is provided by the rapid rise in business failures especially of small and medium sized firms. Stagnant sales and difficulties of collecting funds due on inter-industry credits are the most important among the causes of failure. Most of the failures involve smaller firms with the exception of the failure of the Sanyo Special Steel Co., the nation's largest manufacturer of steel ball bearings which was found to have accumulated debts of almost $150 million, including some $12 million due foreign suppliers. Although the Government's prompt intervention with auxiliary financing prevented wider financial difficulties, this case with its indication of less than prudent financing by a few of the large city banks, had an adverse effect on the confidence of Jnanese and frean investors. 31. The depressed situation of Japanese business has had a serious impact on the conditions of th tk market n e cres of sustained - 19 - speculative buying, shares had gone up from a Do,, Jones average of 600 in 1956 to 100 in rid-lyol reducing yielas to around .3 or half the 17,b level. Under the influence of deteriorating profit to sales ratios, prices have since then fallen aincst continuously to less than 1100 in mia-L5;o with only a slight recovery since then. In order to improve the stock market climate several buying operations, financed chiefly by Bank of Japan credit, were staged involving to date the total amount of almost Y500 billion ($1.4 billion) worth of shares. In a further move to support the market a morato-rium on new issues was deciaed early this year. The stock markeu difficulties deepened however with the failure in May of Yamaichi Securities Co., one of the largest securities dealers. As has been the case with other Japanese securities companies, Yamaichi had financed large share purchases with call loans for which securities bought with investments trust funds had served as collateral, Although the call loan rate was much higher than the yield of shares this oneration nroved hiLyhlv orofitable during the long bull market of the 19501s. This changed, of course, during the stock market deline nftpr thp mirlrili of 1961. Promnt pledging of central bank support to Yamaichi and any other securities companies that might land in similar diff icultie s prevented a S itu ation of panic.% 32. The Government's reaction to the present business situation seems ueterm11ined by an 1pliCit, never fu11y suated, be."ef that strucur difficulties are the real cause of the present recession, and that it is not cue to a temporary deficiency of demand. Accordingly, the Government has regarded stimulation of business by further monetary action as basically unsound and apt to lead to recurrence of balance-of-payments difficulties and cost push inflation before full utili7ation of capacity would be reached. The fact that the economy so far has completely failed to respond to the rela3ation of monetary restrictions is indeed remarkable and in sharp contrast, for instance, with the upsurge in activity following monetary rela>ation early 1963. Among the structural difficulties quoted by Govern- ment officials are the growing rigidity of the labor market and a Veakeriing of the financial structure of business. Over-expansion of capacity in certain specific consumer and intermediate goods industries would be another factor lwhich could not be cured by monetary stimulation. The next two sub- sections will be devoted to a discussion of these structural problems. While Government has not tried to create another boom by monetary stimulation, it moved at the end of July in a decisive way to avoid an overall reduction in economic activity and major financial difficulties by a program of fiscal maures. These consisted chiefly of the decision to speed up spending authorized in the Government's budget and increasedpublic works expenditures. The total effect of these measures will be a total increase in government expenditure during the current fiscal year(ending 31 March 1966) of over 500 billion which government officials hope will lead to a total net increase in apgrerate dPmnnd of Wn no0 hillinn ni oM of GNP The brak with the traditional "neutralist" fiscal policy, which had in fact already htqtari in 1963' ha s becm officina-ithn these measures and with-1 th4.11- :c .- 20 - simu-ltaneous announcement of its intention to reduce corporate taxes significantly in the next fiscal year and to finance a large proportion of expenditure by the issue of governent bonds. The Labor Mabrket 33. One of the prime factors contributing to Japan's post-war economic growth was a large supply of labor for her rapidly expanding industrial complex. The most important element in this supply waq a substantial horizontal mobility of labor. The increase in the total strength of the labor force has been fairly small however. During the 1950's the increase in the aggregate number of workers amounted to an averne of only i.4 a year. Much more important than this increase was the horizontal shift of workers from agriculture and mining to occupations in the m-annSanturing and ervine industries and within manufacturinE. from small1 firms with low labor productivity to larger firms. The main incentive ~ ~1,- 1.41i,. 'Mo lnu4W +,. bee thc, waey d,iffertal betwee~n r'lt.ve and industry and, within industry, between small and larger i'irms. Under UteSe ciLrcumistances -thie pressure to incre. ase_ wYAgesQ wasoeltvlyseaig small. During the 1950ts wages rose at an average annual rate of 55% while labor productivity during tne same period advanced at an average annua± rate of over 9%. This significant difference between productivity gains and wage increases bas allowed Japanese industry in general to achieve its pae- nomenal production expansion at steadily declining wage costs per unit of product. The 9% annual productivity gain is an average for the entire manufacturing industry. Within manufacturing there was a wide discrepancy between large enterprises in the heavy industry which were in the forefront of the industrial expansion and where productivity gains often were two times higher than this average,and numerous small-scale enterprises where techno- logical change was usually small. 3h In an indirect way, however, these less productive and medium-scale enterprises have also made an important contribution to the flexibility of manufacturing industry. Especially in the short run, manufacturing production could easily be expanded by utilizing the services of sub-contractors for the manufacturing of parts, especially those reauiring labor intensive production methods, As the labor costs and profit margins of these sub-contractors, mostly smaller establishments. were relatively low. this Jncrnna +.he ability of manufacturing industry to expand production rapidly without sienificant rise in oroduction rqt.- In. recnt+ years a det-ciive c-hnge hs occrre in the "ao are" The traditional excess supply of labor has dried up and many industries are at - _ w -L -L 11AVQ %-Lt1A.;-LjJ. 1 ULLU I demand for young workers which in recent years has changed into a scramble, Dause uf the tr-ditonal life-long association of workers with one particular enterprise, the mobility of older workers has remained fairly .Low and most of the post-war shift in the employment structure has therefore been caused by young agricultural workers and new entrants to the labor force - 21 - of whom in recent years over 90, have chosen non-agricultural occupations. Especially high school and university graduate havU eoet, hujec -J- severe competition. The total number of job openings for this category rose between 1960 and 1964 from 1.5 to 1. tLmes the total number of applicants. In this competition among employers the larger firms are at an advantage because of higher salary scales and greater oppunitvy wo advancement. To strengthen their position in the labor market smaller firms had to offer increasingly attractive beginning salaries and tnis ab led to a marked change in the wage differential between small and large firms. In 1954, the average wage for workers below the age of 18 years in firms! with 30-100 workers was only 82% of the wage for similar workers in firms with over 1,000 workers. In 1963, however, the competition for labor had forced this ratio up to 111% which means that small firms are now paying more for young workers than large firms do. Generally there has been a very marked narrowing of the wage difference between firms of different sizes, but the change in wage rates for older workers has changed much less drasti- cally and if they belong to small firms they are still paid much less than their counterparts in big firms. (40-50 year-old workers in small firms stil. receive only 67% of the wage paid in large firms.). 36. Under the impaot of the emergina labor shortage the favorable ratio between wages and productivity which had characterized developments during the 1950ts Was lost. -Since 1960 lnabr nronetivity in manufacturing has continued to advance rapidly (by 7.2% a year) but the increase in wages ha on1 the- whole been eve-n somewatn fastern (a 8 .R- ) ac_q year),, L - - V- % +, nv Theseq f igu - res are averages for the entire manufacturing industry but in certain specific increases was much wider. Productivity increases continued to differ widely vweEtn Lnaustries aumrtug LYOU-LYo14 they were twice as high in the stel and chemical industries as in textiles and six to seven times higher than in the food processing industry) and between smaller and larger enterprises, However, the increase in wages was fairly uniformly spread over all sectors of the economy with a tendency to be more rapid in enterprises where wages had been low. Combined with the fact that the wage increase had been faster in smaller than in larger enterprises this is one of the major reasons for the more difficult economic position of many small and medium-sized enter- prises. In the services sector where productivity gains are always lower than in manufacturing because of the nature of the activities in this sector, the divergence between wages and productivity led to a cost-push type of price increase. This cost-push has been one of the major factors in the remarkable divergence since 1960 in wholesale prices, which remained almost unchanged, and retail prices which have been rising by about h or 5o a year. 37. Productivity per worker, while improved very remarkably in the last decade. is only in the most advanced industri. qnri in tho higr enterprises at the same level as in the major industrial powers of the West,. The value added ner worker is +41 y A8v of . v.au adde per worker in Italy, 411. of Germany and only 18% of the U.S. In the many small -,nd W4d4.1-ze inutre wit lesthan 00 wokes,wc - 22 - still account for about half of total manufacturing output, productivity is only about 40% of the level in the big enterprises (over 500 workers). Productivity is also very low in the largely old-fashioned distribution sector and in agriculture. Agriculture still engages 22, of the labor force but contributes only ll%tb national income and total agricultural output falls far short of the economy's food and raw materials require- ments. 38. These facts indicate that there is still room for better utilization of Japan's labor supply by increased mobility of labor and by modernization of enterorises with low labor Productivity The follow- ing steps would be necessary to achieve this: (i) In order to achieve modernization and. technological imorovement in medium and smAll scale enterorises and in agriculture it will be necessary to achieve n drnRtin imnrrnvPmAnt in thp 1nnq-tnrm nrnif.t fnnil- ities available to these sectors. At present small firm.Qn-r .n~ n InPa a-v+a0nt finnnrl 'h7r +.-rnr1c-rdt from larger firms. Besides-being expensive these ni'A4 e na n4 .a19Z+^ +he 4n -r,A Jrv rt nn investment. (ii) The mobility of older workers could be improved-by ULe es UaVL.LLL U.L ~,UdAL. X L L.-O -U.L".UVtI U labor exchange facilities, improved information about JU opportunities, sudficlent nousing and other urban facilities. (iii) Much of the development in the past decade has been in the nature of making up for an enormous and very obvious technological backlog. Although there is still scope for further imports of know-how,Japan will also have to promote its own research. In many industries (steel making, ship building, the production of optical goods, electrical appliances, motor cycles) the Japanese have achieved significant improvements in production methods and design. These however fall short of the requirements of a wide based exploration of future production possibil- ities. (Uv) In respect to agriculture it will be necessary to achieve a change of heart and to renounce the traditional goal of maximum production per unit of lannd !n switch deliberately to mechanized cultivation of larger farm units aiming at inenased prnaution ner oagricuPtura worker, - 23 - The Financial Structure of Business 39. The expansion of industrial capacity has far exceeded the internal generation of funds by business. Since 1951, around 60 to 65% of the total supply of industrial funds has come from external financial sources. Stock and bond issues have played only a minor role in financing new capitale By far the major role in industrial financing has been fulfilled by the banks who annually have supplied between 45 and 551 of new industrial funds. The following table shows the relative importance of the various sources of industrial funds: Table 9 Supply of New Industrial Funds 1952 1956 1960 1961 1962 1963 Total Amount tM1117- ll 1 1en)4 ) LR C )7 A 077 7, 01 )IA1 SLlUa, UJ.LLU LLU V-L%JL& DeitpreciatiOn- 20 22 22) 22-)2 Retained Profits LY 19 19 17L4 13- Total internal Funds 31 41 41 39 39 36 Stock issues 8 8 9 13 11 7 Bond Issues 3 2 3 6 2 2 Bank Loans 58 48 46 47 47 54 Foreign Investment - - 1 1 1 1 Total External Funds. 69 58 59 61 61 64 Total 100 100 100 100 100 100 40. The result of the relatively large amount of financing with bank credit has been a steady deterioration of the debt equity ratio. Net worth as a percentage of total assets dropped from 35% in 1956 to 26.9% in 1960. and to 22.5% in 196h. Normally this should have led to a sharn inerAA in the ratio of net profits to net worthl. In reality, however, this ratio dropped h n nar-Pte% hetwn 19A nnri 1OAL fyom 3n to n 13 < This 4"op was due to a rapid decline in the profit margin on sales and a reduction in the ratio of snleso tona eae 1rTIf the marginal efficiency of capital had been equal to the cost of capital during these years the ratio of net orofits to net worth wni have anne up to just over 24%. - 24 - 41. Chiefly due to a sharp increase inlaborcost (including high overtinie payments and bonuses) and drastically increased selling and dist.ribution costs, the profit margin on sales in the manufacturing industry dropped in 1964 to about 75% of the level prevailing in 1900. The only industries that escaped this profit reduction were the booming automobile industry, the chemical industry and pulp and paper. The drop has been almost continuous in spite of cyclical fluctuations. Business circles have been deeply disturbed in 1964 by the paradox of booming sales and dropping profits. In the last half of 1964, for instance, when sales of the manufacturing industry rose by 6%, the total amount of profits dropped by 6.5%. L2. The reduction in the profit margin on sales was accompanied by a general decline in the ratio of sales to total assets, that is, in the gross ratio of output to capital. This ratio had been climbing throughout the '1950ts but the enormous investments undertaken during the 1959-1961 boom and the sliLhtly slower expansion of demand since then have caused a drop down to about 80% of the 1960 level in the first half of 1964. The remilts for thp first half of 196)1 nr very sinificnnt benni ales were then booming (20% higher than the year before and 107%, higher than in 1960) The I-rop lin Thon evreripnnrlihv n1linriii.t.rip.q in nhnt. equail riapPn (s.p Appendix Table 16) with the exception of the cotton spinning and pulp and nnnper indr1i"ies vheren envpnns,ion hadl p-roncde --I.anrnno rodestrat.- Thp reduction of the ratio of sales to total assets occurring as it did at the he-Ighth ovf s'aes ex,r.enslon appe~nars-.4 -~ .-K 4 1 at 4- f..r l, due +I-c -Pact that capacity in the capital goods industry has outrun investment demand consumer goods industries has outrun consumer demand. In numerous inustres government approval has recenly been ouaineud to eafor'ce output curtailment. Among these industries are the steel, cement, petro- leumZgl 1p'uug, sugar reiniug, motor tire and camera industries 43. At the rate of increase in demand which has been characteristic for Japan in the post-war era, it would normally not take long, once business recovery has started, to overcome the over-capacity which might in time lead into a new investment boom. Undoubtedly this is true as far as the demand for basic industrial input is concerned such as steel and cement. However, the production capacity still under construction in these industries will have an important dampening effect on the need for new capacity for some time to come. It is therefore unlikely that invest- ment in these major industries will soon rise again to a high level and this fact itself will in turn have an unfavorable impact on current demand for these products. The difference with previous trade cycles with respect to these industries would however be largely a matter of degree. Thp like- lihood of a protracted depression is however greater in certain other industries such as the durable connumer ans industries whee, anfe yarn of extremely rapid growth, consumption, if still below the saturation - 25 - level , will probably increase at a somevhat slower rate. 44. The present financial condition of business requires a build-up of net worth by stock issues and a higher degree of profit retention. Conditions for stock issues however will remain unfavorable even after the present ban on issues is lifted, because of the depressing effect of the large volume of shares temporarily acquired by Government in its several market support efforts. A higher degree of profit retention is also difficult. Traditionally, Jaanese companies have distributed on average about 50o of profits after taxes with relatively small regard to variations in financial results or the investment reauirements of the companies concerned. A reduction in the average dividend rate might be desi.rab10le for the financial healthl o~f bisn. -ilt. wouill hanve a- fuirt'her adverse effect on the stock market and thereby reduce the scope for issues. 45. Besides the semi-fixed obligation to pay dividends Japanese debts. Interest rate reductions are only possible if certain institutional deficiencies of the capital market are overcome - which of course requires considerable time - and if the demand for funds would drop to a lower level. Taking the current high but probably not further increasing savings rate of 38% of GNP as given this is not likely to occur unless the growth rate of the economy is brought down to a lower level. If higher consumer expectations and a lower 'increase in income would reduce the savings rate (olthough there are currently no signs that this is happening), the reauired reduction in the growth rate may be quite substantial. 46. A new burst of investment activity based even more (because of lower profits) on short-term bank credit would further aggravate the financial condition of business.and might in time lead into an even deeper financial impasse. In fact this means that new restraints on the growth rate of the Japanese economy have been added to the traditional and seemingly only restraint provided by the balance of payments. 'While the following figures which at the same time provide an illustration of t.he imroeen n eJapnese stada of_ivng Pnc =Qo e% f%J'.P niA' Jr-A ,y TT L~ 1 ±~ L1L~ (in percent of total number of urban households) T-V. Sets. Refrigerators Washing Machines ScwinR Machines Cameras 1958 10 3 25 64 39 1964 93 54 72 80 58 - 26 - less easily defined these restraints - the deficiencies of the capital 1L~~kt J.1 -[4U IAC~I~gL 4.__b U.s L,eL !a"-or marke' - are~ curren-I proving to be no less stringent. For the promotion of long-run economic growth it is of vital importance to remove these deficiencies Inis means a long range policy aiming at the promotion of a direct flow of savings in the form of share capital to business enterprises, the establishment of a bond market for long-term industrial loan capital, the reduction of the interest rate structure and the fiscal burden on business and a sufficient reduction of the rigidities of the labor market to prevent a serious cost-push on prices. Recent changes in emphasis in Government policy (briefly summarized by the change from the "income doubling" slogan of the Ikeda Government to "growth with stability" under Sato) inalcto that the central economic objective of government policy is to in increceing extent being directed towards these aims, - Z7 - IV. PROSPECTS Short-term 7. It seems almost certain now that the growth rate of GNP in fiscal lo (ending March 10AA) T.ill ho -Ir),ya-r thnn thp nffininl 717 formrast made up early this year. Recently a semi-official forecast of between 4 and 51% ~,J ~W ~ML l~'9 L tjJJ± ' _.i ndAus~U4VriC1_ -L VULU U.LV&L DLIWWO ~ 1W .- AQ~L '-.L J. QL f,~~ CL - having been generally constant for the past year, investment activity and consumer demand are sluggish and ..u proucts inventories keep 0- grlng Recent surveys of investment plans of major corporations reveal a probable .L1L V UiL11t;11U UL VF UIAA J41r, Vilu 1=;1,U 112LL YUCI. ACI4r " _eLJ - J- in the same direction. Stepped-up public works expenditure ill provide Ao e t au'"tion to - --4 4 -U 1-4p -a- of4 th yar - so will the announced reduction of corporate taxes and increased financing us puvlic wors expenL'L'urehunroug bon uui _Lli Ut nU . ea. you. Besides giving continued support to the sagging securities market, Govern- ment will continue to help business to tide over the present diculties by approving production curtailment in depressed industries, encouraging mergers to obtain reduced production costs and encouraging banks to have mutual discussions about major financing plans to avoid duplication of investment. 40* it is difficult to judge Jusu wuen busnes recovey will. come about, but in view of the cluster of financial diliculties reviewed in the preceding section it appears likely that the expectation of many officials and businessmen in Japan of a faLrly low growth rate for the near future will prove correct. 49. It is not likely that balance-of-payments developments will in the near future act as a restraint on economic activity, in spite of rece:.t unfavorable developments on capital account. U.S. action to restrict the outflow of capital and the internal difficulties of the Japanese economy have made an end to the net inflow of bank loans of between one and three years duration (about $1000 million in total during the last four years) and reduced the scope for bond issues to probably less than $100 million (almost $200 million in 161). The current contraction of the Euro-dollar market, the recent reduction of interest rates in Japan and the growing credit requirements connected with the export boom make it unlikely that there will be a net inflow of short-term capital. Increased financing from the U.S. Export-Import Bank will provide some compensation, but in view of the large commitments to provide aid and promote exports a net outflow of $200-300 million during 1965 seems likely. In addition to this, there will be a deficit on current invisibles Of about P800 million. The trade surplus currently forecast by Government sources at $1,300-1,500 million during 1965 will, however, be sufficient to cover these requirements and.probably there will be no decline of f.oreien arhange resevs. The Gove=-mentls estimate of t t40de surplus is fairly conservative and even with some recent slackening in - 28 - export expansion from the very high rate of increase of 35 9/ in early 1965 over the prc-ing -..ar' ther -1" I'e '14 ++-I dage ,q~vrof substantia frpn'~ exchange losses in 1965 and probably also during 1966. Official exchange reserverem-ne moe'rless constant duri n he first nine mnths) o%f' 1965. Longer-term Prospects and the Need for Capital Imports 50. The long-term prospects of the Japanese economy continue to be very favorable. There is abundant opportunity toU acUeve l rge inceaUse in output through modernization of production capacity and provision of additional infrastructure facilities. Savings, moreover, have risen in recent years to the extremely high level of 38% of GNP and even some drop from this level would permit a high level of investment. Given the high qualities of enterpreneurs and labor force, the achievement of growth at rates which are high by world-wide comparison seems assured provided adequate economic policies are followed by the Government. Past experience shows the Government is well able to provide these. 51. Some of the future tasks of the Government have been discussed in earlier sections. The first among these is the improvement of the financial health of business in general which among other things will require a reduction of the interest burden and corporate tax rates. It is also necessary to provide improved credit facilities and other incentives to encourage modernization of less productive segments of the economy. In order to reduce the likelihood of cost-push inflation it will be necessary to streamline the labor market and oarticularly to encourage labor mobility of older workers. In the meantime Government will have to adapt to a new fiscal situation in whinh tn rvtrnn will enver a smaner pronportion of expenditures. Non-inflationary financing of the deficit will require the deveonment. of and market. These and +her nolic chans are haing actively studied by the authorities. In the past the Japanese have shown gr .n AAPe-i+.nmc2.a4m Ami'r_;i n nnr nprj n^^nnMi+,+~ ~,. 4.,e, n .,,m, 'rl i ni ac and there need be little doubt that they will be able to furnish the frame- work fo S&V th measfI~S ~J2~.J u~CC'.res. Ilowv r theW VO l L iM JitL aOV±iULIQ .LASj..J t by the fairly slow growth rate of the work force and the prevailing in the economic growth rate below the 12.5% average annual rate since .5.4 120. ~IC12 '.&L J9 L J6L..1. 1 L%..JJ4 C2LAIA L OL , %J.L. VJ411=AU0 .L£L U..l.C are to be avoided. It appears that the present Government is aware of A.s 0. -LI Vet1Ve Is a lwer and more stable growth of the economy with a higher degree of price stability, rather than a continuation of the very high growth rate of recent years. &e. Aside from any overall policy aimed at stable growth, a certain slowdown is likely because of marked changes taking place in the overall investment pattern. In the post-war era, investment was mainly directed to the expansion of directly productive facilities, especially in manu- facturing. Investment in public works and housing was relatively modest. This has been the main reason for an unusually favorable relation between investment and increases in output (see appendix table 11). The capital output ratio during the late 1950's was only around 2, which is far below the level in almost all other industrialized countries. In recent years the ratio has however been moving up to a level of about 2.5. The 6 J V.LiI6 V.LL~L~ JU- L%, JJ L.V UQkJ.F__L.LjJ .L UILK; VJ. LULFJ.V se has led to a rapid rise in the share of Government investment in GNP (see par 19). rr---------- .0 .3 " n1S.a 4 4- MMf 4. _ JJQ.L_&. -L7 * li jJJL-UPVULUn oi .Ls iuentA& L 1 V %A_L4 VV U1F. CL.LIIVU611 still fairly low (4% of GNP), has doubled in recent years. It is expected t Uhattivestment in puUli LaLtiUZes and hou0ing anu the mouern- ization of the less productive segments of the economy will further grow .n importance, All these activities nave a lesu favorable capital out- put :ratio than manufacturing and given the strong likelihood that overall savi.gs and investment will not rise beyond their present very high level, it is likely that some slow down in the overall growth rate will occur. 53. At the beginning of 1965 the Economic Planning Agency published a Medium-Term Economic Plan for the years 1964-68. The overall growth rate in this plan was 8.10/ a year. Although this growth rate would represent a sharp reduction of the rate prevailing in the preceding five years the Government, according to more recent statements, now feels that the plan underestimates the limitations on growth following from the weakened financial condition of business and is far too optimistic with rega:rd to the chances for price stability (the plan estimated that consumer prices would rise annually by 2.5 % as compared with about 40c in the last few years). Many officials now think that an appropriate downward revision of the plan would yield a growth rate of perhaps 6 or 7 o a year. 54. The balance of payments will in the long run remain the mcst immediate and inexorable restraint on economic growth. At present the foreign accounts are in a comfortable state with current surpluses re- sulting from this year-s export surge and only a slow rise in imports. This, however, stems in part from the sluggish economic situation which accounts for the plateau in imports and to some extent responsible for the export boom. With an economic revival, import demand can also be expected to revive. and export expansion may be curbed somewhat by the competing pull from improving domestic markets. 55. In assessing the interrelations of economic activity and the balance of Dayments. it was estimated in the Japanese Medium-Term Plan that an economic growth rate of 8 % was compatible with a balance in the current foreign account. This seems an accentable assessment in the light of Japan's demonstrated export strength and saving capacity, althourh deviations are nrnbablv more likely on the deficit than,the surplus side, considering the import inventory accumulations that usually qCcompany an unswina of the t*tonomy. 6.A nmr-r'pnt ~nnnit. hnnnnp mnv nnt hp nnoh howe-ver- for a manageable position in the balance of payments as a whole. This is beausen of the substantial gross apnitn1 outflow rwhich in~ charateri ti of Japan's balance of payments. Outflows can be varied of course but ph odegte cd ws wd1-4-t I J teed (srnea n export 97ompet if + proviLde the credit which goes with international export competition, if ;,3 to de.eo -An.en *4 -r~a sorcs an if it is to play af - 30 - part as an industrial country in assistance to less developed areas. Hence, unless necessary capital outflows are more or less matched by capital inflows, a balanced current account will not be sufficient and economic growth rates may have to be curbed so that there will be on the average a current surplus to cover deficits in the capital accounts. 57. Probably, Japan will continue to obtain substantial gross inflows of foreign capital from private sources, although they are hardly likel.y to be on anything approaching the scale of recent years (see paras. 24-26). This year capital receipts have been less than capital outflows and it is difficult to judge when or whether Japan will be able again to rely on foreign capital to offset its capital export requirements, let alone cover deficits in the current payments account. In these circumstances, it may be necessary to adjust to rates of economic growth which are lower than the 80/ annual rates of the Medium-Term Economic Plan. However, considering Japan's export strength and the likelihood of continuing export expansion, the extent of economic curbs necessary for balance of payments reasons are not likely to be severe. They may mean economic growth rates which are considerably below the unusually rapid expansion of recent years. But with a reasonable prospect of moderate capital inflows, the rate of expansion possible without payment difficulties is still likely to be high by comparison with other countries. 58. The continuing capital inflow which this assumes does not present mny creditworthiness problems. In view of Janants relatively low foreign debt, excellent debt record, and favorable export and growth nrnnt-ns- Janan has amplA margin fnr qihtantiAl nrlitionnl borrowing on conventional terms. The total amount of foreign public debt including repa-rnAinsz and; relatedA coi.natnts., sta+ndsQ at $2.6 million. Totanl nnuanl debt servicing payments will amount to $260 billion in 1965 or about 'A 0/_ ^f anv-nie Y%cmv' T - +.i c.4mn+cn A4m:+. _vri- em~h r a ~ r IO- a +T the est-nated A__+. sexvice onzh. .e f private Japanese companies (public issues and borrowings from foreign bankers) is -AAaA e +h +^+W? 4 104 -ill he ant ce7r williem ^v o'hbm 6.5':Vo of export earnings. By 1970 the service on existing public and n 4t Anh+.IF V~ ~ ra. h ed nal4m'./A tf/Shan ed7 mill..ifn ThA * e ma a represent a modest burden in relation to Japants foreign trade or the Si a be cano. Tsi eoni pati tn hisfthi is rquir by 4 adr seI suitable adjustments in economic activity if this is required by adverse .,alancet.. C%.YJII%LLIQU UVVLJJAIIVU J4VQ STATISTICAL APPENDIX Table No. External Debt 1 External Public Debt Outstanding Population 3 Growth of Population, 1941-90/o 4 Recent and Projected Trend of Total Population and Working Age Group 5 Composition of Labor Force 6 Labor Force Participation Rate 7 Per Cent Increase in Money Wages and Productivity National Accounts and Production 8 Gross National Expenditure 9 National Savings (Net) 10 Financing of Private Investment 11 Relation Between Investment and Output in Japan 12 Indices of Production of Agriculture, Forestry and Fishery 13 Indices of Manufacturing Production by Category of Product 1i Indices of Industrial Production by Industry 15 Objectives of the Medium - Term Economic Plan 16 Comparison of Profit Ratios in Manufacturing in the First Halves of 1960 and 1964 Foreign Trade 17 Value and Composition of Foreign Trade 18 Indices of Volume and Value of Trade and Terms of Trade 19 DYrpetion of Japanese Exnorts 20 Ratio of Imports to GNP Balance of Payments 21 Foreign Exchange Receipts & Payments (Fiscal Years) 5 . A . O U 5 - - W O4 . 5 &A '.J L" W %JQ 23 Short-term Foreign Assets and Liabilities of Japanese UommiZercia-lt. Dd[AMb 24 Foreign Exchange Reserves d; Scheduled Payments under Reparations and Postwar Settlement Agreements STATISTICAL APPENDIX (Conted) Table No. Public Finance 26 National Government Budget (General Account) 27 Dalance of Treasury Transactions with the Public 28 Ratio of Taxes to National Income 29 Percentage Composition of National Tax Receipts 30 Financing Public Investment 31 National Government Debt 32 Progress of Investment in the Public Sector 33 Investment in the Public Sector (Current Prices) Money and Prices 34 Money Supply and Liquidity 36 Interest Rate Comparisons 38 Changes in Consumer Prices 1960-1964 ) Equipment Loans and Changes in Inventory Table 1 External Medium and Long-Term 1/ Public Debt Outstanding Including Undisbursed as of December 31, 1964 with Major Reported Changes January 1 - 1ay 31, 1965 Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) Debt outstandinL Ma'or recorted Item December 31, 1964 changes N\t nf TnaTuding Jinuirv 1 - undisbursed undisbursed May 31, 1965 TOTAL EXTERMAL PUBLIC DEBT 2,2o7,346 2,393,458 157,56 Fublicly---issued bond- 4l5,544 415,544 47,500 Privately-placed debt 154,375 154,375 -14,594 Suppliefst credt"s LUUyOO oO Other 45,607 45,607 18,982 IBRD loans 419,580 562,963 100,000 U.S. Government loans 573,901 616,630 24,550 Export-Import Bank 140,435 1)1,1b4 24,550 Settlement of Postwar Aid from U.S. 425,466 425,i66 - British Government loans 11,9 11,799 - Reparations 632,147 632,147 - 1Debt with an original or extended maturity of one year or moret Statistics Division IBRD-Economics Department July 6. 1965 Table 2 fEtiQated Contractual Service Payments or External Medium and LonE-Term Pub-Lc Debt, Outstanding_Icluding Undisbursed as of December "l J964witLMijor eortE Chnces January 1 - hay 31, 1965 1F Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) Grand Total fub1ic11"Issued Bonds Debt Outst. Debt Outst. (Begin of Period) Payments During Period (Begin of Period) Payments Duirin Period Including jAmorti- Including Amorti.- Tear Undisbursed zation Interest Total Year Undisbursed zation Interest Total 1965 2,393,458 182,919 77,412 260,331 1965 415,544 22,589 25,405 47,993 1966 2,367.995 179,193 78,774 257,967 1966 440,455 19311 25,663 44,974 1967 2,188,802 175,727 77,073 252,801 1967 421,144 14,092 24,645 38,737 1968 2,013,075 190,536 75,089 265,625 1968 407,051 25,404 23,534 48,938 1969 1,822,539 191,135 71,457 262,592 1969 381,647 22,007 22,221 44,228 1970 1,631,403 186,770 66,240 253,010 1970 359,641 30,560 20,886 51,446 1971 1,444,633 173,686 59,846 233,532 1971 329,080 33,812 18,955 52,767 1972 1,270,948 168,972 53,672 222,644 1972 295,268 33,498 16,918 50,416 1973 1,101,976 168,739 47,801 216,540 1973 261,770 33,524 14,897 48,421 1974 933,238 161,569 42,007 203,576 1974 228,246 32,819 12,874 45,693 1975 771,669 135,277 36,649 171,926 1975 195,427 33,092 10;879 43,971 1976 636,391 132,048 31,915 163,963 1976 162,336 34,846 8,861 43,707 1977 504,343 86,333 27,331 113,664 1977 127,489 33,150 6,777 39,927 1978 418,010 65,251 23,049 88,300 1978 94,340 27,940 4,894 32,834 1979 352,761 70,957 19,472 90,429 1979 66,399 32,048 3,316 35,363 (Continued on next page) -2- (Table 2 cont'd) Privatelj=Placed Debt - Total Suplierst Credits Debt Outst. Debt Outst. (Begin of Period) Payments Durine Period (Begin of Period) Paymets During Period Including Amorti- Including Amorti- Year Undisbursed -ation Interest Total Year Undisbursed zation Interest Total 1965 154,375 20,424 6,735 27,160 1965 108,768 92975 3,677 13,653 1966 119,357 22,998 6,423 29,422 1966 65,217 13,293 3,418 16,711 1967 96,359 23,866 5,139 29,005 1967 51,924 13,294 2,696 15,990 1968 72,493 21,983 3,795 25,778 1968 38,630 13,211 1,940 15,152 1969 50,510 21,060 2,573 23,633 1969 25,418 13,073 1,229 14,302 1970 29,449 13,894 1,511 15,406 1970 12,346 6,691 608 7,299 1971 15,555 6,394 815 7,209 1971 5,654 2;516 278 2,794 1972 9,161 4,088 464 4,552 1972 3,138 1,565 147 1,712 1973 5,073 1,483 294 1,777 1973 1,573 317 84 401 1974 3,590 1,346 210 1,556 1974 1,257 180 70 249 1975 2,244 1,346 129 1,476 1975 1,077 180 59 239 1976 898 180 49 229 1976 898 180 49 229 1977 718 180 39 218 1977 718 180 39 218 1978 539 180 28 208 1978 539 180 28 208 1979 359 180 18 198 1979 359 180 18 198 (Continued on next page) -3- (Table 2 cont'd) Privately-Placed Debt - Other I3RD Loans Debt Clutst. Debt Outst. (Begin of Period) Payments Dring Peiod (Begin of Period) Payments During_Period Including Amorti- Including Amorti- Year Undisbursed zation Interest Total Year Undisbursed zation Interest Total 1965 45,607 10,449 3,058 13,507 1965 562,963 22,668 25,580 48,248 .1966 54,140 9,705 3,006 12,711 1966 640,295 23,268 27,433 50,701 1967 44,435 10,572 2,443 13,015 1967 617,027 24,575 28,978 53,553 1968 33,863 8,772 1,855 10,627 1968 592,452 25,636 30,451 56,087 1969 25,091 7;987 1,344 9,331 1969 566,816 31,402 31,300 62,702 1970 17,104 7,203 904 8,107 1970 535,414 34,756 30,273 65,029 1971 9,901 3,878 536 4,415 1971 500;658 36,225 28,305 64,530 1972 6,023 2,523 317 2;840 1972 464,433 34,513 26,293 60,806 1973 3,500 1,167 210 1,377 1973 429,920 36,502 24,310 60,812 1974 2,333 1,167 140 1,307 1974 393,418 29,150 22,335 51,485 1975 1,167 1,167 70 1,237 1975 364,268 28,397 20,625 49,022 1976 335,871 26,033 19,058 45,091 1977 309,838 27,242 17,539 44,781 1978 282,596 28,576 15,957 44,533 1979 254,020 30,176 14,451 44,627 (Continued on next page) -4 (Table 2 cont.d) US Govt. Loans - Total US Govt. Loans - EXIM Debt Outst. Debt Outst. (Begin of Period) Pamets During_Period (Begin of Period) Pavrients During Period Including [morti- Including Amorti- Year Undisbursed zation Interest Total Year Undisbursed zation Interest Total 1965 616,630 47,800 19,692 67,492 1965 191,164 14,310 9,264 23,574 1966 593,380 49,444 19,255 68,698 1966 201,404 15,112 9,669 24,780 1967 543,937 49,152 18,311 67,462 1967 186,293 13,957 9,588 23,544 1968 494,785 53,470 17,310 70,780D 1968 172,336 17,390 9,472 26,862 1969 441,315 52,62:3 15,363 67,987 1969 154,946 15,635 8,433 24,069 1970 388,692 53,524 13,569 67,094 1970 139,311 15,605 7,570 23,176 1971 335,167 53,225 11,771 64,996 1971 123,705 14,352 6,726 21,078 1972 281,942 52,844 9,997 62,841 1972 109,353 12,993 5,930 18,923 1973 229,098 53,200 8,301 61,500 1973 96,360 12,346 5,237 17,582 1974 175,898 54,226 6,589 60,814 1974 84,014 12,345 4,552 16,896 1975 121,672 28,414 5,016 33,429 1975 71,669 12,159 3,867 16,025 1976 93,259 26,961 3,947 30,907 1976 59,511 10,297 3,207 13,503 1977 66,298 25,762 2,977 28,738 1977 49,214 8,678 2!658 11,335 1978 40,536 8,555 2,171 10,725 1978 40,536 8,555 2,171 10,725 1979 31,982 8,555 1,687 10,241 1979 31,982 8,555 1,687 10,241 (Continued on next page) -. 5 - (Table 2 cont"d) Post..ar Aid by the U.S, UK Govt. Loans Debt Outst. Debt. Outst. (Begin of Period) Pavments During-Period (Begin of Period) Paments DuringPeriod Including Anorti- Including Amorti. Year Undisbursed zation Interest Total Year Undisbursed zation Interest Total 1965 425,466 33,490 10,428 43,918 1965 11,799 1,180 1,1P0 1966 391,976 34,332 9,586 43,918 1966 10,619 2,360 . 2,360 1967 357,644 35,195 8,723 43,918 1967 8,259 2,360 . 2,'k6) 1968 322,449 36,080 7,838 437918 1968 5,900 2,360 - 29360 1969 286,369 36 988 6,930 43,918 1969 3,540 2,360 . 2,360 1970 249,381 37,919 5,999 43,918 1970 1,180 1,180 1,180 1971 211,462 38,873 5,045 43,918 1972 172,589 39,851 4,067 43,918 ReDarations 1973 1'32,738 40,854 3,064 43,918 1974 91,884 41,881 2,037 43,918 1965 632,147 68,258 - 68, 23 1975 50,003 16,255 1,149 17,404 1966 563,889 61,812 - 61,812 1976 33,748 16,664 740 17,404 1967 502,077 61,683 - 61,683 1977 17,084 17,084 319 17,403 1968 440,393 61,683 - 61,,63 1969 378,711 61,683 - 61,683 1970 317,028 52'856 - 52,856 1971 264,172 44,029 - 44,02? 1972: 220,144 44,029 - 44,029 1973 176,115 44,029 - 4,C29 1974 132,086 44,029 - 44,029 1975 88,057 44,029 - 44,029 19761 44,029 44,029 . 44,029 T Includes service on all debt listed in Table 1 Drepared Statistics Division July 6, 1965. IBRU-EconoMics Depa rttnent July 6, 1965 Tabe,_ Growth of Population, 1945-64 (thious-nd persons) Change Total 1 Live- Net Due to Net Percenrtage Year Population births Deaths Increase ligr,tion Change Increase 1945 72,200 1,576 1,369 207 3,470 3,600 4.99 1946 75,800 2,623 1,164 1,460 1,001 2,352 3.10 1947 78,101 2,718 986 1.732 318 1,905 2.4h 1948 80;010 2711 943 1,768 1>9 1,773 2.22 1949 81.780 2.4>47 915 1.532 21 1. 419 1.74 1950 83200 2,229 872 1,356 2 1;343 1.61 1951 8å.500 2.058 706 1.273 6 1.265 1.50 1952 85,800 1,921 772 1,1>9 37 1_172 1.37 1953 87.000 1.785 728 1.057 8 1.054 1.21 1954 88'200 1,761 708 1,053 - 4 1,038 1.18 19,6 89.276 1.698 707 991 - 8 893 1.10 956 90,170 1,60> 764 8>o -10 754 0.84 1957 90.920 1.630 701 929 - 7 837 0.92 198, 91,'760 1,666 693 974 -11 873 0.95 1959 92,6h0 1,62o 712 908 -50 775 0_8) 1960 93,>419 1,595 697 898 -32 865 0.93 1961 9>,280 1,617 716 902 - 8 893 o.95 1962 95,180 1,660 676 984 - 6 978 1.03 193 96, 160 1,697 668 1 10 1 1,31 1.07 1964 97,190 - - - - - - 1/ Estimate as of october 1 of the years indicated. Source: Government of Japan, Prime linister' s Office Table 4 Recent and Projected Trend of Total Population and Working Age Group Year Total Population Working Age Group (15-59) (00Oersons) 000 personsY 1950 83;200 47,354 1955 89.276 52j235 1960 93,419 57,285 1965 98,245 64,036 1970 102,216 68,250 1975 106.327 70,616 1980 109,688 72,800 Average Annual Increase (000 persons) 1951-55 1215 976 1956-60 829 1,010 1961-65 965 1,350 1966-70 7,794 843 1971-75 822 473 1976-80 672 437 Average Annual Increase 1956-60 09 1 1966-70 08 1.3 1976-80 o.6 o.6 Source: Bureau of Statistics, Prime Ministerts Office. DIMonhJlLy Esimt ofv Population, July 1960, Figures were estimated in June 1960 by Institute of Population. Problems, Ninistry of Health and welfareq Table 5 Composition of Labor Force Age Group ly>> 19ea 196u (w. (average) (average) Projection 15 - 19 years 4,790 3,820 4,250 20 - 39 19,930 24,890 25,890 40 and over 16,850 18,1o 19,730 Total 41,570 47,120 49,870 Source: Bureau of Statistics, Office of the Prime Minister. Medium - Term Economic Plan (FY 1964-1968), Economic Planning Agency. Table 6 Labor Force Participation Rate Ape Group 1955 Av. 1964 Av. M.ale (years) 15 - 19 59.7 (1.9)* 37.3 (1-5)* 20 - 2 ) 85.,8 (o.8) 25 - 29 ) 914o1 (1.7) 96,6 (0.5) 30 - 39 ) 97.1 (o5) 0o) 961 (0.5) ) 92.8 (1.h) 55 - 6) 86,8 (0,7) Over 65 60.2 (0,8) 56.3 (0.0) Female (years) 15 - 19 52.7 (2.3) 37.4 (1.1) 20 - 2 ) 70.7 (1.2) 25 - 29 ) 61.8 (1,8) 49,4 (1.5) 30 - 39 ) 55.7 (1.h) -) 59.6 (0,8) r',7 -3 1 ,)fe) ~Le*C 55 - 64 45.5 (0.6) Over 65 29.1 (0.0) 22.3 (0.0) -* Figures in parentheses snow the percentage or totally unemployed in the labor force. Source: Bureau of Statistics, Office of Prime Minister. Table 7 Per Cent Increase in Money Wages and Productivity Money Wages Productivity 1103 A , 1i1j07-hi hI oA ).) Total Industry 7>*0 be0 87e3 Mining 86.4 43.0 87.3 Construction 117.3 67.) U.ao Manufacturing 79.6 46.2 1.7 Trade 7.2 461 nea. Finance 69.1 40.7 n,a, Transport and Conunications o,o 4o.o ned Electricity, Gas and Water 85.4 48.5 n.a. Processed Food 72.08 9.3 7.4 Tobacco 112.2 55.3 23.6 Textiles 101.1 57.7 32.2 Clothing 116.2 69.1 n.a. Lumber 101,5 63.0 -4.9 Furniture 113.6 62.8 n*a. Paper 145.7 36.8 4S.7 Printing 1ol.6 51.6 n.a. Chemicals 85.5 41.7 6. 7 Petroleum and Coal 88.6 41.8 73.73/ Rubber 93.1 76.3 15.7 Leather 79.3 41.8 36.6 Ceramics 86.7 54.0 45.5 Iron and Steel 64.2 33.3 56.1 Non-Ferrous Metals 70.8 38.9 48.1 Metal Products 81.2 55.8 n.a. Machinery 89.6 47.3 25.4 Electrical Machinery 50.9 37.8 35.8 Transport Equipment 67.7 36.5 68.2 Precision Instruments 77.7 48.2 47.5 Miscellaneous n.a. 76.0 n.a. Manufacturing 500 workers and over 67.0 36.6 n.a. Manufacturing 100-499 workers 86.4 52.5 n.a. Manufacturing 30-99 workers 107.9 61.3 n.a. 17-Labor productivity index by tye of industry = output index by type of industry divided by labor input (monthly total man-days) index by tve of industry. 2/ Refers to petroleum products only. The figure for coal products is 75c0n Off-ice- of L th PJ- alinier Jap.LL~ Ldr, Productivity Center, Table 8 Greoss National FxQenditure 0-iimnons of yenj Fiscal Years __ 1955 1956 L97 195 . 1959 1960 1961 1962: 1963 196 Total at Current Prices 8,236 9,293 10,150 10,395 12,573 14,671 17,741 19,315 22,454 25,360 Index at 1955 Prices 100 109 116 120 141 161 186 195 219 240 Consumption 5,008 6,439 6,994 7,368 8,054 9,037 10,508 12,126 14,048 15,980 Private 5,119 5,502 5,980 6,294 6,877 7,694 8,920 10,267 11,861 13, 470 Governrment 889 937 1,014 1,074 1,177 1,343 1,588 1,859 2,187 2,510 Gross Investment 2,087 2,956 3,211 2,832 4,404 5,614 7,589 7,182 8,768 9,540 Private 1,372 2,264 2,402 1,904 3,289 4,274 5,864 4,949 6,252 6,580 Governmient 715 692 809 928 1,115 1,340 1,725 2,233 2,516 2,960 Surplus on Current International Account 141 -101 -54 195 114 21 -357 7 -362 -160 Gross InvestMent: Percent of GNP 25 32 32 27 35 39 43 37 39 38 Gource: Economic Planning Agency: National Income Report, FY 1963. 1964 data from Economic Planning Agency: Outlook and Basic Policy on the National Incone, FY 1965 (May 1, 1965). T_able 9 National Savin s (Net) Public Sector (1) (2) Personal Savin's (3) Fiscal -(Gur=et-rrt Corporate PeUrial -ersonaj. -- Total National 5 fear Revenue Expend. Savings Savinj,s 1/ Savings 2/ Income / Savi ngs Income 1953 1,512.8 1,118.6 394.2 297.2 523.0 14,86l.o 10.8 1,214.4 5,747.7 21.13 195L 1,580.4 1,276.3 304.1 232.9 558.9 5,288.8 10.6 1,095.9 6,022.4 18.20 1955 1,619.1 1,300.2 318.9 273.7 833.7 5,9h"L.8 14.0 i,426.3 6,718.9 21.23 1956 1,859.0 1,34-0 515.0 531.6 979.2 6,h68.h 15.5 2,025.8 7,627.6 266 1957 2,17h.h l,491.7 68L.2 434.0 1,92. 7,058.7 15.5 2,210.6 8,285.9 26.68 1958 2,217.8 1,6o.4 617.h 331.-o 1,172.0 7,450.8 15.7 2,120.4 8,519.0 24.89 1959 2,545.6 1,717.3 828.3 75h=9 1,555.1 8,413.5 18.5 3,138.3 10,037.3 31.27 1960 3,218.9 1,982.5 1,236.h 1,058.8 1,987.1 9,660.8 20.6 4,282.3 11,937.1 35.87 1961 3,98h.9 2,357.5 1,627.4 1,196. 2,517.6 11,416.6 22.1 .5,341.4 1,196.h 37.62 1962 Li,452.2 2,759.0 1,693.2 996.1 2,689.7 12,937.6 20.8 5,379.0 15,775.0 3h.10 1963 5,082.5 3,276.0 1,806.5 1,288.7 2,981.4 114,836.8 :20.1 6,079.6 18,188.6 33.43 1 Net corporate income after taxes less personal dividends. 2/ Includes savings of unincorporated enterprises. Source: Economic Planning Agency. Table 10 Financing of Private Investment (in per cent of total) Fiscal Years Average I1960 19 19l 1959-63 Own Capital 34.5 33.4 3h.8 30.0 31.9 32.6 Depreciation 15.4 16.9 15.8 19.0 19.7 18,8 Retained Profits 19.1 16.5 19.0 10.9 12.2 13.8 Outside Canital 65.5 66.6 65.2 70.0 68.1 67.A Government Finch 3 3.9 h. h.5 h. 9.3 Private Funds 55.9 58.3 57.4 62.7 58.2 58.9 Stocks and Shares 9.2 9.1 14.6 9.8 7.7 10,0 IndustrialBonds 39 6.3 2.8 1.7 1.8 3.0 Borrowings 42.8 42.9 40.0 51.2 h8.7 45.8 All Banks 25.2 27.8 22.7 30.4 27.9 27.1 Trus3 Acunt3. 3 2.7 3 . 0 1. Mutual Loans & uSavings Bank- D- JcVJLINOL~ C Credit Associa- Insurance Com- panies 1.8 1.5 1.6 1.7 1.7 1.7 Other 2.1 1.9 2.7 3.0 4.8 3.1 Foreign Investment 4.3 4.4 3.7 2.7 5.8 4.2 Grand Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Economic Planning Agency. Table 11 Relation Between Investment and Output in Japan \c.uLrrene priceu]J Ratio of Gross Fixed Capital Formation Ratio of Inventory to increase in GP Investment to UNP Calendar Five-Year Three-Year Year Annual Moving Average Annual Moving Average-,, 1951 12,0 1952 1.29/ 7, 8.6 1953 1.20 6-3 6.0 1954 2.87 1.71 h.2 6.2 1955 1.91 1.81 8.1 6.4 1956 1.78 2.94 7.0 7.5 1957 1.78 2.22 7.3 4,)1 1958 2/ 2.05 -2.0 3.9 1959 1729 1.82 6.5 3.4 1960 1.61 2.13 5.6 7.0 1961 1.38 2.44 8.8 6.0 1962 3.34 2.50 3.7 5.9 1963 2.65 5.2 4.6 196h 2.00 L.9 1TInvestment in 1951 is related to increase in output during 1952. Similarlv fnr mh.'niiPnt rntin.q in th p r1es. 2 GNP declined during 1958. A/ Tnvestment durina 19541.4 i. ranted to innrPqz in niiinut dnring 1952-56. Similarly for subsequent ratios in the series. h---.rna+Ae,t fnu ~i-nero~ , r%r nminI -aA- Couce,rWP---P---------------- Table 12 Indices of Production of Agriculture. Forestry and Fishery (1960 =100) Ag rulu 87.'7 1 92.3 i9« 190.0 193.7 160 i 51 R.7 89 .r 93 .2 97t2 1r0.0 zQ ICM 7 1071 10. 9 R). 7 Ro1 0,1 0 07 ID iW n n 0 A 4 1nié-A onnn Uheat and barley 99.9 92.6 88.3 100.6 100.0 95.5 84.6 28.1 D- - 7A . P4 q ,'q7 ol,A 4 1 nnn 0970 Re,> i W] Potatoes 110.0 111.2 109.7 128.6 100.0 101.1 96.0 96.8 l7a "Q n øLl. Qn O- 7 r4n -1n nnO "i it nC f ,i l. v egeables t7.4 94 uu07 .L'."J82. 7UO6. 0.L 1.6 LJ *1.L4 Fruits 75.9 81.2 84.5 91.0 100.0 102.3 103.3 106.2 Mis.! e laneous cerea13 84.2 92.7 93.9 84.0 100.0 71.1 60.4 61.8 Livestock and live- stock products 76.5 80.5 91.1 97.3 100.0 128.7 148.3 155.6 Forestry 100.7 105.0 95.2 94.5 100.0 100.1 97.8 97.2 Fishery 81.0 89.9 94.6 98.5 100.0 114.3 116.9 115.6 Source: Ministry of Agriculture and Forestry. Table 13 Indices of Manufacturing Production By Category of Product Value added weight (1960 = 100) Capital Construction Non-Durable Durable Producer Year Goods Aterials Consumer Consumer Goods Goods Goods 1959 72.3 81.1 91.8 75.2 80.0 1960 100.0 100.0 100,0 10000 100.0 1961 13000 115.0 109.0 125.8 118.5 1962 143.6 121.1 121.5 143.9 124.9 1963 157.3 132.8 129.1 160.1 139.7 1964 196.5 153.5 142.3 174.9 1638 Source: Ministry of International Trade and Industrya Indices of Industrial Production by Industry Value added weight (1960 = 100) Manufacturing Production Industrial Ferrous Non- Year Production Total Metal ferrous Machinery Chemicals Textiles Metal 1959 80.3 80.1 76.3 75.5 72.6 83.2 84.8 1960 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1961 119.3 119.4 126.1 119.7 129.0 113.8 107.9 1962 129.1 129.3 125.5 117.1 145.0 130.0 113.5 1963 142.1. 142.3 14o.4 132.9 159.5 152.7 122.5 1964 166.3 166.8 172.8 163.2 192.1 178.8 136.8 Source: Ministry of International Trade and Industry. Table 15 Objectives of the 'edium - Tern Economic Plen (196h-1968) (In trillion¯yen et 1960 prices) FY 1963 FY 1968 1. Gross National Product 19.8 29.2 GNP per capite -570 '806 2. Consumption 11.6 16.6 Personal consumption 9.8 13.9 Government 1.8 2.7 3. v&oss Capital Formation 8.6 12.5 Government capital formation 2.5 3.8 Private investment on plant and equipment 4.1 6.6 Personal residential Construction 0.5 1.1 Dhanges in business inventories 1.4 ( . ($bill.) 4. Balance of p,ments, current account -0.36(- 1.0) 0.0 (0.0) Exports 2.01 (5.6) 3.55 (9.9) Imnorts 2.fi (5.9) 3.9 (89) Services, net -0.23 (0.6) -0.36 (1.0) (c.Y.1963) (c.Y.1968) 5. Grass Value !:dded (at mrket rices 21.93. Primary Industry 2.1 2.h Secondary Industry 9.6 15.4 Tertirye Industry 10.2 1).6 .- Employment ( iillion persons) h6. h9.3 PrimaTr Industry 12.9 11.3 Secondery Industry 14.4 16.8 Tertiary ifndustry 19.7 21.2 * /%lfcnm ic Pla,n-nn i Agency¶ -.-.- -- 44-~T.~L Comparison of Pru±i Ri.LUb v rdLJU.LIUr, L_ U First Halves of 1960 and 1964 (Value of the ratio in first half 1960 = 100. E.g. the ratio of profits to assets in the cement industry in the first half of 1964 was 55% of this ratio in the first half of 1960) Ratio of Profits Ratio of Profits Ratio of Sales Industry to Assets to Sales to Assets Petroleum 16 18 91 Cotton Spinning 41 41 100 Food Products 48 61 77 Non-ferrous mnta.i. h8 64 75 Iron and Steel 51 6 78 0 .70 ArtIr-',ial Fiber Stock 91 120 75 Pulp and Paper 102 104 100 Chemicals (excluding I et±±i.ztr) 108Q le90 Manufacturing 62 7o. . 00 Source: Compiled from an article in "The Oriental Economist", April 1965, which was based on a Ministry of Finance Survey of major industrial corporations& Table 17 Value and COijiOn of Forin Trade Composition (Percent) Total Raw Mineral Manufactured Year (US. $ Mili) Foodstuffs Materials Fes Goods Others Exports (f.o.b.) 1955 2,011 6-3 5,8 O3 87.2 0.4 1956 2,501 6,8 4.8 0.5 87.6 0.3 1957 2,858 6.1 4.3 0.2 891 O.3 1958 2,877 7.9 3.7 0,4 87.6 0.4 1959 3,456 7.2 h.o 0.h 88.0 0.4 1960 4,055 6.3 3.8 0.4 89.1 0.4 1961 4,236 5.9 3.9 0.5 89.2 0.5 1962 4,916 6.9 3.7 0.4 88.5 0.5 1963 5:452 5.3 36 0.3 90.2 0.6 1964 6,673 h.8 3.2 0.4 90.9 0,7 Imports (c.im>o) 1955 2,471 25.3 51.1 11,7 11,8 0.1 1956 3,230 17.3 54.o 12.8 15.8 0.1 1957 4,284 13.5 47.7 15.9 22,8 0.1 1958 3.033 17.5 43.8 17.0 21.6 0.1 1959 3,599 13.8 49.2 15.5 21.3 0,2 1960 4,492 12Q2 49.2 16,5 21.9 0m2 1961 5,81o 11.5 48.o 16,o 24.2 0,3 1962 5,637 13.1 42.5 18.5 25.8 0.1 1963 6,736 16.1 4l.h 18.0 24.3 0.2 1964 7,938 17c5 39.0 17.7 25.6 002 Source: Economic Statistics of Japan, Bank of Japan. Table 18 Indices of Volume and Value of Trade and Terms of Trade (1960 =-100) Export Unit Export Import Unit Import Terms of Year Volume Value Volume Value Trade 1955 52 96 50 111 87 1956 62 99 62 116 86 1957 69 103 77 125 83 1958 72 98 65 104 96 1959 87 97 81 99 99 1960 100 100 100 100 100 1961 108 97 131 99 98 1962 128 95 129 97 97 1963 144 94 152 98 95 1964 178 93 175 101 92 Source: Ministry of Finance. Table 19 Direction of Japanese Exorts (Per Cent) 1934 1959 1961 1962 1963 1964 Asia 64 34 37 34 34 33 Europe 8 11 14 17 16 16 North America 17 36 31 34 33 34 U.s. (16) (30) (26) (29) (28) (28) Canada (1) (4) (5) (3) (2) (2) Latin America 2 4 6 5 4 3 Africa 6 12 9 7 9 9 Oceania 3 4 4 5 Total 100 100 100 100 100 100 Source: Ministry of Finance. Table 20 Ratio of Imports to GNP (Percentage) Tn Real Terms In Current Prices 1954 110 11*7 1955 1009 1009 1956 12.7 12.9 1047 T4.2 15.2 *10C 12.1 10.9 10 012 0O7 106A 13-9 11.4 1964 n.a,,1. (preliminary) 1/ Imports and GNP calculated at 1955 prices. Source: MITI. White Paper on Foreign Trade. Table 21 Foreign Exchange_Recepts &_Pamvrents (Willion of U.S. dollars) Fiscal Years__ =e 191 196_2 197_3 __9 1. Current Transactions (1) Exports 2,849 3,425 3,920 4,123 4,874 5,567 7,036 (-4%) (+20%) (+15;<1) (+5""z) (1% +4) (2 Imports 2,480 3,270 3,917 4,987 4,582 5,980 6,501 ot-(- (+32%) (+2c%) (+27 ) 58) (+31%) (-9) Balance +369 +155 +3 -864 +292 --413 535 (2) Invisible Transactions Receipts 608 651 723 804 826 925 1,095 Paymnents 477 613 796 943 1,051 1,334 1,580 Balance +131 +38 -73 -139 ~225 -409 -485 (3) Balance of Current Transactions +500 +193 --70 -1,03 +67 -822 50 II. Capital Transactions (1) Long-term Capital Receipts 149 132 156 384 476 788 730 Payments 59 159 155 211 179 314 407 Balance +90 -27 +1 +173 +297 +474 323 (2) Short-term Capital Balance 0 +182 +676 +223 +172 +487 -166 (3) Balance of Capital Transactions +90 +155 +677 +396 +469 +961 157 III. Errors & Omissions -120 +39 +29 -62 +91 .-96 -173 IV. Over-all Balance (excl. Special Borrowing) +470 +387 +636 -669 +445 +43 34 V. Special Borrowing (1) -125 -- -- +233 --143 ..90 0 VI. Over-all Balance (incl. Special Borrowing) +345 +387 +636 -436 +302 --47 34 VII. Foreign Exchange Reserves* 974 1,361 1,997 1,561 1,863 , 2,053 * at -the end of Fiscal Year. 1/ From IMF and U.S. banks. 2/ Including IMF gold tranche position $180 million. 3/ Including I1F gold tranche position $203 inillion. Source: Ministry of Finance. Table 22 Borrowings in Private Foreign Markets i (Million of U.S. Dollars) Fiscal Years 1961 1962 1963 1964 Central Government Bonds 39.01 50.0 Government-guaranteed Bonds Of uhich: '?ublic Corporation 20,0 18.5 20.0 Japan Development Bank 20.0 40.0 20.0 Prefectures and Nuhnicnipnqlit.ie P5-q 20 2O 2 Privla te nd ancrmrv%j'h debentures 7.4 71.5 95.9 7.O Total foreign bonds 72.4 155.0 179.9 164.5 Private foreign bank loans 93.4 84.7 326.4 399.1 Total 165.8 239.7 506.3 563.6 f/ Does not incluae ±1MD or runas borrowea oy apanese commercial DanKso / Excluding refunding of #, million in London. Source: From data furnished by Ministry of Finance. Table 23 Short-term Foreign Assets and Liabilities of Japanese Commercial Banks (Millions of U. S. Dollars) End of Period March June lQ9S q75Q 15h5 1961 1q62 _Q6R Q6), lqt-ý I Asseis 829 89 1,3101,.o 1,822 2,oho 29 90 9 7n1 9 8 Linhbilities Denolåin ated in foreign curren- -ie 70 co 1, n3 1, i3i 1 787 25 en 9277 2 2 9269 (potusance credits) (n.a.) (n.a.) (n.a.) (n.a.) (n.a.) (1,698) (1,904) 2,O0o3 2,070 Convertible -yen Total liabilities 370 501 1,19 1,916 2,165 2,701 3,362 3,95 3,520 Net assets or liabilities (.-) 459 393 116 -376 -3h3 -661 -733 -794 -667 Annual increase in liabilities (-) - -66 -277 -h92 33 -318 -72 -6i 127 Source: Bank of Japan Table 24 Foreimi Exchange Reserves (Million of U. S. Dollars) End of Period March June 1959 1960 1961 1962 1963 1964 1965 1965 Official reserves 1/ 1,h7 1,949 1,666 2,022 2,058 1,999 2,053 1,980 Net foreign exchange assets or liabilities (-) of banking insti- tutions 393 116 -376 -343 -661 -733 -794 -667 Total 1.8h0 2.065 1.290 1.679 1.397 1.266 1.259 1.313 1/ Includes IMF gold tranche position and deposits with commercial banks in Jap~n, Table 25 Scheduled Pavments under Reparations and Other Postwar Qettlement Agree_ents Amount Outstading Paynentsdue in fiscal years March 31, 1965 1965 1966 1967 1968 19T 19'IC 1971 1972 1973 1974 1975 1976 1977 Burma 140.0 ri.7 11,7 11.7 11<>7 11,7 11.7 11.7 11.7 11.7 11.7 LI,, 7 11.3 Cambodia .2 .2 Indonesia 94.2 31.1 20.0 20.0 :20.0 3.1 Philippi-nes 381.3 73.0 28.3 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 10.0 'hailand 18.4 2.8 2.8 2.8 2.8 7.2 U.S.,A.1 h08.9 43_9 43.9 43,9 43.9 43.9 43.9 43, 39 43.9 30,7 17,4 17.4 B.7 Total 1,043.0 162,8 106.7 108.4 108.4 95.9 85.6 85.6 85.6 85.6 72.4 59.1 38.7 8.7 1/StA; paymentsinclude 1/2 interest on amount outstanding. Table 26 National Government Budget (General Account) (Bullons of Yen) Fiscal Years 1961 1962 19b5 190 - Revised Budget Budget bKevenue income Tax 496 580 9 839 989 Corporetion Tax 714 780 863 1,C03 1,030 liquor Tax 297 278 315 352 389 Other Taxes 511 558 661 775 874 Total Taxes 2,018 2,196 2,530 2,969 3,288 Monopoly Profits 165 164 166 159 165 Other Revenue 115 135 144 136 135 Surplus in the Preceding Years 218 453 391 76 70 Total Revenue 2.516 2948 3.231 3.340 3.658 Expenditure General Administration 192 221 259 258 294 Defense 123 217 245 282 303 EconoAic Development 546 658 756 948 1,005 Education 256 305 370 b19 462 Social Security 302 369 454 525 605 Pensions 122 123 133 151 157 hational Debt Service 40 68 114 45 22 Other 422 596 713 712 810 Total Axpenditures 2,063 2,557 3,044 3,04 3,658 cex pf eniue () 3918- Expenditure (V )453 391 187 -- So~urce:L~~ MJiistry U of FinaceI.. Table 27 Baience o Treasury Tr, nsections J-th the Public (iinc n-P Yon) (-) = surplus of pyments (+) =surplus of receipts Special Acounts, Total Genernl Pulir 7nreign Excluding Fiscal Pccount Corporations E-xchan,e Total Foreign Yeär Budget Pr8 Others Fund Exchenge Fund 195h + 43.3 -159.4 - 74.1 -190.2 -11,6.1 1955 + 61.3 -168.0 -169.9 -276.6 -106.7 1956 +205.8 -105.7 + 63.3 +163.4 +1c0.1 l9K7 +6.9 - 20.6 +n13. +27 +l4 1958 +125.7 -183.2 -193.5 -251.0 - 57.5 1959 +229.2 -211.2 -151.3 -133.3 + 18.f 1960 +4b1.0 -237.7 -238.7 + 4.6 +243.3 l -L- ff lf IAn 4nin nl -4.,nv' ~4. '7 4, . 1961 ÷6.6 -38,.0 +22.9 +l7. ÷26.L4 1962 +515.h -550.2 -161.3 -196.1 - 34.8 1 ÷19.9 -122.3 ÷ 7 -9.C7 --i . 1. - L7 y-i-r- _, i Y /*) 1-vr 2 +218,,7 -129.0 - 32.7 + 57.0 + 89.7 3 ÷496.1 - 77.9 -5KI.3 -666.L 4 +247.1 +197.2 - 57.4 +386.9 +44.3 r"n ' 1 l 0 j~ r' l- 0r-) -] 1963 +571. -62.8 + 3.5 - l9.8 -253. 1 - 3.3 -197.6 - 28.8 -229.7 -2CO.9 2 +244.5 - 10.2 - 4.1 +230.2 +23t.3 3 + 11.7 -552.7 + 17.2 -523.8 -541.0 h +318.6 +135.7 + 19.2 +73. +h5h.3 196 +642.7 -1,0h3.8 - 5.5 -4c6.6 -4o1.1 1 - 26.3 -283.0 + 60.6 -248.7 -309.3 2 +302.6 -191.8 + 3.5 +11h.3 +110. 3 + 1.3 -741.7 - 51.5 -791.9 -740.h h +365.1 +172.7 - 18.1 +519.7 +537.8 Oource: iiinistry of Finance. Table 28 Ratio of Taxes to National Income (Unit: FY 1934-38 Millions of Yen. After FY 1949 Billions of Yen) Amount of Tax Fiscal National National local Total Rate of Tax Year Income tax 1/ tax tax B/A C/A A B C 1934-36 14;372 1,226 629 1,855 8.5 129 1949 2,737 636 142 779 23.2 28.5 1955 6,719 937 382 1,318 13.9 19.6 1956 7.628 1,087 450 10537 14.2 20.1 1957 8,286 1,202 527 1,729 14.5 20,9 1958 8.419 1.191 544 1.735 T4.0 20*4 19.9 10,037 1,372 611 1,983 13.7 19.8 1960 11;937 1An2 744 2.h6 1501 213 1961 14,196 2,228 907 3,134 157 221 1962 15,775 2,391 1,057 3hb7 15,2 219 1963 18,189 2,732 1,213 3,945 15.0 21,7 19j2 20,390 3,173 1,358 4,531 56 22 19652/ 22,670 3,506 1,511 5,018 15.5 22.1 differences in the classification of taxes. Figures of the revised budgeto Figures of the initial budget. Source: Tax Eureau, Ministry of Finance. Table 29 Percentage Composition of National Tax Receipts Of Which Of Which Indirect Fiscal Direct Tax Personal Corporate Tax Total Year Income Tax Income Tax etc. 1957 52.3 21,0 30.3 47.7 100.0 1958 48.7 21.8 25.9 51.3 100.0 1959 49.7 20,3 28.5 50.3 100,0 1960 5h.3 21.7 31,8 45.7 100.0 1961 55.1 22.2 32.1 44.9 100.0 1962 57.8 2.2 32.6 42,2 100.0 1963 57.9 25.3 31.6 42n! 100a0 1961 59.2 26.5 31.6 408 100.0 196558. 282 29e5 4.1 100 J_Figures are based on the revised budget. 2fsigures are based on the initial budget. Source: Tax Bureau, Hinistry of Finance. Table 30 Financing Public Investment Central Government and Government Enterprises (Billions of Yen, Fiscal Years) Revised Estimate Budget 1960 1961 1962 1963 1964 Government Capital Forraticn 823 1,042 1,335 1,494 1,810 1,971 Net Capital Transfers to Private Sector/ 16A 206 1h0 178 297 338 Total 989 lj248 1,475 1,672 2,107 2,309 Goer +.n SavAngOs 6 1 27 1 h?8 1 ,17 1 2 1:00 Dmestic Borrowing 14 190 231 17020527 Foeg Borrvin L4J 29 41Vj.I to.4 37 62. . .14 .j4 Su-otl 1,1 Q0 1,6 ,2 ,5 224 ResidDal1 116 25 -A154-2 2 17_fUnds provided the private sector through government financial institutions less postal savings deposits, social security funds, etcg made available to the Government through its fiscal investment and loan program. Source: Data furnished by the Einistry of Finance. Table 31 National Government Debtlt (Billions of Yen) e of Debt 1954 1C255 19 6 1957 1958 1959 1960 1961 1962 1963 1964 Bonds Domestic 440.9 425.8 409.3 405.8 400.1 459.8 446.8 436,,4 413.6 424.5 433.2 Foreign 94.6 88.8 84.5 80.2 86.9 81.7 711 56.3 48.2 46.4 60.9 Total 535.5 514.7 493.8 486.5 487.0 541.5 520.9 492,.7 461.8 470.9 494.1 Short-term food bills 194.1 310.1 329.8 263.1 289.3 328.2 351,.0 307.1 312.1 270.5 330.5 Foreign exchange fund bills 140.0 145.0 80.1 100.0 178.0 250.1 328.6 274.0 355.1 281.1 325.0 Total 334.1 455.1 409.9 363.1 467.3 578.3 679.6 581.1 667.2 551.6 655.5 Other borrowing 63.1 87.4 96.6 120.7 121.1 133.2 139.8 149.1 151.7 162 199.7 Grand Total 932.7 1,057.2 1,000.3 970.3 1,075.4 1,253.0 1,.340.3 1,222.9 1 280.7 1,184.6 1,349.3 17 Amount outstanding at the end of fiscal year. Source: Ministry of Finance. Table 32 Progress of Irnvestment in the Public Sector (Current Prices) (Billion Yen) Amount of Medium- 3 (C) (B) 195' 1960 1961. 962 1963 19t9-1963 1964: erm Economic Plan (A) -- ~ ~7iJ (196-198)(C) (A) (c) Road 179 206 316 412 507 1,620 607 4,100 253 14.8 Harbor 30 33 47 57 70 236 77 550 233 14.0 Housing 58 68 82 103 118 429 141 1,120 261 12.6 Environment Sanitation 20 27 37 72 106 261 150 830 318 18.4 Welfare 2h 25 33 46 54 182 69 370 204 18.6 Educational Facil- ities 72 91 121 156 156 596 141 50 159 14.8 Flood Control 56 77 93 122 13:3 482 154 900 187 17.1 Agriculture, Forestry & Fishery 69 82 100 111 134 497 166 i,020 2C)5 16.3 Fund for Adjustment / - ~ 2 - 20080 (Rehabilitation of Disasters) (83) (119) (129) (145) (122) (598) Other Public Works 270 .319 391 531 515 2,029 5,702 2,860 141 19.9 Railways 108 116 207 252 286 969 248 1,820 188 13.6 Telephone & Telegraph 102 143 183 217 252 896 281 1,730 193 16.2 Other Government Enterprises 136 _ 173 133 173 236 851 262 1,350 159 19.4 Total. 1,123 1,358 -1,743 2,252 2,570 9,048 2,870 17,800 197 16.1 Estinated figures. 2 Included in the other columns, 3/ The figures of Medium-Term Economic Plan are at FY 1963 prices. Source: Economic Planning Agency. Table_22 Investment in the Public Sector (Current Prices) .(1illlC-TeT~1 (eat. figures) 1955 1956 1957 1958 1959 1960 1961 1962 1963 196 Amount Amount Amount Amount Amount Amount Amount Amount Amount Amount Percent- Percent- Percent- Percent- Percent- Percent- Percent- Percent- Percemt= Percent- -age g age ag a eH T %% Road 61 8.5 80 11.5 115 14.2 140 15.0 179 16.0 206 15.1 316 18.1 412 18.3 507 19.7 607 21.2 Harbor 9 1.3 1L 1.6 114 1.8 19 2.0 30 2.7 33 2.4 47 2.7 57 2.5 70 2.7 77 2.7 Housing 31 4.4 34 4.9 4:2 5.1 50 5.4 58 5.2 68 5.0 82 4.7 103 4.6 118 4.6 1J1 4.9 Environment Sanitation 5 0.7 7 009 12 1..4 12 1.3 20 1.8 27 2.0 37 2.1 72 3.2 106 4.1 150 5.2 Welfare 22 3.0 20 2.9 22 2.7 20 2.2 24 2.2 25 1.8 33 1.9 46 2.0 55 2.1 69 2.4 Educational Facilities 47 6.5 49 7.1 58 ?.2 68 7.3 72 6.4 91 6.7 121 6.9 156 6.9 156 6.1 11 4.9 Land Conservation 47 6.5 14 6.4 50 6.2 52 5.6 56 5.0 77 5.7 93 5.3 122 5.4 133 5.2 154 5.4 Agriculture, Forestry and Fishery 42 5.9 165 6.7 54 6.6 63 6.8 69 6.2 82 6.1 100 5.7 111 4.9 134 5.2 166 5.8 Other Public Works 157 22.0 17L 24.7 205 25.3 226 24.1 270 23.8 319 23.4 391 22.6 531 23.7 515 20.1 570 19.8 Railways 53 7.3 59 8.5 99 12.2 87 9.4 108 9.6 216 8.6 207 11.9 252 11.2 286 11.0 248 8.6 Telephone & Telegraph- 54 7.5 66 9.6 69 8.6 82 8.8 102 9.0 243 10.5 183 10.5 217 9.6 252 9.9 281 9.9 Other Governms nt Enterprises 188 26._ 1D JL5.2 71 8.7 113 12.1 136 12.1 173 12.7 133 7.6 173 7.7 236 9.3 262 9.2 Total 71. 100.0 692 100.0 809 100.0 933 100.0 1,123 100.0 1,358 100.0 1,73 100.0 2,252 100.0 2,570 100.0 2,870 100.0 Sources Economio Planing Agency. Table 34 Money Supply and Liquidity Year Money Supply Liquidity;V Money Supply Liquidity trillion % increase trillion increase as % as o of yen of yen of G.N.E. of G.N.E. 1958 2.7 4 8.2 17 27 82 1959 3.2 19 9.9 21 26 82 1960 3.8 19 12.0 21 27 85 1961 406 21 15.0 25 27 87 1962 5.2 13 17.6 17 27 93 1963 7.2 38 22.2 26 33 103 1964 8.3 15 26.2 18 34 1C6 0 0.1&U ILI7--VLLr ~J~J ±~~ I A-;ULiUIIi.LU I .LCI L"Lr -m t;LI%..,Y 4 Tabl-e 35 Bank of Japan Credit (Billion Yen, -nd of Querter) (i) (2) (3) () (5) Net BOJ (4) as CImR2-s of BOJ Claims-on IT Pnrcent Ba-nks on BOeims BOJ and on of Caleniudar uarter Pit on Bank'Bn Year Sectorl/ BEnks Currency (2)-(3) (1) 1962 1 11,240 1,3468 401 947 8.4 2 9 ,78 P -i 19 C)7 3 12,020 1,465 359 1,106 9.2 n,6 l17 3 858 6.7 1963 1 13,649 1,339 418 921 6.7 2 1 ,,262 1,091 358 733 5.1 3 15,037 :1,215 457 758 5.0 4 16,007 1,350 534 16 5.1 1964 1 16,682 1,479 640 039 5.1 1,685 si 10, 2 6.7 3 17,753 1,717 615 1,102 6.2 4 1p,502 ,27 87 7 1/ Excludes mu1tus1 loen end savings benks, credit aBssociations, etc. Source: *fcolnoiic Statistics llontly-Benk of Japan Table 36 Interest Rate Comparisons, Average Yields Loans Yieldl on and Japanese Loans and Discounts Indus- Public Bonds in Discounts Long-Term trial Corpora- Uncondi- New York End of All Credit Bonds tion tional Call Gov't Year lvionth Banks Banks Class A Bonds Money Tokyo Bonds 1/ 1956 June 7.97 7.36 6.34 Dec. 8.44 9.71 7.38 7.00 9.13 6.34 6.27 1957 June 7.37 7.00 6.32 Dec. 8.41 9.41 7.92 7.27 21.90 6.32 5.91 1958 June 7.90 7.27 6.32 Dec. 8.51 9.44 7.91 7.27 9.13 6.32 5.28 1959 June 7.90 7.27 6.32 Dec. 8.12 9.39 7.91 7.27 8.40 6.32 6.12 1960 June 8.22 9.38 7.90 7.27 8.40 6.32 Dec. 8.08 9.37 7.91 7.27 8.40 6.43 6.54 1961 June 7.88 9.32 7.81 7.19 8.03 6.43 Dec. 8.20 9,30 7.50 7.05 8.76 6.43 6.23 1962 June 8.23 9.24 7.47 7.05 8.76 6.43 5.86 Dec. 8.09 9.17 7.48 7.05 9.49 6.43 5.86 1963 June 7.75 9.07 7.49 7.05 7.30 6.43 Dec. 7.67 8.99 7.48 7.05 8.03 6.43 5.40 1964 June 7.98 8.99 7.49 7.05 10.59 6.43 5.50 Dec. 7.99 8.914 7.48 7.05 10.95 6.43 5.72 1965 Jan. 7.98 8.94 7.48 7.05 8.40 - - Feb. 7.97 8.93 7.48 7.05 8.40 - - March - - 7.49 7.05 8.40 6.43 - April - 7.30 - - 1TData195throuh 1 re for Japan 6, 192-5, extended to 1964. 1959 through May 1963 are for Japan 5½ , 1959-74. Data June 1963 through Dec. 1964 are for Japan 5½, 1963-80. Source: Economic Statistics of Japan-Bank of Japan. Table 37 Price Indices Wholesale Prices Consumer Prices Year All Commodities (Tokyo) (all cities) (1952 = 100 (1960 = 100 1960 = 100) (1960 = 100) 1954 99.7 92.0 93.7 1955 97.9 90.7 92.7 1956 102.2 91.5 93.0 1957 10503 94.2 959 1958 98.4 95.1 9505 1959 99.4 96.4 96.5 1960 101.3 10010 100,0 100.0 1961 105e2 103o 1002 105.3 1962 99.3 112,2 112.3 1963 10n0 121a1 1210 1964 101.3 126,0 125.6 1965 .Tanumae-r 100 l30o7 131v1 February 102.0 130.8 130,9 MPrcb 1019 1329 132.2 April 101.8 137.9 136.9 PaY lol.8 1351 135.6 June 101.5 135.9 135.4 July 10105 134.8 Sore:Bn of1 Japan P r im- j.-nitevs ffice, Table 38 Changes in Consumer Prices 1960-1964 Consumer Prices Weight in Percent Index (%) Change Food 45 28.8 Cereal (16) 17.h Other Food (31) 33.8 Housing 9 22.2 Fuel and .Liaht 7.6 Clothina 13 19-2 iiscellaneous 28 28-o Total lon on.A Snlrp. Tiirppui nf Ot.tA-z.i-cz~ Cfifin rv I-s e Pr4me ii--' Table 39 Equiprent Loans and Changes in Inventory Increase in Inventory Inventory Balance Outstanding of of Raw Equipment Equipment New Loans Finished Materials Invento ry Funds Loans Equipmerft Goods in and Fin. of Tmported Year Quarter All Banks All Banks All Banks Mfg. Goods Raw Materials Billions of Yen 1960 = 100. 1961 I 182 112.3 103.5 106.1 2 1488 171 118.3 108.4. 110.0 3 1,571 86 .187 122.8 115.3 116.2 4 l,651 77 187 136.7 121.7 128.7 1962 291 766 1 1, 720 69 174 151.3 126.2 131.0 2 1,780 60 182 158.1 122.7 121.9 3 , 6188 165.7 . 10.6 l .,942 102 223 170.2 113.1 110.7 1963 4:21 1,056 1 2,009 67 213 171.1 110. 1014.6 2 2,11j4 95 257 169.4 110.2 106.7 3 2,2514 110 286 173.5 .1.h 115.0 4 2,403 1149 299 178.5 119.2 118.5 1964 4i41 1,172 1 2,516 112 283 188.2 121.7 13.6 2 2,625 109 286 197.7 122.8 i18.6 3 2,736 i1 299 200.7 127.8 119.0 14 2,844 108 304 2014.1 128.3 115.5 1965 January 2,869 25 76 216.6 122.9 105.9 February 2,898 29 81 23C.2 121.9 109.7 March 2,940 J42 - 231.8 120.0 107.8 April 2,962 22 May 3,003 kl June 3,040 37