IREPORTS DFSK RESTRICTED WfITH' Pq Report No. FE-31a ONE WEK 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 The report may not be published nor may it be quoted as rePresenting their views.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 CURRENT ECONOMIC POSITION AND PROSPECTS OF T A " A 1T 5pnpnh I I~ IQA I Department of Operations Far East CURRENCY EQUIVALENTS $1.00 = Y 360 Y 1 = $0.0028 Y 1.000,000 = $2,777.78 TABLE OF CONTENTS Page No. B u.aic au vo'. ua * ua * * * . 9 o a 0 * * o * * * Economic Growth and Use of Resources . . . . . . 1 Chdges in industrial Structure * . . * . * . e e ** Productivity, Wages and Prices . . . . . . . . . . 6 FreLign Trde~ . . . , . a. . * * * . . . . . 9 H., Recent Economic Deve:lopments Cyclical Pattern . . . . . . . . . . . . . . . . . . 9 internal Finance . . . . . . . . . . . . . . . . . . 10 Balance of Payments . . . . . . . . . . . . . . . 13 MII. Development Program Ubjectives . . . . . . . . . . . . . . . .. . . . . 16 Use of increased Resources . . . . . . . . 17 Policy Guidelines . ..... . . . .. . . . . . . 17 Public Sector investment Program . . . . . 0 . . . 18 Financing Public Investment . . . . . . . . . 19 Reasonableness of the Plan Targets . . . . . . . . . 21 Progress to Date . . . . . . . .. . . . . . . . 22 IV. Current Economic Problems Trade and Exchange Liberalization and Industrial Policy 23 Financing Investment . . . . . . . . . a . . . . . 25 Monetary and Credit Reform . . . . . . . . . . 27 V. Prospects Short Term . . . . . . . . . . . . . .. . , . 29 Longer Term Prospects and the Need for Capital Imports 30 Statistical Appendix............ . o . *.. 36 BASIC STATISTICS (FY 1963 = 1 April 1963-31 March 1964) 1. Area 1h2,313 sq. miles 2. Population Total, 1 Ocoher 1Q62 99.180,000 Annual rate of growth, 1958-1962 0.9% Density:r squarcm , mile 669 Labor force, average 1962 46,10,000O 3. Gross National Product loA c urorn+ mar-e+ nbiice Q hilliJon Per capita Annu- - + raa m,E 0 1 1 C' 9 1959-1962 11.7% Industrial production 1962 (1960=1c0) 128.6 AigriJcult'ural, Forestry, 7's'eries Prod 1961 (1960=100) 102.8 4. Public Finance, FY 1963 (budgFet) (million dollars) Current revenue 7,916 Current expenditure 5,956 Current savings pub!. Capital expenauture 4,o22 enterprises 1,789 Transfe:-s of invest- Bond issues, in Japan 6oy ment funds to private abroad 56 sector 2,356 Other sources of finance 2,683 13,133 13,133 Tax Burden: In FY 1962, taxes amounted to 22.1% of the national income. 5. Balance of Payments, 1962 (provisional) (in millions of U.S.' Exports, f.o.b. 4,860 Imports, f.o.b. 4,163 Trade balance 397 Current invisibles - 309 Current account 88 Net capital inflow 192 E1rrors and omissions 76 Increase in reserves 35 (to be continued next page) BASIC STATISTICS (continued) 6. Money, Credit and Prices end of 1960 1961 1962 honey supply (million $) 1,228 1,461 1,710 Commercial bank credit (million $) 35,744 45,492 53,930 Bank of credit (million $) 1,29 43,86 3,378 Discount rate, Bank of Japan 6.94 7.30 6.57 Bank lending rate 8.24 8.15 8.33 Uholesale prices (1958=100) 102 103 101 Cost of living (1958=100) 105 111 118 7, External Public Debt (31 December 1962) Estimated debt service in 1963 $h03 million Debt service as % of current foreign exchange earnings 7.2% SUTEINARY AND CONCLUSIONS i. Except for two or three years of moderate recession, real economic growth in Japan during the last decade has ranged from seven to as high as eighteen per cent a year. Despite a sharp drop in 1962, the average for 1959-62 was 11.7 ner cent. over h ner cent above 19 1-38. Per capita production now is $545, a threefold increase since 1951. An investment rate exceedinp one-third of PIMP with qn iniminl1v hvv nnn- centration in private sector productive equipment has been the immediate cause of this very ranid Pyansion in oput. The remr.ns frnm invtc+.- ment were also augmented by structural changes in the economy which have tended ti move nurns inhnr f-rrm +.hp o1m nY-rA11(-+ANTP n n Yr n -mllpr- scale secondary industries into new and technically highly efficient difficulties, the latest of which occurred in 1961. As in the past, to dampen domestic demand, thus reducing imports and increasing exports. foreign exchange reserves were recouped. Forecasts for the current ykar are 4o. aJ. re.p+-;on o a). mder1Ja2 te~ly ston upw, jarVd. moemn ofL econ~i. i~ZL.om - activity. iii. Although the general aspect of the Japanese economy is un- deniabuly sUndu andu vigorusLZ, -it is: notU W-LithutU prob-lemsW andi somell gnifi cant deficiencies. For a number of years, economic planners have been stiesuing tnat tne expwiasion 0 the private sector wiLl eventualy have to slow down unless public sector investment, particularly in transport, other social infrastructure, and housing, can be speeded up. The generaL guideline for the economy during the 1960s, the so-called Income Doubling Plan, is aimed at rectifying this imbalance. During the first two years of the Plan period, while public investment is on or ahead of schedule, the expansion in the private sector has been so large that the need for public sector investment is even more apparent than two years ago. iv. The lack of an efficient, well-organized capital market in Japan outside the banking system is an important shortcoming. At the same time, the well-known dependence of the banks on the Central Bank for liquidity and their tendency to get into an "over-loaned" position in booms probably accentuates the amplitude of cyclical fluctuations. The former problem is receiving much attention at present because the Government feels that the high cost of both equity and loan funds in Japan will handicap Japanese industry in international competition. Since Japan is now to forego imposing trade and payments restrictions for balance of payments reasons (she is assuming Article VIII status in the IMF), this is a problem of some urgency. Although much progress in trade liberalization has already occurred, a hard core of restrictions remain to be lifted during the next year or so. - ii - ve in general the competitivea positin ofP JTa- sein dust vrIi+ry% aq)peqrsq to be holding its own or possibly improving vis-a-vis her principal trad- wages. However, in some industries this has not been true. Though Japan pz- e- e.L o. consi ~d UL able .L~~ chcmr _.L ULAU.L -LCL.L Oy- LM_. V4.'f - - longer run, special measures are contemplated for some industries to V_L. Thiere is a-LSo Coern by U-e~ Gwrerrmentuu ±euuuin.5 f consumer prices and their implications for wages and Japan's competitive po suiu aruau. ue may hope that the next marked L.:creae in PIocUU- tivity in Japan will be in the distribution sector. There is no doubt that consumer expectations are rising, particularly for durable consumer goods. This is anticipated in the development Plan which also, however, envisages that the increase in Japanese exports will far exceea tne world average during this decade. To achieve these somewhat divergent objectives of rising living standards at nome and exports abroad wi1 require, among other things, stable prices and continuing rapid growth, two of Japan's accomplishments during the last decade. A reduction in the frequency and amplitude of cyclical fluctuations would also be desirable. Vith the growth of public investment, counter-cyclical fiscal operations should be used to supplement the effective but somewhat drastic doses of monetary restraint (and relaxation) which have been administered in the past. vii. The inflow of long-term capital has increased rapidly in recent years, amounting to $142 million in 1960, $325 million in 1961 and $490 million in 1962. A substantial and growing portion of this was raised in the private money markets of New York and recently in Germany. The prospects for the remainder of the decade are for a. continuing need for substantial capital imports. A large part of this will be offset by the long-term capital outflow required for debt repayment,, reparations and other post-war settlements, direct private foreign investment and credits for the dual purpose of assisting developing countries and encouraging Japanese exports. Altogether, these amounted to $L.20 million in 1962 and will increase for some time to come. While Japan can only expect to ob- tain a small portion of the resources needed for her developmen t program from net capital imports, that portion may be of great importance, parti- cularly because a sound balance of payments position is essential for steady economic growth. Japan has abundantly demonstrated her capacity to make good use of investment resources. While an increasing portion of her future borrowing should be done in private markets to the extent they are open to her, their absorptive capacity for Japanese paper at a reasonable cost to Japan is, of course, limited and insufficient to fully meet her present requirements. viii. Japan is quite capable of servicing additional foreign debt. With the growth of her exports, service on her current foreign public debt in a normal year (196h) amounts only to about L Der cent of her gross foreign exchange earnings. Even if present earnings on private investment in Japan are added, only about 7 per cent of gross earnings would be re- quired. Japan has given abundant proof of her ability to make balance of npymPnt.s ainstment.s rith the u.e of mon+.nry con+trosq sholA +he need arise to preserve or reestablish balance of payments equilibrium. I. ECONOMIC TRENDS Economic Growth and Use of Resources 1. The striking growth of Japan's economy since output was restored to pre-war levels in 1951 is well known. Between 1951 and 1958, the annual increase in GNP averaged 7.5 per cent. Following a cyclical downturn in the latter year, economic growth rose to unprecedented levels, amounting to 18 per cent in 1959, 13 per cent in 1960 and 14 per cent in 1961. In 1961. balance of payments difficulties necessitated monetary restraints which reduced the growth rate to 5.7 per cent in 1962, but a considerably higher rate is forecast for the current vear.!/ Total GNP now amounts to about $52 billion or $5S per capita. By the end of the decade, Japanese economic nLanners foresee npr nqnitn nrrhn-tion ;rmwhnt higher than that of Italy today but, of course, still well below that of the more advanced countries of !estern Euronpe. The pace of eonomiTic deelpenT-. in recent , ozr.q(nnI) summarized as follows: Table 1 Indicators of Economic Growth A ~ -4 4-c- -4 -~ f, c. ,- - -~ Tr-1c i7 Gross~ 11ilonaJ1J l PrLd0 U-U.-/ U-UOUILU PJL ±L / ) O* National Income Per CapitaJ (constant prices) 6.0 7.8 Agricultural Production 3.7 1.9- Im11port Vo-Llue 1.i.0 16_L.7( Export Volume 15.8 13.7 WllolesaJe I US U. 4 U. Consumer's Prices 2.4 5.3 1 Fiscal years. LucThoughi A.7uj 011-y. 2. The basic factors that nave produced rapid economic development in Japan before and after the war are, of course, 'the diligence and fru- gality of her people, the entrepreneurial capacity of Japanese business- men and their eagerness to adopt new technological advances (industries based on new technology have accounted for about half recent increases 1/ The official estimate is 6.3 per cent but unofficial estimates are as high as 10 per cent. - 1 - - 2 - in industrial production), and the high educational level and skills of the labor force. Literacy is almost complete; compulsory education extends to 15 years and the percentage of high school. students seeking higher education is greater than in many western countries. 3. To these must be added in recent years factors of a structural character. Japan has been, and to some extent remains, a "dual" or, perhaps more accurately, a highly variegated economy, with industrial establishments ranging from the most modern shiDards. steel and elec- tronics plants at one end of the scale, to primitive pottery and handloom weavine establishments at the other. However, the latter are declining in absolute and relative importance. This, of course, is both a cause and effect of the technological revolution. Combined with mechanization in agriculture, this decline has produced a pool of partially unemployed labor with potential for substantially greater nroductivitv available to meet the needs of vigorously expanding manufacturing enterprises. In 1961 alone it is estimated thnt nver a 1-100-oo wnrkers left agricilture. forestry and fisheries to seek other employment. This trend has been evidepnt. fnr ;nmp MimP. Th cont.in q mq ltri t. rh nf u.r rkP r. n -t ndui,tri q production is an important supplement to the natural growth of the labor force which, in +.h lat. fewT evars has bOn CrnT.in h abou+ +twice as fast as the total population. 4. The traditions of job security and wage scales based on cularly in respect of the massive inflow of young workers now entering Vii'..- ~ ~ Th the.JJ more. cf i- n ne -LIn.4,J -4-Q -4ti - ,~1 JL,.L"4i +I~ -.JLt. -ii ,,C~aL4L more to younger workers have been able to recruit the cream of the crop. age has worked to the disadvantage of older industries whose labor force have a l±L HI prprto oVLf~U olde work vu-ers. vuller growuln IaUure mUru palIclUarLy E LUvaU 1u unu pos war years are the overwhelming emphasis on investment in directly pro- ductive aC,vities in the private sector with a very low capiTal-output ratioY!; the low defense burden and substantial benefits from procure- ment ~ fo .. defense and aidJ efforts in the region; a hig rte o export growth, considerably in excess of the rate of growth of total wL exp UrvV, 1ially, ever LInce the moneTary s-aUiLiJaTion 01 -L the Government has taken care to preserve the internal and external value of the currency. On three occasions (lY>3, ly97 and 1lyo1) tnis was only possible by imposing monetary restrictions which led to a painful adjustment of the domestic economy. But, on the whole, these efforts of the Government have contributed to a stable price structure and to a high degree of confidence both at home and abroad in the future of the Japanese economy. 1/ The ratio of gross investment to the increment in GNP seems to have been about 2.4 during the period 1955-61. - 3 - 6. The prime mover in Japan's fast economic growth has been the extremely high level of investment. Excepting the recession years 19 : nd 1948- total1 investment. has usually bee-n somewhat over one- third of GNP, and in the course of the recent boom, iLt reached a peak of nearly ;4 nppr Pnt in 19A 7, Such an investment level was, of course, made possible by the traditional willingness in all layers of society to forego iLmediate con- sumntion for the exnansion of the production base. This is shown by both a high level of undistributed profits of enterprises and by a high level of savings mit f nrneronnl diqnn.ble inrnmt (inclding incomes of un- incorporated enterprises). This is shown in the following table.- Table 2 (Per Cent) Personal avings of Fiscal Years Investment of GNP Personal Disposable Income 1955 25.3 14.0 1957 31.6 15.0 1 nr) 7 I~ C! 7 1959 35.0 18.5 1961 L2.6 21.5 0 The consequences o vne Japanese rauLu U plauig texir Oav.i8 in financial institutions, public and private, rather than buying securi- ties has probably had scme unfavorable results insofar as miDbilizinig pubilc investment funds are concerned. However, combined with the close associa- tion that has always existed in Japan between the larger private banks and industry and viewed in'the context of the Government's conservative fis- cal operations, this tradition has undoubtedly encouraged a high rate of private investment. 1/ The propensity to save has been increasing rapiday during recent years although the marginal rate may be starting to decline somewhat from its peak in 1959. The propensity to consume durable consumer goods is rising. Average Saving Rate Marginal Saving Rate (of personal disposable income) 1957 15.0 26.3 1958 15.7 19.9 1959 18.5 39.4 1960 20.3 33.0 1961 21.5 28.0 9. Except for the recession years of 1955 and 1958 when it reached one-third, government investment has consistently been about one-quarter of total investment. However, this includes a substantial flow of funds to the private sector in the form of loans from public financial institu.- tin. t.n inrhi.triP. shinning. trrde and apriculture. Investments in public sector facilities amounted on the average to about 18 per cent of total inve+ment and 69 nr cent of MP beIe 19c and 1961. This is now being increased. Changes jTnnbi+.Yl Sructur 1L 0 f- r P th.e-- gtrc -.cc.cI part of-4 r v ate J-t-PnArrc+,ant hn,as be-n A-CT-t" -. nJ By.c :ac~h paJa V IJJ p1 CL U OV...n ,.UIft. La SJ.1 A to the expansion of the manufacturing and construction industries, espe- ciall 1 it LUIV M C1II daL indUsk J_ 4111. U.L , Vl,- manufacturing production since the beginning of the fifties has been extremely rapid, leading to a doubling of output every five or six years. Some sectors of manufacturing production have been expanding at a much faster rate,1 especially the production of durable consumer goods -wich has been increasing every year by about a third, and the production of cap.ibaL goods which nas been expanding every year by about a quaver.t1 Table 3 industrial Production Average Annual Percentage in 1962 (1955=100) Increase, 1955-1962 Durable Consumer Goods 762 34" Capital Goods h19 23%/ Producer Goods 259 15% (Intermediate products) Construction Materials 228 12% Non-Durable Consumer Goods 173 8% All Manufacturing Products 271 15% 1l. As the differences between these rates of growth indicate, a considerable transformation has occurred in the structure of Japanese industry, a process that is still proceeding rapidly. In 1950 light industry, including textiles constituted 50 per cent of Japanese manu- facturing output and 67 per cent of her industrial goods exports. By 1/ The rapid increase in the production of durable consumer goods is supported by a very marked change in the pattern of consumption. This is shown in the following figures which show the percentage of urban households owning various items. m i O 4~ ,n,. -c4 17s.--,, M - - c, vs A,,+,- nm,< 1- 1 Q(_.) 14.7 11.0 1.2 1962 84.2 35.1 28.9 6.0 1960 this had changed to 36.5 ner cent and 51.8 per cent resnectively for production and exports (Appendix Table 15). To illustrate the swing to heavy industry. in 1961 JaDan renlaced Britain ns the wo)rl d Is fnirth largest maker of crude steel; she has been the world's largest ship- builder since 19q7 and now belongs to the few larest nnrhiners of motor vehicles, rolling stock and locomotives and textile machinery. As the following table shown J .onan' s cne ntration on heavy industry even in 1959 was greater than that of her principal export competitors. Table 4 International Comparison of Manufacturing Output, 1959 (Per cent of Total) T TT Q TT Vr ocLpi u. . v I . U.1 mimculy LU 1V . .LlUit v , Chemicals 14.9 10.2 10.3 12.7 'M-4 -' - 7 Z 0 1 ' 0 iI'Mk,cl-Li: ±Lr.0 f. 0.u 4 1.0 Machinery 34.9 38.4 42.1 32.6 Sub-total: 62.4 56.2 60.8 53.1 Light Industry Food 7.3 12.4 10.7 17.1 Textile 9.5 3.5 7.1 8.4 Other 20.8 27.9 21.4 21.5 Sub-total: 37.6 43.8 39.4 46.9 Total: 100.0 100.0 100.0 100.0 Source: Keizai Doyukai Report on Japan in the World Economy, 1963, p. 20. 12. The growth of agricultural production since the beginning of the fifties has been at a rate somewhat over 3 per cent a year. Although the progress achieved in agricultural production was much more modest than the increase in industrial production, it has played a very important role in the economic development since the war. The increase in agricultural production, achieved on a limited cultivable area, has been sufficient to maintain near self-sufficiency in food production thus avoiding the un-- favorable influence of increasing food imports on the balance of payments. At the same time, output per agricultural worker rose sufficiently to allow a continuous release of agricultural labor to manufacturing indus- tries. The total of agricultural labor fell from 14.6 million persons in 1953 to 11.6 million in 1962. - 6- Productivity. Wages and Prices 13 Develoninents between 19qq and 1961 in respect of the pro- ductivity-wage relationship appear to have (1) improved the compe- titive nr.-tion of' .Tnnons:;P mqnnf.qc.tmrinS indnstries viS-a-vis their principal competitors abroad; and (2) worsened the relative position of smlle ! nryninQst larger, ! 4-.Y-i o in Tnnnn- Japanese manufacturing industries increased 43.5 per cent between 1955 z,A 1 041 V +h1-1,i-- r,M-.- -c., i .. n.-M 1 r nor+. T.na-q nlf only 32 per cent.1 Thus the ratio of productivity to real wages in- crae ---4- A,+ -P. datan for th CllT - nh, n infc?e0M+.mri nnmd th cFrnT.h of' thp Tn,qnese merchant fleet. TI. RECENT ECONOKIC DEVELOPMENTS Cyclical Pattern 23. Japan appears to be now emerging from the third downturn of a CyuClicin l c"ar+ate%- afterin her% ot.war eonnomAc roei-rryi The othepr two occurred in 1953-54 and 1957-58. Just as her rate of economic growth in +11n InQ+ A .,-. 11 -1- -,A 4 +, ',d of .v ot e west rn cour ie-Q, I" ~~crn the amplitude of her deviations from the trend of that growth been greater. TaIng the l1st ten yeas-s- whole, fluctu~ations in the prdutn ide in Japan have been about 20 per cent larger th, in the United States and V - PU. I L CU ULICLI L11 VV O U UU. mcAuv ~ . 1.11c; LL__.V±4r shows the two cycles through which the economy has passed since 1955. Table 5 Indicators of Cyclical Fluctuations (Annual Percentage Change Except as Noted) 1955 196 1957 1958 1959 1960 1961 1962 GNP1 +10.3 + 9.0 + 7.9 + 3.2 +17.9 +13.2 +14.0 + 5.7 industrial Protuction + 0.0 +22.4 +10.1 + U.21 +2u.U +24.5 +19.3 + (.0 Gross Domestic +19.2 +16.5 +23.3 -21.4 +61.8 +26.9 +36.6 -15. 0/ Investment' Personal Consumption + 6.8 + 7.9 + 5.4 + 5.7 + 7.1 + 9.0 + 8.6 +11.0 Expenditure External Balance of +205 -59 -590 +460 +339 +111 -1085 +37 Goods and Services;! Wholesale Prices - 1.8 + 4.4 + 3.0 - 5.8 + 1.0 + 1.0 + 1.0 - 1.7 Consumer Prices - 1.1 + 0.3 + 3.0 - 0.4 + 1.0 + 3.5 + 5.3 + 6.8 Net Bank CreditL/ - 1.5 +27.3 +23.2 + 5.8 + 5.1 + 9.0 +11.1 + 8.5 Money Supply 415.7 +16.4 + h.1 +12.8 +16.5 +19.1 +19.0 +17.1 1/ In real terms. 2/ Based on January-September only. 3/ Dillions of U.S. dollars. I/ Bank loans and discounts minus savings and time deposits. 1/ The standard deviation from the trend line of the production index in Japan was 5.9 per cent compared to 4.9 per cent for the U.S. and 3.2 per cent for West Germany. - 9- - 10 - It is clear that the last adiustment which started in mid-1961 meant only a slowing down of the economy's expansion to a normal pace rather than a real recession.1/ As in nrevious evel.s. nrivat Pniinment investment was the principal variant, increasirg by an average of over 30 per cent in the boom venrs 19q9-(1 and turning n.in nrrbh1v hi nirvr 6 npr t-n+. in 19O. ?I- Tt. miv hp useqfuil tor outline then mmajor rl ohpsin thei typical Japanese cycle, not because they are unusual but because they the recovery phase, imports of raw materials and investment goods start other hand, tend to slacken because of the upsurge of domestic demand. Th - 1+ 4 ~----4- - o rmter a S.Th deficit in the current account of the balance of payments becomes bigger In each of the three major trade cycles since 1951, it has been this danger J_ C"aJ Wii-.ILI1d has proipted~ bte ±itrouctLLin o1. ret1-'1L;LVtU LUUa1_dy fl1UUZ)Lt::O These include increases in the official rediscount rate of the Bank of au, anu, Elre 6uprtan, a stem of rabioLiig o11 jalK o1 Japan credIt to the commercial banks. Due to the heavy reliance of the commercial banks on central bank credit and of private enterprise on commercial bank creait for long as well as short-term capital needs, the credit squeeze has an iumediate and. vigorous dampening effect on business activity. From then onwards the self-induced recession will lead to a reduction of imports of raw materials and machinery and -- because of slower growing domestic demand -- to increased incentives for Japanese businessmen to promote their exports. Eventually, equilibrium in the balance of payments is restored, the losses of foreign exchange will be recouped and the monetary restrictions lifted. The resumption of bank lending, by stimulating long term investment as well as inventory replacement, will lead into another boom. Internal Finance 25. During the three years 1959 through 1961, the increase in money supply more than kept pace with the expansion in real output (66 per cent as compared with 53 per cent). In 1959 and 1960, however, the spectacular expansion of output plus the increase in the economy's liquidity mainly in the form of savings and time deposits contained the monetary expansion and kept total effective demand for goods and services within the limits of the total resources of the economy. But in 1961 the pressure became ex- cessive. As on previous occasions when the economy had become "over- heated", there were some increases (about 4 per cent) in prices and, much more significant, a menacing deterioration occurred in the balance of payments. 1/ Index of employment generally was up by 6.9 per cent in 1962 over 1961. This compares with an increase of employment of 13.3 per cent in 1960 and 9.6 per cent in 1961. - 11 - 26. The principal factors in the expansion of the money supply are summarized in the following table. The figures indicate clearly that bank credit was by far the most imoortant factor. with nublic and external finance playing comparatively minor roles. Table 6 Factors Affecting the Money Supply (Billions of Yen) 1oo 1oAn -o1l oAo inceas ir, Mbne'&1, S-l ffor 1o A-) An Pe- Cen T- - - -I in. n. n -17 -1 1. Private Sector 1786 2581 3509 3038 and Time Deposits 1366 1701 2158 2265 A~eu r1__.VLLU DWIA~ U.~Ut1U 4CU UVU L ( f. 2. Public Sector 146 57 -106 71 3. Othler J_nte1'[al FaCt6orsi -199 -319-9 Total internal Factors 367 618 1123 73 L. Foreign Sector 159 91 -285 146 Total: 526 709 838 899 Source: I.F.S. 27. The effective instrument of monetary control in Japan is the lending policy of the central bank. This was apparent in the pattern of the credit squeeze adopted in the middle of 1961, which consisted of raises in the official discount rate (from 6.57 per cent to 7.30 per cent), a lowering of the ceilings for Bank of Japan credit to the coramercial banks, the introduction of stiff penalty rates for such credit in excess of the ceilings, and the use of the Bank of Japan's prestige in persuading the banks to restrict their credit. In view of the permanent heavy reliance of the banking system on Bank of Japan credit, due partly to the low capi- talization of the commercial banks, it carries great weight in financial circles. 28. Actually, in view of large balance of payments deficit on current account in 1961 financed largely by foreign short-term borrowing (see Tables 8 and 9 below), action taken by the monetary authorities in 1961 appears to have been both rather late and initially riot very effective in dampening demand for credit. The rate of interest charged on bank loans - 12 -- and discounts increased only very modestly in the last half of 1961 following the increase in the official discount rate (Appendix Table 24). The demand for liquidity by the banks and the business community was met by the continuing growth of Bank of Japan credit to the commercial banks in spite of the penalty rates for crerits ahnvp tho nilinrs Tht rise in call money rates in 1961 also reflected the scramble for liquidity (Annendix Tnble 21). Nnt..Howeve.r, the fi rst hai If o f IQi"i9 dirl witness atmpnornryoennntrc-_ tion of the money supply (by about 9 per cent) owing principally to the P,Iry[.T_rI,mn in r,.rzrli+. Pynn~- nq to +J)a r vi xrn+ c,+- An,~- ,.r- ls a in the first half of 1961). Bank of Japan credit,which had increased from - n af i'+q + q -- the basa, 4-, ULk- --AL -P 101-r)~L 12 per cent in the third quarter of 1962, fell to 9 per cent in the fourth in the tempo of domestic activities and the balance of payments had re- cial discount rate reduced in successive steps to 1.84 per cent. 3, s inUUatU aove, flUcal operaILons have Iau only a minor influence on the monetary situation. This has been true ever since the moneary stabilizaion of i. ale Treasury transactions with the public normally have a considerable seasonal impact (because of the bunching of tax collections), since 195, excluding the transactions of the foreign exchange fund, they have had the cumulative effect of reduc- ing money supply by only u500 billion. Thus the stabilizing potential of fiscal policy has been used sparingly in Japan, though small deficits were incurred in l955, 1958 and 1962, in each case coinciding with and giving impetus to the beginning of an upswing in the trade cycle and the relaxa- tion of credit restrictions. 31. Along with the expansion of the economy, of coarse, went an increase in the size of the budget. Thus the tax burden (taxes as a percentage of national income) remained fairly constant at between 19.5 and 22.5 per cent, the lower percentage occurring after a year of low profits and reduced economic growth (for instance in 1955 and 1959). The rapid growth of the economy, combined with the progressive character of the Japanese tax system, left room for regular annual tax reductions.L/ (4 per cent in 1961 and 1962 and an estimated 2 per cent in 1963), without impairing the necessary growth in revenue. 32. A summary of the transactions of the General Account and of public savings (excluding local government) is as follows: 1/ "Reductions" are taxes that would have been collected if no change had been made in tax laws less taxes actually collected. - 13 - Table 7 (in billions of ven, fiscal Years) 1960 1961 1962 1963 actual actual estimated budget Cen+.rv1 l Avrmn. Current revenuel/ 1,861 2,298 2,438 2,587 Curen+. e-renditure 1l32: 1 .Ch 1.9V-6 2.1LU Current surplus 5T 757 492 443 Public Enterprises, etc. Tntrn 0+mllOr+ PI rAnd o nnor.0+eo h,r operations of public enterprises 428 525 609 6hL U L Vii L L.ICULaJ. LIIU.Lia J..4 mos-a1 -1a-, O,.-.- , -o . 1 070 1 i1 1 R7 Per cent of GNP 6.6 7.2 5.8 5.3 Balanceo 0± ,rimrents 33. Ine adjustment o tne domestic ecU)...y a.eer UIIU iuUrouUoUnu uf the "tight money" policy in the middle of 1961 led to a rapid improvement in the balance of payments. Exports increased subuanuiaiy after UILe middle of 1961 and imports started falling in early 1962. The trade balance swung from a deficit of almost $600 million in the first nalf of 1yo6 u a surplus of $500 million in the second half of 1962. Although the deficit position on current invisibles persisted (mainly due to the recently in- creased deficit on shipping), the overall deficit on current account which had led to considerable losses of foreign exchange especially in the secona half of 19b1 was reduced and subsequently changed to a surplus position. The resulting increase in foreign exchange has led to a present level of official reserves of over $1,900 million, the equivalent of approximately five months of imports. The increase in net short-term foreign liabilities ,of the corrercial banks in recent years ($728 million at the end of 1962 as compared ith $467 million at the end of 19b0, according to i:) makes the total foreign exchange position somewhat less favorable than in 1960. At present Japan has no drawings outstanding from the IMF. Her quota is $500 million. 1/ Excluding "receipts from surplus" in the preceding fiscal year. - l - Table 8 Current Account of the Balance of Payments (in millions of dollars) 1957 1958 1959 1960 1961 1962 Exports f.o.b. 2,847 2,875 3,412 3,982 .149 h,860 Imports f.o.b. 3,242 2,500 3,047 3 711 h,707 4,463 Trade Balance - 395 375 365 271 - 55B 397 Transport & Insurance - 513 - 172 - 189 - 28L4 - L96 - 40 Investment Income - 49 - 40 - 37 - 33 - 48 - 78 Foreign Military Exe- 49 kOL 381 613 389 367 penditure Other Services and - h7 - 68 - 88 - 1)> - 171 - 192 Private Transfers Tntal - = -77- -7 7T -227 =T- -- Sour ! TIV7F Yarhn-k 3. The expansion of Japanese exports depends not nilv on rni rin excess demand at home but also on her capacity to export capital to a nummber of her trad-,i prtners ang thez reropinjnc n ountries. E r n deferred payment increased from $21 million in 1957 to $196 million in 1962. In addition, reparaton+ an d ohr pos-a e menpmnts wre narly $80 million in 19 2. Another increasing outflou of capital, direct invest- ment bi Jnnans abroand, is due to b--oth export promoti - 1 n th ish t- de- velop stable sources of ra-I Tmaterials. Mainly for these reasons the outflow of capital has risen fr: [y,, '181å 1..lon in 1951.J7. 1to$3 llion in 1961, anU--. $h20 million in 1962. 35. At the same time, Japan has been able to attract long-term P-o--, capital -direct prvate ie n,-'portfoli sale of securities, official and private loan capital -- at an accelerating pace. In 1960 and 1n461 the capia accoun was 41 stillL- dointe by a-~ huentnlwofs L7b-I uii .JL LUCLL Ctk.UU.äLU tvctoO u-L,. L ULIÅCLL1.v4u L~j.)i et ilÅuý; 114 U LIILLLJVJ Ui 041..1 term credit, a large part of which was attracted by the high interest rates prevailing in Japan. But the recovery of the balaneum oun uurrent account in 1962 and continuing improvements in the supply of long-term foreign capital in Japan have greatly reduced the need-- f s- r development in the capital account of the balance of payments is summarized as follows: - 15 - Table 9 Capital Account of the Balance of Payments- (in millions of dollars) Provisional 1957 1958 1959 1960 1961 1962 Canital Outflow 1. Reparations 76 64 70 69 86 77 2- Mirpnt TnvP.-;tmnt Khrrind V4 27 LB 79 93 77 3. Export Credits (net) 21 17 70 65 173 196 -4- 4 - rti-ation and' Other __l 213 A 66 66 70 -17- 321 231 279 4736 720 CaptAl ITnflow T 1. Gov. & Gov. Guarant'd Bonds -- 30 -- 40 61 2. TBRD - Loan Dihsbursement , 71 (A s0 71 E0 3. Direct Investment in Japan 30 12 19 6 59 70 L+ - \-1- - ~ - - - - 1 1 1 4 1+ r-d 1 71 -1 - _ 5. Short-term Credit (net) 78 -79 36 378 573 122 I-' n4.- -- Lor '1 1 7 ~J. ~ J1±± 4'. _L. c_ I - 17 9_1 270 775 798 2 Net Inflow or Outflow of +5 -230 -1 +241 +460 +192 CapiL- _L/ Ij 1J(;LiUU.jAg U1-ZL16Lt-1-J_)y[UtULD l UII =: ki u tUI1U1Lt.L t,Vt.i"11Ui1U excluding changes in liabilities and assets of central monetary institutions. Source: IMF Yearbook. 36. The net short-term capital inflow of about $950 million in the two years 1960 and 1961 came from credits to finance imports, loreign holders of liquid funds (Euro-dollars) seeking more favorable rates by depositing them in Japanese banks and loans from a group of American banks. The former accruals were, of course, initiated by foreigners and cannot be accurately segregated from normal foreign trade financing. The short-term credits from American banks amounted to about $325 million in late 1911 and early 1962. These loans have now been repaid. 37. Supplementary to loans from IBR, the Japanese Government and its agencies have had a number of bond issues in New York and recently in Germany. The amount of long-term funds raised in this manner from 1959 to date is $226 million. Bond issues of private companies during this period amounted to $116 million. The response of both the New York and the German markets have generally been favorable,. The recent tax on foreign bond issues proposed in the U.S. will, if applied to Japan, may raise the cost of further borrowing in the New York market by about 1 per cent. 38. The acquisition of shares of private Japanese companies by U.S. and other interests has also gained rapidly in importance. In fiscal 1960 it amounted to $46 million, but in 1961 it had risen to $125 million and in 1962 it has been about $150 million. III. DEVELOPMENT PROGRAM Objectives 39. In December 1960, Japan adopted the so-called Income Doubling Plan for the purnose of establishing fnr thp neriorl 1961-70 (1) 10-vear growth targets for the economy; and (2) specific public investment targets for the nrincinnl categnries of nnblic nrks. Tht nc!ntral obiective of the Plan is to double national income in real terms within the 10-year npenr hv achieving an annual arnt.h rn+. nf 7.2 npr cent. 1/ Thi. -r)ii1 cl mean per capita income at 1956-58 prices of $579 by 1.970. The Pla is based on the asumnption that the factors which produced the econnmic crrn,h+. which Japan enjoyed during the 10 years preceding 1960/61, will continue during the dAone of +he 10sAr ), n rvAn-. +r --In.,rl ol1, + 1,4 vna ,'cn-r,- +ln- "D-1~ rn+ m ln the continuation of the conversion of the economy to modern methods of pro- secondary industry. The objectives in terms of the different sectors of ULIIe econom.J.Iy miay,) be OW-101UC_LI. 4. -. P_ JJ....L- Ilv la±u.Le L%J rIannul( HI±uuLa1 pAverage ±xucreabe ini Productivity, Employment and GNP, 1961-1970 Annual Percentage increase from Average of Base Years 9ou-ou Productivity Grouth in per worker Employment Primary Industry 5.6 -2.8 2.8 Secondary industry 5- 3.5 9.0 Tertiary Industry 5.5 2.7 8.2 Transportation, Communication 5.6 3.2 8.8 and Public Utilities whole Economy 6.6 1.2 7.o 41. Large investment is planned in heavy and chemical industries. At the same time, durable consumer goods are expected to absorb an in- creasing portion of national expenditures. Naturally, these developments will make for more capital intensive industrial structure. The doubling of national income is expected to be accomplished with an increase of only 1/ Using as base the average national income in the period 1956 to 1958 an annual growth rate of 7.8 per cent would have been required to bring national income up to the target level by 1970. However, on the basis of 1960 figures, 7.2 per cent is sufficient. 2/ About $690 at 1962 prices. - 1.6 - - 17 - about 17 per cent in total employment. Population growth and particularly the expansion of the labor force is expected to be substantially less than in the previous decade. 42. Both exports and imports are to increase at a considerably faster rate than the gross national product. The Plan expecting a slow-down of the increase in world trade (from 6.2 per cent per annum, 1950-59, to 4.5 per cent during the 1960s), a strong effort is to be made to increase Japan's share from 3.4 per cent in 1959 to 5.6 per cent in 1970. The ratio of imports to national product is to rise frzm 14.1 per cent to 16.7 per cent over the same period. Use of Increased Resources 43. Despite the high growth rate envisaged, the Plan contemplates a somewhat less austere regime than has prevailed in recent years. The over- all rate of caital formation is exoected to decrease from 38 Der cent of aggregate demand in 1960/61 to 32 per cent in 1970.1/ "I . Investment in the direct production sector (private and govern- ment commercial and industrial invest.ment.) is tn aicrease from 60 ner cent to 53 per cent of total investment during the Plan period. This, of course, emnhasizes the imnortane thpt the Plqn nlq!e. nn !onril nitnI facilition PolIi cv (Tni deli nes 74. The nrincinal nrlinu n-?-nnl nfcn+zn 1r.+ha Plon nic rnn- sistent with the conduct of Japan's economic affairs during the 1950s. Exce-t+ frr ex-nded~4Q'~ 1 %~m soio --ita ca,+,o .4 nv r-~A --e' .- o - 4,-c..r , - Government is to continue to play an. advisory and regulatory role and en- 1/ Some striking changes in the utilization of the increase in gross iIaULU I jI LUUUIU Oas C ;.O_jUkL,U=U CO 1 JL ICLO W I LI.= ji tLUt u D L-Lvt-- 01 (1957-61). Insofar as the private sector is concerned, only about 1bl nper cent of, the p. inres _-_ grosnatona pro_c f 197 to -1961 was used for personal consumption (including the construction of resi- ntvia] n1, lg} wu-4o ver uy t o uuw o w c 1u- uC'-v- 4-oo--4 UOIUJ.O.L410LAO±II16J, WiIl b O per) cent was±1 used L I.V I _JIOOU L LiIVUD LI ment in equipment and inventory. The Plan contemplates, however, that over 62 per uent uf one increase in GN rnm 17u1 to 1ny( w"as ve used for personal consumption and only 22.7 per cent for domestic investment. AU UU .D per cent more f t1e iLUcrease in Gili I U tu Oeua Io goveru-- ment expenditures in 1961-70 than in 1959-61. This increase is about equally spread between conumIpion and capital investment with consump- tion expenditure getting a slightly larger portion of the increase. 2/ The emphasis on social welfare is indicated by the fact that one of the objectives of the Plan is to increase transfer income from U.o per cent to 6.1 per cent of national income during the Plan period. - 18 - nr inr-i nn II n-ininop h t- Ihp C.ni rnmnt my li h v, +.ho na cono a will be exerted through public credit institutions arid, to a limited extent 'h1T -Mi 1On nA ff ~rl,~ A1 ~cus given in a number of less formal ways to certain lines of expansion in the prd~ Yrate sctor. t r 41~-.1 A~ .~11~-4 --1- 1~A4 The decentralization of industry and population are to be sought by posi- ti- yle gover.:ent0 L4U. r1U1LUU-Y PU.L.Lk;j L;- U'j UL.)iU_iiUt:; UU) Ut- UI1 IU IJll w b-y ±La device of the Goverrment, though the planners suggest that fiscal opera- tions shuuu ve useu more efectively and witn greater flexibility as a stabilizing influence. Particularly public loans and investment are ex- pected to play a significant compensatory role in supplementing The private money market. 47. In accordance with the general policies of the Plan, the tax system should be altered to provide maximum incentive to private invest- ment. No specific recommendations are made except a more favorable depreciation allowance system. The ratio of total tax revenues (central and local) to national income, which has fluctuated between 19.5 and 22.5 per cent during the last decade, is expected to amount to about 20.5 per cent during the Plan period. Public Sector Investment Program 48. As compared with the generality of the guidelines provided to the private sector, the public sector part of the Plan gives precise expenditure targets for each category of public investment between 1961 and 1970 (Appendix Table 21), though no year-to-year phasing. 49. The Government recognized that the further expansion of the private economy depends a great deal on the provision of adequate social overhead facilities, such as roads, other transportation media, housing, flood control and rehabilitation, etc. L16,130 billion ($44.8 billion) in real terms has been ear-marked for investment in these facilities over the 10-year period. This would be about 8.3 per cent of GNP if Plan targets are achieved (compared with 6.2 per cent between 1955 and 1961). 50. Nearly all sectors of Japan's social capital infra-structure showed striking deficiencies at the beginning of the Plan period. For example, of the 147,000 km of road in March 1960, only 29 per cent (March 1961) was "improved" and only 12 per cent was Daved. Less than 50 per cent of the nearly 10,000 km of first class national roads was ,)aved. The objective is to have nearly all the first class national - 19 - roads Daved by 1966. The need for better rod i; inicted hV the fnrt that, between 1955 and 1960 (before the large spurt in automobile consump- tion -- see nae )i) the number of nut.omohil - qndi motor -vol e. i ner Pn.q by 138 per cent, to a total of nearly 3.6 million. During the same period, the length of imnroved rnan increased only hr 9' npr cent A for irh:n requirements, the road area of Tokyo and Osaka is 10 and 8 per cent res- TPectiveyj rif t.he total.n a"rea, asz comredM 1xith1 )3 per cnt) frl shngon Traffic density in Tokyo is increasing about 20 per cent a year. 51. Port facilities increased 25 per cent between 1955 and 1960, wile carg-e inrese 80 -+' . The number of ships- held u p- lack of port facilities is large and on the increase. 52. In fields of housing, sanitation, and other public services, V l~4 icD~ j)J1U00L11r= IleUZ .L'Jl Lctlt UUPJ.LULL t:J.J-LPt:1Ui LUULUt: Ill 1±U~ IU± IW±LUC average living space per person is about 7 square meters and the number of h1ouseholds is about 1 mLl i on more than the I1-LU-T-J-r Of housing u1itsu' available. Only 15 per cent of the urban areas are supplied with urainage. The target lor 17u is 5U per cent. Only about half the urban population is furnished water from public sources as compared with 0 per cent for the U.S. Financing Public investment 53. Ine income Doubling Plan is not a detailed "plan' insofar as sources of financing are concerned. Its drafters warted to preserve flexibility so that public investment might serve an anti-cyclical function and also revenue sources could be adjusted "to keep a proper balance between the burden placed on tax payers and the rate of private capital formation." 5h. The financial sources which are expected to provide for the program may be visualized, however, from the results of the first two years of the period (FY 1961 and 1962) and those contemplated for FY 1963. For the public sector program as a whole, investment during the first three years is estimated at 25.7 per cent of the 10-year total. This compares with 22 per cent, if a constant rate of annual increase implicit in the Plan had been followed (See Appendix Table 21). The amount of investment at current prices and its financing may be summarized as follows: - 20 - Table 11 Financing of Public Investment (Billion Yen) FiScal Years Ending March 31 1961 1962 1963 Total Actual Estimated Budget 1961-63 Investment in Public Sector 1256.2 _ 186.7 1736.1 4479.0 Financing From General Account±' 519.7 6.17.5 705.6 1842.8 Investment funds generated by operations of public 525.0 609.1 644.0 1778.1 enterprise:s and govn't financial institutions Government Funds2ý 474.3 594.0 699.7 1768.0 Sale of Domestic Bonds 162.9 177.5 2b7.5 587.9 Sale of Foreign Bonds 29.0 h2.0 20.3 91.3 Sub-total: 1710.9 20L0.1 2317.1 6068.1 Transfers to Private Sector 666. 737.5 U7.8 2251.7 Central Government Finnrig I1. 1302.6 169.3 3816. fltherLk 211.7 18h.1 266.8 662.6 Total: 1256.2 ),86.7 1736.1 179.0 / I nt a true- cirrerit. account surplus i under J practice, usually part of the difference between current revenues and current e-penditures is carrie forward in the general account from year to year. 2/ Incling potlsig,pn+.nsio funds, etc. 3/ Principally loans from government financial institutions to the private sector, h/ ainly local government contribution. vSou vrce:* / inry o '. ,f Finnce.- 55.I-out '" per cont of p,ulic :investe,nÅW-L1 fud U Were olua-inedl f normal public revenues and abDut 20 per cent from the savings of various pU bl1 ic ente g lly f a S,JåI1I-PSI_J.± cl- h-raer. O th u-- e emliningULL1- 39 per cent, only about 2 per cent come from foreign borrowing. 37 per - 21 - cent represented transfers from the private sector either in the form of money accumulated by various government funds and financial institutions or by the sale of domestic bonds, almost all of which were sold to orivate financial institutions. 56. In the practical implementation of the Plan, each MIinistry has set un a q-vear snending nrnarnm based on the aneral uidalini nrovidi in the Income Doubling Plan. During the last two years, though public investment has ge(nerallv yrxceeded Plan epne-tat-ion, inriistfrianoIvt inveTP.e.nti- has- made even greater strides. Therefore, closing the gap in the social over- hpad rcani tal hasnoiben er rsccsfl. Ff7 v'ol .4 , 4 + 4 - - ,-1 --- +-,- and-~ ~ ,- disaster rehabilitation was more striking than in the larger area of trans- accomplished as compared with 27.2 per cent planned. Reasonableness of the Plan Targets 58. No doubt the framers of the Plan were influenced by the gross Lt1L±~ I -LJL pUUUf .L 11t LIiU Li AU UWJ Pl-:L OIb r-LE.Ul U-L -L)-- dJIU 1957, which had assumed growth rates of 5 per cent and 6.5 per cent res- pectively. ConsLudering that the growth in GNP reachea the peak 01 o .y per cent in 1959 and averaged 10.2 per cent during the five years, 1956- 19u, te 7.2 per cent envisaged in the Plan for the decace of the 1>0s seems modest enough, even when account is taken of the greater emphasis on incrua:ing Living standards and social capital facIlities. In order to accomplish rising living standards, it will of course be necessary for wages ou increa6e faster than consumer prices. However, the present concern of the Government over the rise of consumer prices illustrates the difficulty in a free economy of preserving the type of balance between rising wages, increased productivity and stable prices which is contemplated in the Plan. 59. The transfer of labor from the primary industries appears to be already occurring on a very substantial scale. The transfers that are contemplated would involve older labor to a larger extent than before and would therefore require considerable modification of traditional employer- employee relationships, as well as the strong emphasis on technical training which is included in the Plan. Jhile the planners envisage a labor shortage developing in the latter part of the Plan period in secondary and tertiary industries, this is not likely to be a problem of serious proportions unless the economic progress is considerably greater than the Plan envisages. 6o. Probably the most questionable assumption of the Plan is the premise that exports will increase over threefold as compared with the base year average or half again as fast as GNP. This is discussed in Section V. - 22 - planned achievements. However, in respect of some of the major indicators, - -VL OVfaJ, ~ ).Lc U 1± u i t OILLI uLJ.) ±11 ,k UIIII.LU 1V VVWI -i-J.1 _L,7' ' the Plan is still ahead of schedule. Gross national product in 1963 is the Plan (assuming a constant rate of growth). The amount of personal con- Sumpoun± i- over a per conlt and pr±vauo quIpmenu ±iuveaumienu over aui per cent above the Plan schedule. 62. The drafters of the Plan realized that cyclical fluctuations would occur and that a steady rate of growth would not be Lkely. caperi- ence thus far has borne out this assumption since, although the cumulative increase in GIP is anead of schedule, this is due to the l per cent growth that occurred in the first year. 63. At present, the Planners are considering whether or not the national interest would be served by a revision of the income Doubling Plan. They appear to feel that if no unexpected adverse developments occur, the 10-year targets may be achieved in about 9 years. IV. CURRENT ECONOMIC PROBLEMS Trade and Exchange Liberalization and Industrial Policy 64. Japan is now taking action on various fronts to adjust its economy to freer mirrpnt. and annital transactions with the rest of the world. In February 1963, the IMF determined that the economy no longer requires re- strictions on current. pavmnts fnr hql nnc of nnvments reasons. Shortly thereafter, Japan told the members of the GATT that she would no longer claim balance nf naymn+.s jstification or thp mintonance of imDort re- strictions. She has been invited to join the OECD wh'ich will involve some li kv-lir+ nn n-rvn+P l +rnn,foni tno nvri iblp tnrandtions under the OECD code.1 rThe Ministry of Finance has indicated that the necessary further liberalizaio of trade and exchangereti (ocnrmt Article 8 of the Fund and Article 11 of the GATT) should be ccmpleted by Setebe '106), Al --- + .-I - - - i--- +,-Acp ov)A cvr-lhnnap I J"Pr;q1i 7ntJ on. " U WI L .fl )4* . LJi W Ut. ll~ - L 15X OSII - JJ - -- _ _ - Japan is hoping to secure the removal of the discrimination against Japanese A~~ - 3e _-P 4-1,-r (A'Pr -1,4- -, m ~ ni~r4 n+n np-I Vy 5-, p thirteen (as of January 1963) of Japan's trading partners chiefly in Europe ana. Africa. A umbeof th.ue OE±UD emer haveui~ -1.1redL ad,7 ii=dc-at tention to discontinue discriminatory treatment of Japanese exports under Article 3)5, although special restrictins *VU for some time. 65. The import liberalization program has been proceeding quite rapidly since 1960. On the basis of the 9y9 import List, only L-L per cent of Japanese imports were free of restrictions as of April 1960. This was increased to 62 per cent in 1961, t per cent in April 1u2 anud 0 pe cEnt in April 1963. There are, however, several qualifications which tend to reduce the amount of effective liberalization below that impied by these percentages. The Government has naturally first removed restrictions where it was least damaging to domestic production. Those remaining are the hard core.2/ Also, if the items still under restriction were freed, they would probably constitute more than 11 per cent of Japanese imports. 66. The principal items still under restriction are coal, petrUleum products, passenger cars, electric computers, electric generators, earth- moving equipment, high-grade steel, sugar and some other agricultural products. Most of these industries fall into two principal categories, namely (1) the coal mines which have long been a depressed sector of the 1/ At the time of the Mission's visit, Japan was asking for seventeen reservations under the code. Five outstanding unresolved items were restrictions on long-term ship chartering, direct foreign investment, technical assistance contracts, repatriation of foreign investments and dealings in domestic securities by foreigners. Recent press reports indicate that agreement has been reached and that Japan has been granted the exemptions requested by her. 2/ To date Japan has liberalized 867 items out of 1096 (Brussels Tariff Nomenclature). Remaining 229 items are subject to restrictions. - 23 - - 24 - Japanese economy and which the Government considers require protection for reasons of employment and national security: and (2) segments of otherwise efficient manufacturing industries which are relatively inefficient because of the small market available for their products in Janan. Ferro-alloys, large electric computers and large earth-moving equipment are examples. 67. Coal and non-ferrous metals are approaching their adjustment problems by making long-term marketinf arrannemPnt.F;_ The coi mine. are entering into long-term contracts at relatively high prices with th. poweTr nd !-teePl cninnrnie and thOoprpod"rAr ~ " in lar arrangements with the metal-using industries. This may be comibined ,Wt a Ss idy to the 4-p+- o ,-,r,.r -4~ S,C0r1 ~ , 4- - - increased import duties on the competitive product, residual fuel oil. to be adversely affected by trade liberalization. Sin.ce 1956, Japan has desired to promote (inachinery industry). A law is now under consideration injured by trade liberalization.1 This law will encourage combinations and mergers in suc inutre wit a-1 view-4Z_ to. inras- the size o. p-- duction units and avoiding "excessive competition". At this stage, it is intended that only a limited group of industries (special steels, auto- mobiles, tires and organic chemicals) will be afforded these benefits. nowever, new industries may be added. The law would give the specified industries preferred access to the commercial banks or government credit institutions. 09. The Government attitude towards manufacturing industry generally is to encourage large scale production, improved production techniques, standardization and specialization, restricting "undesirable" investments, and remedying financial weaknesses such as the excessive debt-equity ratios. It is recognized that not all categories of Japanese industry will expand at the same rate. Three groups were mentioned to the Mission, namely, (1) industries that are expected to increase more or less on their own at rates equal or greater than the growth of GNP (petroleum refining2/, electrical goods, aluminium, glass, cement, paper and pulp and ordinary 1/ Law for Temporary Measures Concerning the Promotion of Specified Industries. 2/ A special law is under consideration for the petroleum industry. The intent of this measure appears to be to regulate supplies coming onto the market and perhaps to apportion the market between different compa- nies. To what extent the broad powers of price a:ad output regulation given to the Minister in this law will be used to protect competing energy sources or special groups within the petroleum industry remains to be seen. - 25 - steel); (2) industries that have problems now but should, after some adjustment and rationalization, be able to expand (machinery, passenger cars, petrochemicals, synthetic fibers and high-grade steel); and (3) industries that are not expected to expand and will probably be able to hold their own only with special assistance and government interven- tion (coal mining, non-ferrous metal mining, chemical fertilizer and textiles made from natural fibers). The Government's program will be mainly concentrated on resolving the problems of the second category, though some help may be forthcoming for the third group as well. 70. The lifting of restrictions on agricultural products has lagged behind industrial products since agricultural prices are relatively high and the industry extensively subsidized. W1heat, sugar, tobacco and grain sorghums are the principal commodities that remain to be liberalized. To the extent possible under her GATT obligations, Japan would probably wish to increase tariffs when agricultural items are liberalized. In the case of sugar, a tariff quota is to be applied to protect an uncompetitive domestic beet-sugar industry when sugar imports are freed of import re- strictions in April 1964. 71. Because of the steps mentioned above and the limited market in Janan for some it.rmq still ubii.t to) r;t.riction. it is unlikely that the remaining steps towards trade liberalization will have any very cru- c,.i,ql hn1,nrP. of nvma-ntse cfect- Tihrq1i 7n.in-on !f invi.sihles is likelv to be more important. There is same concern that liberalization of travel rPstritiinn. aill result in a considerable ineasqh in fnreian travel with consequent cost in foreign exchange. However, it is probable that actions will proceed on a reasonably gradual basis. Of course, without direct controls, m-oneta"r nd fisca poiybcoe Phi-rst line of defense of foreign exchange reserves. Financing Investment 72. Despite its very high rate of savings, the absence of a well ,-~v.or- -d-r e-'CP-icJ- on - - r fi n + -c eni-n-Ili "- r n,AnA hxir _Tlnnnocp business and government leaders as an important shortcoming. There is indirect government controls, widen the distribution of stock and bond dependence on commercial banks for long- as well as short-term f1.inanin±g. (J.~ ~ ~ ~~ ~7; tru U1pt ur ugh ur01 -sou qu pfn v a u or pr-vata ILL1 )72 .9 u u er cet f ro r 1L± 7U_L dULUL~ auou, U I L .U L . J. U4Vii investment of all sorts were obtained from depreciation reserves and retained profits and the remaining 60 per cent from outside ourcIs. (See Appendix Table 26). Even in relatively slack times such as 1962 and early 1963, according to a sample of industrial enterprises selected by the Japan Development Bank, the ratio of internal to external financ- ing of industries was 45 per cent internal and 55 per cent external. - 26 - ius tNe self-financing is rather high. However, in respect of the 60 per cent of investment capital obtained from outside sources from 1957 through 1961, less than 13 per cent was obtained by the sale of stocks and bonds directly to individual savers, and 47 per cent or nearly 80 per cent of all external financing was obtained by borrowing from banks and other financial institutions. The Government, through specialized long- term credit agencies, has been providing 11 per cent (out of the 47 per cent) or 5 per cent of total private investment funds. 74. Although an active market in shares has developed in recent years, the raising of equity capital has remained expensive. This seems to be partly the result of the conventional practice of issuing new shares at par to old shareholders. The cost of new equity capital is estimated at from 10 to 12 per cent or higher (despite the fact that shares of leading companies on the stock exchange have a dividend yield not much higher than comparable enterprises in the U.S.). There is also included in its cost the corporate income tax (28 per cent on distributed, and 38 per cent on undistributed net profits). 75. The limited bond market which exists in Japan consists largely of sales to financial institutions and, in limited amounts, to investment trust companies or mutual funds.1/ About 85 per cent of government and government-guaranteed obligations are held by the city and local banks. Insurance companies and trust companies hold 10 per cent and only 5 per cent are held by individuals, investment trusts, and non-financial busi- ness enterprises. It appears to be generally agreed that the banks would not be eager to purchase government bonds unless subject to some urging from official auarters because of their low vields (Apendix Table 2W). In FY 1962, total new bond issues amounted to only about Y300 billion or only about 5.6 per cent of estimated nersonal savings. Of these, about Y130 billion were issued by agencies of the national government and by leal ?rvernnents. and ahrot 170 hillirn h nrivate utilities and industries. 76. A very close interconnection exists between the very short (call) and lonper term rates of interest in Janan. This. of course, stems from the dependence of all sectors of the money market (including even the market for new nhars on institutional lenders, mainly t.hp t wrlve -i ty banks, and their dependence, in turn, for liquidity on the Bank of Japan. 1/ An at+mpn+ s mnA in 1961 + market bond thiinh +h medium Af private securities companies. Beneficiary certificates issued by the deemable at any time at face value. The restrictive monetary policy and this forced the securities companies to dispose of a part of their call money as the lending operations of the Bank of Japan were cur- bl'.dLt:eU. VUo LdLUO 1"UL_LUULUU L11 b-IIt: UonIU U1Ldt1L:U, A111.1UCL0_Li16 Uliu 'Y_L-.L UC)1 on old issues from a little over 7 to more than ;35 per cent on govern- ment-guaranteed obligations. However, this was not reflecteU in te yields on new issues sold to financial institutions. - 27 - Ahile this makes monetary policy extremely effective in dampening a boom or rectifying an unfavorable balance of payments, it does give the big banks great economic power and perhaps increases the amplitude of cyclical fluctuations. It may also increase the cost of capital to new enterprises not sponsored by the city banks. Granted that the habits of the people in respect of the placing of their savings in financial institutions cannot be quickly changed, more investment institutions such as mutual funds might be encouraged and serious consideration might be given to freeing up the government bond market. 77. At present, there is widespread concern in Japan that the high rates for equity and loan funds may handicap Japanese industry in competi- tion with foreign firms, both at home and abroad, under the trade liberali- zation program to which Japan is now committed. While the Government is now endeavoring to reduce interest rates to improve the competitive position of Japanese industry, it is also anxious to reduce the "over-loan" position of the Bank of Japan. Thus, there would appear to be some ambivalence in current monetary policy arising out of the desire of the Government to at once contain any latent inflationary pressures and at the same time reduce the cost of long-term investment funds. Monetary and Credit Reform 78. In recognition of the need to smooth out economic fluctuations and provide a more efficient mechanism for the channelino of orivate savings into social capital construction and private investment, in June 1961. the Government bepn n reecqminPtion of the firqnnil svst.m. The study has concentrated on steps to obtain a greater flexibility in the annli r.ti on of monet-rv nol icy mans of retducing the dnncne of the banking system on central bank credit, encouraging greater selectivity i n thp fl, I rf P.irt. hv ri ffPrPn+.inti nrorf i nt.Prp+. rn+.Pc nn l onn according to the financial soundness of the enterprises involved, and checking the tendency fnr an Pxces.ive flrTr of rrp-dit frrm a nrticnlnr bank to a single enterprise. 79. An important proposal now being implemented is that the Bank of only extend additional credit by open market operations or by lending acrnincz'+ i~~ +,v n r + 1na~ f-rvm nP' ~ ~ v.n n n111-)1ir utility bonds and bonds of private institutions of local governments. This wince the ink of Japan rest positin crrin t onolof credit, since the initiative i-ill rest with it in carrying out open market o _ a t V- rn S - 28 - 80. Another consideration, in addition to the structural weaknesses of the Japanese capital and credit system noted above, is the feeling that, while, in the past, government surpluses accumulated during booms tended to partially offset the expansionary effect of bank credit to the private sector (because tax revenues have risen more than proportionately to the rise in national income), the need of the economy for social capital investment may preclude fiscal operations from performing this function in the future. Therefore, the need is more urgent than heretofore for strenth- ening and deepening the market for securities in Japan at the same time as monetary policy is made more effective as a stabilizing and not merely as an emergency device. V. PROSPECTS Short Term 81. Official estimates indicate that equipment investment, the principal bellwether of the Japanese economy, may be about 11 per cent higher in 1963/64 than last year. Under the stimulus of inventory ex- pansion and increased exports, industrial production is expected to rise by about 14 per cenu this year. While only a modest rise in the rate of growth of GNP is predicted. officially, unofficial predictions go as high as a 10 per cent growth rate in 1963/61t. 82. However, the up-turn is spotty and some sectors, such as non- ferrous metals, heavy electrical equipment and the primary material producing industries generally, are weak. The prospect of early import liberalization may be an important deterrent to investment in a number of these industries. Also, heavy investment over the past several years has created some excess capacity. Despite the fact that in April the Bank of Japan discount rate was reduced to a post-war low, and the call money rate on April 22 was the lowest since November 1956, the demand for funds continues to be rather slack. 83. There is. however, a debate Pminq on in Janan about the wisdom of the Government's action in reversing monetary policy so sharply. Concern centers around (q) the mitlank for foreign tride: ! nd (h the related problem of prices. 84. During the first five months of 1963, exports were 9.3 per cent higher than fr the same niond in 199_ and 22 ner cent abN 1961. Nor does it appear that the relaxation of monetary restraints .Thich began in Oobher 162 has o+ e ald in excessirre imnr+ demand In the period January through May of 1963 imports were 5.6 per cent higher L. th-an in l O,)'_,_ 4.. I p c r.c. n ~t a, bk -WV -_1/CS 8T. I mayN T.ll be"hat+ imrte+ demndl p1n ic u movr mment+.II Although inventories of raw and finished imported materials increased about A per cent in the fir+ half oP 16 ,- hey remain .eal below the 1961 level, having been drawn down in 1962 as a result of the "credit -j .LAjXJ V J V V LJJ L" ~.I U i11 WU U VLd U 44 ±U _Li increasing by over 15 per cent as compared with 1962 (export letters of cradt increased by 1pr1.2 i s i w not ,Y _ J_. C_JJU j I I It:L U . I;- , CL_LIji RU)U%I iU4J A ct U U i U Ut balance usually improves in the second half of the year, it would not I 1641 -J. ~ L -4.L L . Jl . rI U .1iLC1±I16t; I] vtZ. z U-LU £IIL)L Lj_Dqe adjJLe:LxLdu±_LY - 30 - 86. Since the start of the "relaxation" policy in October 1962, wholesale prices have risen about 2 per cent though they are still only at about the level of mid-1961 and below the 1955-57 average. The recent increase in wholesale prices appears to reflect mainly the rise of about 4 per cent in the prices of Japanese imported materials that has occurred since October 1962.1/ Wage increases may be lower than usual in 1963, though the rise of consumer prices (8 per cent from September 1962 to April 1963) is providing arguments for renegotiation of wage contracts.E' However, any increase in labor and raw material costs should be absorbed without substantial hikes in the prices of finished goods in view of the unused capacity in a number of industries. 87. In general, therefore, the short-run growth prospects of the Japanese economy seem favorable and fears that a nuick return to a restrictive policy may be necessary seem overly pessimistic. As usual, the relation between chaner and frter nrept n the blane rf nqvments requires close continuing observation. Longer Term Prospects and the Need for Capital Imports 88. It would require considerable assurance to raise serious min.qt1rnnq -rf-.rHrinc .Trn-ntIQo n orn i +-% +n Ano v.; +In hI connYam i - -,'khloM Q and to enjoy a continuing high rate of growth. There will undoubtedly come a time, yqhen ris(i ngr li vngc stanArds - ipinge ^i rv+ +1in extent that the rate of savings and investment declines, but there is 1 - - _ - ~ .LJ l . XU tl v V4.,; ..LO -.1,-.90J. ~X 4UJCL investment ratio may fall somewhat over the next few years as invest- l1VkA0_, LA-i6.s Ulu Vu-!±di u l iD U W.Ll U il immediately productive investments in the private sector. Even if such a 4.~ ULC V~4I ~ UUUOLA I U t,UU_ _LU LC, _±L.Lt%Y UU UU U±± LOU (AU scme extent by fuller utilization of private production facilities "r a" _Lnu ii ±i U. UiuLu - 1,;UiZjU.UU0JU11L, ab a Ufz u_b 01 . iU±iUir t2f1.PLUYu1t:%1U and more adequate social capital facilities. 89. However, the Japanese economy is not without internal problems. tion. Some observers believe that it would be necessary for Japan to expand U I faster -than t1vL-otUu L11 U1ne Incom( ouLing Plan in oraer to 1/ In general, the wholesale price movements that occurred during the short recessionary phase tended to improve the relative position of the iron and steel, chemical and machinery industries by reduc- Ing the prices of their inputs about twice as much as the prices of their outputs. Although price movements at the wholesale level were minor, the adjustments that did occur conformed well to a de- sirable pattern for recovery, with prices of inputs of producers' goods declining by 2.9 per cent in FY 162/63 and. articles for final demand increasing. 2/ In 1962 nominal wages increased by 10 per cent and consumer prices 6.8 per cent. - 31 - fully utilize the productive capacity of capital goods industries. Another danger to Japanese industrial efficiency may be the apparent desire of the Government to preserve all the existing industries that grew up under the protection of trade restrictions. The Specified Industries Promotion Act, which is now in the Diet, and the Petroleum Promotion Act, which is now in effect, seem to be pointing in this direction. 90. The important role which the ordinary banks play in industrial financing gives the bankers an important influence in investment decisions at all levels. This is sometimes considered to be a source of weakness since the decisions are apt to be made without adequate regard to technical, and sometimes, market factors. Nhile the financial/industrial nexus has usually been considered as a restraining influence on competitive forces in the Jananese market. the nost-war tendenrv hqs been for each maior city bank to sponsor a group of industries in various fields, thus resulting in fast gro-th but al-o in the -.essi ve ) nmnaPtition with which Pnvernment agencies and others are concerned at the present time.S The development of q freP anital market in Tapnn annPars +.n hp .ihF npvt. npessary sten in the economy's evolution. This should also be conducive to foreign private invP+.mPnf. which could onntribue + janant h alane of nnyments na well _R her internal development. The closeness of financial controls, both through the bWnkinsyteanth oe-,nethamaet(inrdcinofrig investment into Japan with national treatment, a point of considerable capital market is likely to be a difficult but necessary point for Japanese ,,..I Ju -Lo u.&jPUUUU w~i U Uli -Lauu LU L~ iL.L uII4y I±' L - about 17 per cent during the Plan period, great emphasis is placed on substantial shifts in the utilization of the labor force and further changes in traditional employee-employer relationships. oumpetionLU Uween inustry and agriculture in the labor market is making it necessary to form larger units in agriculture by the introduction of mechanical meods. The cnges that are already underway in respect of the utilization of Japanese labor should contribute materially to achieving dJp)anese output goaIls). 92. To the problems cited above must be added a possible coninuance of rising real wages relative to productivity evidenced recently, declin- ing marginal rates of saving and the effects of trade liberalization,all of which raise question marks as to the future. However, none of these con- siderations appear important enough at this juncture to raise serious doubt that Japan's growth rate will continue to be high. Aside from speci- fic growth elements, the general vitality evIdenced by the physical and mental aspect of the country is very impressive. 1/ The 12 city banks in Tokyo and Osaka, with assets of $25 billion (out of the total of 70 ordinary banks with assets of $53 billion) have been the most important factors in financing the Japanese industrial expan- sion during the 1950s. - 32 - >3. Turning to balance of payments prospects, on the export side, Japan's exports expanded 3.18 times between 1953 and 1960 while world exports expanded 1.15 times. The income Doubling Plan calls for an increase in exports of 10 per cent a year during the 1960s. This is indeed an ambitious target. However, the strength of Japanese export position is indicated by the fact that, in the face of generally rather disappointing world trade developments in 1962, the exports of Japan both to North America and Western Europe increased at remarkably high rates. During the first three years of the decade the Plan objective for exports was exceeded by nearly a third. 94. In general the climate for export expansion seems reasonably favorable. Japanese exports expanded during the 1950s in the face of considerable "voluntary" and involuntary restraints (from Japan's view- point) imposed by her trading partners. These should be less of a problem in the 1960s as Japan's position in the international community (including her purchases of secondary products from other countries) becomes more important, and as she removes import and exchange restric- tions. Thus the removal of Japanese restrictions should result in compensating trade advantages. Also, Japanese plans call for a consi- derable expansion of exports on a deferred payments basis. While an immediate drain on Japanese resources, this promotes exports particularly to the developing countries. Therefore, while the export target may be one of the more difficult features of the Plan to achieve, it does not appear to be unattainable. 95. in respect of imports, with a combination of import controls and monetary restraints. commodity imnorts were held below the level of exports for four of the last five years. The authors of the Income Doubling Plan anticinate that the ratin nf imnorts to GNP is likely to rise from about 14 per cent in 1958/59 to 16.7 per cent in 1970, due large1v i.n the imnant nf trade liberq1i7qti on. This will renire an annual increase of imports of about 9.3 per cent a year, slightly less +.hnn the nronietd artrh rf rnport.z The rnatn+.ion is for an unwrA tendency of imports of finished consumer goods because of trade liberali- zation and doTnward tendency of imnorts of raw materials because of tech- nical improvements.S This will make the level of dcmestic production som e7-hnt I ess denPndent than h-retnor) nn imnnrts -:vPn though t,he i- . 2/ velopment plan contemplates an increase in the "import dependence" ratio. Nevertheless, a sufficien+ supply of imnnerts at to cnnune as a very important element. Furthermore, if exports or net capital imports are of trade liberalization, monetary restrictions imposed to protect foreign ex-chaMn.ge rese_rveS may boe expected t4-o Inave a 4l r an J--;ae,4 -- on economic growth. I/ lIe raioA, o food JVUad textles~ raw matils± to) tot-a1 im±ly-ort- sUe- clined from 54 per cent to 30 per cent between. 1953 and 1960. On Ute other andU, DUtal Ures anU scrap, Aneral fuels anU mahUuiery and chemicals increased from 30 to 46 per cent. 2/ Ratio of imports to GNP. - 33 - 96.I AnCmpotan question mark is the L_.LU. on invisibles. Excluding U.S. procurement expenditures in Japan, the defci on1 inLvisLe_U acuntli inclreasefz omI.11 q$Lj m1i-llnn J196 tofu f $675 million in 1962. The liberalization of invisible transactions 1 likely t1 iucrase ne delicit on invisilDes untl the measures Japan is taking to build up her merchant marine show substantial re- sults. Te receipts from U.S. procurement are also aeclning slowly (by about $20 million a year) though they still amounted to $367 miLion in ly-o knearly 8 per cent of commodity exports). >9. On capital account, Japan's obligations for reparations and other post-war settlements will increase to an average of about $120 millio a year over the next five years (cnpared witi $77 million in 1962.- Repayment of existing public debt will average about $100 million a year. In addition, net export credits of $200 to $250 million a year may be expected if her export goals are to be achieved. Thus if we assume that the inflow and outflow of capital in the form of direct private investment are about the same (as in 1962), $420 to $470 million a year of capital inflow will be required to keep her capital account in balance. Only about $50 million of this may be met from disbursement on existing loans so that around $400 million of new capital inflow will be required to compensate for capital outflow. 98. A very good case can be made for Japan to have a certain amount of additional capital inflow during the next several rears. Obviously, the amount of this will be fairly small in relation to domestic invest- ment and savinus and. therefore. is not suscetible to measurement by takinc the difference between any estimated amounts of these variables. The nrincinal reasons for this conclusion may be briefly sumarized: 99. a.. Japan's balance of payments position in the future, as in the past, is likely to be the key factor in the stability of her economic growth. The recurrent need to apply the brakes to domestic investment to cope with balance of payments difficulties has charac- terized the economy during the last ten years. This is still evident from the experience of 1961 and 1962. Trade and exchange liberalization will, of course, place her in a more exposed position by reducing the direct controls over the balance of payments. In view of the lack of most basic raw materials, the growth of the Japanese economy is closely related to the growth of imports. Any forced curtailment of import flow is likely to have a much more than proportionate effect on domestic pro-- duction and economic growth. In other words. the economic gromith due 1/ This does not include the Korean settlement which is still pending and which may amount to t3OO million in repnarntions nis a sh- stantial amount in loans. - 34 - o capital imports may be very high. Only the import of capital on a long-term basis (as contrasted with the large inflow of short-term funds which has occurred since 1960) can provide the necessary stability to her foreign exchange position. b. It is particularly necessary at this stage of Japan's development to expand investment in social capital facilities. To do this will require much larger transfers of funds from the private to the public sector, either through increased taxation and larger public sav- ings or by the absorption of government securities by the private money market. In 1962, the net flow of funds from the private sector to the Government for savings and investment purposes appears to have been about Y208 billion (Appendix Table 23). To carry out the public investment program, an increase of this flow will be required. However, at present, the domestic money market is not well developed and the real rate of interest is very high. This is an important weakness which requires cor- rection by institutional and other arrangements. However, it would be a mistake to overburden the domestic money market at this juncture when the Government is endeavoring to bring the cost of capital to the private sector down more nearly to the international level. c. Concomitant with this need for increased capital expenditure in the public sector is the necessity for further very heavy investment outlays in the private sector. The liberalization of imports will require considerable improvements to bolster the competitive strength of several of Japan's hitherto most protected industries. These and other parts of Japan's productive capacity need extensive modernization to withstand the impact of increased foreign comnetition. Another reson for mnoHerni7.At.!0n is provided by the prospect that Japan's comparative advantage of cheap production of part of its outnut in small-sca PPnt.prnris (the Idni structure") is progressively disappearing. The continuous rise in Japanese waLes is aPfecting thesA rection on a large extent than before, no. that under-employment is disappearing and a situation of full employment in the Western sense is hinp m-nP npr1l t.-r i An ini-ovc, in i-irmm+ment requirements is also resulting from the promotion of exports which, ac- cordine to the Income Doubling Plan. PrP t.n inrcrPA.e over threefnA diring the 1960s. This increase in exports will require a much stronger emphasis on heavy machinery and chemicaro nrrN t Fingr +o Tnomo nubling Plan the share of heavy machinery and chemical products in Japanese exports is PeYnPr...r to) nlim"h f'rnm 37A .6 to 1 13 per" cent Dn Per u+i of export, capital requirements are therefore to increase substantially., 100. From the point of view of the global use of investment resources, thei net. trasfe ofPfundsQ topn cann be ju4stifiJed by the, ove rwhei,,-- ;ng proof of that country's ability to convert investment funds in increased productive - caact. 'PoDaUl ther are. ver few. coure Vn te wor U _LiiI _L~ 1 UliI VJJALU where an addition in the total availability of investible funds will so surely resdet in an increase in produce of apat's crit ind th inter- this consideration, the actual development of Japan's credit in the inter- nati onal1 capital -- markets is a coma-raey slwpoc/.Sic 96 h Japanese Government has been making a deliberate and consistent effort to develop its access to the funds of the New York and other foreign markets. The current annual rate of bond flotations by the Japanese Govern- ment and government agencies is about $100 million in four to five issues in the New York market and $25 million in Germany. It is the considered opinion of the Ministry of Finance of Japan and also of its New York investnent bankers that the healthy development of Japan's credit standing in foreign capital markets does not permit an immediate increase in the frequency and size of these bond flotations. The recently proposed tax on certain types of U.S. foreign investment is likely to reinforce this view. 101. Japan has an ample margin of creditworthiness to justify substantial further borroiwings on conventional terms. Service on public debt now outstanding (including reparations) amountsto only about 7.2 per cent of gross foreign exchange earnings in 1962. This decreases to 4.4 per cent in 1964 and less than 4 per cent in 1965. If remittances of earnings on private investment is added, about 7 per cent of gross earnings would be required to meet these obliga- tions in 196L. Total foreiEn public debt is now about :2.3 billion, of which roughly $2.1 billion has been disbursed. This is about 10 per cent more than official foreign exchange reserves. Japan has given adequate proof of her ability to make necessary balance of payments adjustments with the use of monetary controls. STATISTICAL APPHDIX Table No. External Public Debt External Public Debt Outstanding 1 External Public Debt Service 2 Ponulation Growth of Population 3 Recent and Projected Trend of Total Population and Working Age Group 4 Production Gross National Expenditure Inde.es of Production of A"riculture, Forestry and Fishery 6 Indexes of Industrial Production by Industry 7 Indexes of Industrial "roduction by Category of Product 8 Ratio Labor Productivity to Real tapes 9 Official Long-range Economic Objectives 10 Foreign Trade Value and Composition of Tr-de 11 T-nd]t_Y(_. of Vonmn, mnci Valin. of T-rq(,P qnrl T,--ri.q of Trnclp 12 Ratio of Imports to ONP 13 -i rent. can of' .Tanneps :ynort,n lJ Distribution of Manufacturing Production and Exoorts of Tnriii-t.ri ql Prnd1ct Bnlncen of Payrmentsz Foreign Exchannge Tran)nactins 16 Gold and Foreign Exchange Reserves 17 Public Finance National Government Budget (General Account) 18 Balnce of{ Tresu- Ta'ranscJnq I,+3h +Jl Pllhif- _ 10 National Government Debt 20 Investment in the Public Sector (Current Prices) 22 Money and Prices Flow of Funds - 1962 23 "-Il - - r. - -1 nl- inLeresu naue Compari:uns, average :1euLas 4 Price Indexes 25 Financing of Private investment 26 - 36 - Table 1: JAPA! - EXTER11AL PUBLIC DEBT uUTSTA.TDING I1CLUL'DING UIDISBURSED AS OF DECdtDER 31, 1962 WITH iJOR REPORTED ADDITIONS JANUARY 1 TO MAY 1., 1963 (In thousands of U.S. dollar eouivalents) Debt outstanding Major reported Item December 31. 1962 additions Net of Including January 1 - undisbursed uniinbuhir-rsP(i NaV 1. 1963 TOTAL EXTERLT, PIPTC DBRT ?-nR7-m 2.A93 7 nn Pubihly-irip iq hn979-1),1L ?79 ,Ah 7 non P~T+.rm1n-'eA A.1- ~ o1a nl7R OQR o$3oo TBF-) D, lonsAA I . N. . A C G. U ~ ~ ~ ~ ~ . 1 " ,....- v, Q4v, - Export-Import Bank 103,971 190,700 - u uv-Lou us su- war Aid from U.S. 490,000 490,000 - Reparations 615,396 615,396 - Statistics Division IBRD-Economic Staff July 26, 1963 Table 2: JAPAN - ESTI1ATED CONTRACTUAL SERVICE VPAYi1ENITS ON EXTL PUBLIC DEBT oTSSTANDIG INCLUDING UNDISBURSED AS OF DECEMBER 31, 1962 WITH MAJOR REPORTED ADDITIONS JANUARY 1 - MAY i, 1963 /- (In thousands of U.S. dollar equivalents) Debt out- Debt out- standing Paymenta during year standing Paynents during year Year plus un- Ar--In- -Year plus un- .Pisbre T"-,= isur Amori- Tn- disbursed zation terest Total aisburSae ization terest Total January 1 January i Total debt Publiely-issued bonds 1963 2,230,493 338,246 6 5, i c i3,351 1963 272,16 2,863 16,720 79,583 1961 1,967,247 184,6oo 63,068 247,668 1964 284,301 o,442 15,640 56,082 196ý5 1,782,6 7 i 7.,063 $ý9,8 6 216,9 i>ý'2 19, 5, 9o 3965 ,85 1, 765 3, 749 16511966 229.094 12,06ý:7 -L22 215,290 1967 1,480,571 144,781 51,328 196,109 1967 217,027 10,490 12,561 23,o5L 1968 1,335,790 151,893 46,817 198,710 1968 206,537 20 070 11,7-1 31,811 1969 1,183,897 151,341 1,9h7 193,288 1969 186,467 18,441 10,h66 28,907 1970 1,032,556 138,h79 37,312 175,791 1970 168ý,026 L7,111 9,375 26,486 1971 894,077 127,321 32,886 160,207 1971 150,915 17,111 8,338 25,449 1972 766,756 126,176 28,603 154,779 1972 133,804 17,111 7,302 26,413 1973 640,580 128,598 24, 350 152,948 1973 116,693 17,111 6,262 23,373 1974 511,982 107,792 20,110 127,902 1974 99o582 0,361 ,225 21,586 197.5 h4,190 93,100 16,7i6 10 , 8o6 1975 83.,221 i,611 ,25 19, 861 1976 3190 698 13,706 10 ,3c6 1976 6 61o 18,611 3,239 21,850 19, 311,090' 1360',6104561 45 1977 220,392 66,1ý8 10,L45 7 , 593 1977 - 1999 18,681 2,129 20,810 Privately-placed debt TRD) 1oa __s 1963 213,2d8 136,385 6, 2 12, 967 196 4;944 75 22,229 ,2o 196 Z 76,90 6, 3, 56 10,646 1964 432,269 19,181 23,280 4, 61 196, :,? 12,h72 3, 599 16,071 19 413,088 22,674 23,007 , 81 196> 4 , 2 11,127 3,u68 14,195 196 390,41' 2 280 21,75) 5,034 1967 6.315 11.995 2.55 14.450 1967 367,134 2ø 585 20,447 45,032 1968 34;320 10,996 1;809 12805 1968 3162,849 25, 50 19,302 4,22 1969 23,32h 10,028 1,198 11 226 1969 316,99 26, 75 17,072 l4,729 1970 13296 h,866 731 5'597 1970 290,124 28, 11 16,128 4, 242 19 71 8, ý0 1,550 ý497 2,0h7 1971 262ý,010 29,203 l4,5&o 3,753 1972 1 1949 1972 232,807 72 1973 5,334 1,397 312 1,709 1973 2o5'735 ý2'8,628 11, 401 40,029 1974 3,937 1,397 229 1,626 1974 177,107 20,788 9,882 30,670 1975 2,54o 1,394 146 1,10 1975 156,319 19,549 8,663 28,212 1976 1,146 230 63 293 1976 136,770 16,669 7,616 24,285 1977 916 230 49 279 1977 120,101 17,329 6,645 23,974 See flootnote at end of table. Table 2: JAPAN - ESTIMATED CONTRACTUAL SERVICE PAY0ANTS ON EXTiRNAL PUBLIC DEBT OUTSTiND1JG INULUDING UNDISBURSED AS OF DECEMBER 31, 1962 WITH MAJOR REPORTED ADDITIONS JANU'RY 1 - MAY 1, 1963 /L (CONT.) (In thousands of U.S. dollar equivalents) - Page "2 Debt out- Debt out- standing Payments during year standing Payments during year Year plus un- - Year pas,, in- - disbursed Amorti- In- Total disbursed Amorti- In- Total January 1 zation terest January 1 zation terest U.S. Govt. loans - Total _U.S Govt. loans - Export-Import Bank 1963 7-0,700 T,10 19,57 1963 190,700 13,146 7,52 20,670 1964 635,290 47,325 20,492 67,817 1964 177,554 1h, 249 9,254 23,503 1965 587,965 49,461 19,246 68,707 1965 163,305 15,553 8,840 2,393 1966 538,501 50,817 17,595 68,142 1966 147,752 16,056 8,043 21,099 1967 487,687 50,371 15 862 66,233 1967 131,696 11,736 7,183 21,919 1968 437,316 47,837 1,195 62,032 1968 116,960 11,306 6L113 17,719 1969 389,479 48,757 12,649 61,4o6 1969 105,654 11,306 5,786 17,092 1970 340,722 49,697 11,078 60,775 1970 94,348 11,304 5,157 16,461 1971 291,025 49,401 9,501 58,902 1971 83,044 10,042 4,546 14,588 1972 241,624 50,391 7,952 58,343 1972 73,002 10,142 3,287 14,029 1971 191,233 515106 6375 57781 1973 62 96o 10, 42 3,426 13,468 197 139,827 39190 4,77 3964 197 02,918 10,042 2,865 12,907 197 100 637 26 490 35647 30,137 1975 2,876 10,032 2,305 12,337 1976 74117 25,127 2,688 27,815 1976 32,801 8,255 1,761 10,016 1977 49,020 29,862 1,622 31,484 1977 24,589 5,431 1,317 6,748 Settlement of Post-war Aid of U.S. _________Reparations 1963 490,000 3 2 7612 )T ,1 1963 T3 23 - 791 196 4157,736 33,076 11,238 44,314 1964 T38,183 70,662 - 70,662 1965 424,660 3j,908 10,06 144,314 1965 4687,21 7,691 - 7,691 190 Ion 70 1 o ,5o h M. oA hin iqn 7,722 7 799 1969 283 5 37, 1 6:663 E ,31 1969 267 728 O - 1 0 1970 246,374 38,393 5,921 44,314 1970 220,388 38,691 - 38,691 1971 207 981 39,359 0,955 44,314 1971 181,697 30,056 - 30,056 1972 168,622 3,965 ,31 1972 151,681 30,056 - 30,056 1973 128,273 1,65 2,949 0313 1973 121,55 30,56 - 30,056 1971 86,909 29,148 1,909 31,057 1974 91,529 30,56 - 30,056 1975 57,761 16 58 1,342 17,800 1975 6173 30,056 - 30,056 1976 1 303 16,72 217,799 1976 31,417 30,061 - 30N 1977 24,131 2, 1431 305 24,736 1977 1,356 6 - 3 . Includes service on all debt listed in Table 1 prepared on July 26, 1963 except 125,00,000 of privately-placed bonds for which the amortization terms are not available. Statistics Division IBRD-Economic Staff July 26, 1963 Table 3: JAPAN - GROvaH OF POP ULATIO.N, 1945-62 (thousand persons) Net Change due to Total Net Percentage Year Populatlon/' Livebirths Deaths Incrse igration Change inrease 1945 72, 200 1,576 1,369 207 3,47C 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 1,90 2.44 1948 Bo,O10 2,711 943 1,768 149 1,773 2.22 1949 31,780 2, 447 915 1,532 31 1,419 1.74 1950 83, 200 2, 229 872 1,356 2 1,343 1.61 1951 64,500 2,058 786 1,273 6 1,265 1.50 1952 65,800 1,921 772 1,1h9 37 1,172 1.37 195.3 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 1955 89,276 1,698 707 991 - 8 893 1.10 1956 90,170 1,604 764 840 - 10 754 C.8 1957 90,920 1,630 701 929 - 7 837 0.92 1958 91,760 1,666 693 974 11 873 o.95 1959 92,640 1,620 712 9c8 - 0 775 c.64 1960 93,419 1,595 697 898 - 32 865 0.93 1961 94,280 1,617 716 902 - 8 893 o.95 1962 95,180 - - - - - a/ Estimate as of October 1 of the years indicated. Source: Government of Japan, Prime Minister's Office. Table 4: JAPAN - RECE2IT AT PROJECTED T~ENJD OF TOTAL POPULATION AND W.JORKING [,GT GROUP Year Total Population Working Age Group (15-59) (000 persons) (000 persons) 1950 83,200 47,354 1955 89,276 52,235 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 1,215 976 1956-6o 829 1,010 1961-65 965 1,350 1966-70 791 843 1971-75 822 473 1976-80 672 L37 Averege Annual Increase 1951-55 1.5 2.1 196-60-9 0 1.94 1961-65 1.0 2 .h 1966-70f 0.8 1.3~ 1971-75 0.8 0.7 1976-800. i.6 Source: Bureau of Statistics, Pime ifinister's Ofic: Honthly Estimate of Population, July 1960., igures were estimated in J-une, 19 b Institute of Popuation Po e Mini stry Uo eat a We Problems, ?iinistry of Health and Welfare. Table 5: JAPAN - GROSS NATIONAL EXEMNDITUPE (In billions of yen) Fiscal Years 1961 1955 1956 1957 1958 1959 1960 1961 1962 Total at Current Prices 5,hhh 8,236 9,293 10,150 10,395 12,572 1,665 17,702 18,860 Index at 1955* Prices 100 lo 1C9 118 121 143 162 185 - Consumption 3,571 ,o8 6,438 6,994 7,368 8,c5h 9,037 10,510 - Private ,0 7,119' ,52 5,90 ~ 8 ?,696 8,920 10,15 Government 553 889 936 1,oih 1,074 1,177 1,343 1,590 1,850 Gross Investment 1,664 2,086 2,955 3,210 2,832 h,o5 5,607 7,542 6,820 Private 1, 252 1,372 , 2 2, 4U2 1¯h 3 289 -i2,7 5,81 1 ~7E0 Government 412 714 691 808 928 1,116 1,340 1,728 2,080 Surplus on Current International Account 2C9 141 - 101 - 54 95 114 21 - 351 40 Gross Investment: Percent of GNP 31 25 32 32 27 35 38 43 - * 1955-= 1Co except 1951 imdex which is based on 1934 - 1936 = lo Source: Lconomic Planning Agency: National Income Report, Fiscal Year 1961. Table 6: JAPAN - INDEXES OF PRODUCTION OF AGRICULTUREl, FORESTRY AND FISEERY (1950 - 52 = 100) 1955 1956 1957 1958 1959 1960 1961 A,riculturep 12). 117.- 122.1 127.2 130.6 133.3 134.6 Rice 12n.5 109.8 1I5.i 120.7 125.9 129.6 125.2 Wheat & barley 109.5 10.8 98.2 94.0 104.9 108.3 106.2 Pules 18. 13.3 119- 19. 1289.8 136.2 135.8 Potatoes 119.6 116.3 113.4 115.3 121.5 116.8 120.4 Vegetables 110.9 109. 116. 11),q 120.6 133.0 130.8 Fruits 122.0 168.0 181.7 188.8 203.2 225.1 23h.0 4iscellaneous cereals 03.0 92.0 100. 109. 99.5 100.0 96.3 Livestock & Livestock products 173.3 178.3 189.3 216.9 22.9 27.3 316.7 Forestr 110. 115.4 120.9 109.5 110.6 117.2 118.6 Fisher 13? . 137 -1(61 1 13. 2 ?1.3 12.) 205.7 Source: Ministry of Agriculture and Forestry. Table 7: JAPAN - INDEXLS OF INDUSTRIAL PRODUCTION BY INDUSTRY (1960 = 100} Manuf acturing Production Year Industrial Ferrous Non-ferrous Production Total Metal Metal Machinery Chemicals Textiles 1958 67.0 65.7 57.2 57.7 56.5 74.7 72.6 1959 80.3 79.6 76.3 75.5 72.6 83.2 84.8 1960 100.0 100.0 100.00 03.0 100.0 1CO.0 100.0 1961 119 .3 119.9 .126.1 119.7 129.0 113.8 107.9 1962 128.6 129.6 125.5 117.2 145.0 128.1 113.5 Source: Ministry of International Trade and Industry. Table 8: JA PAN - INDEIXS OF I1NDUSTRIAL PRCDUC'IOT DY CAT cGORY OF PRODUCT (Velue added weight 1960 = 100) Non-Durable Durable Capital Construction Consumer Consumer Producer Year Goods Materials Goods Goods Goods 1958 61.7 69.1 85.9 48.5 64.5 1959 72.3 81.1 91.8 75.2 80.0 1960 100.0 100.0 100.0 100.0 100.0 1961 130.0 115.0 109.0 125.8 118.5 1962 143.7 119.8 119.6 14.1 124.9 Source: Ministry of International Trade and Industry Table 9.- RATIO LABOR PRODUCTIVITY TO REAL WAGES Japan U. S. U. K. Germany Italy 1955 100.0 100.0 100.0 100.0 100.0 1956 103.5 98.4 95.4 97.6 102.5 1957 109.0 98.7 97.4 95.7 104.9 1958 103.0 99.1 96.6 94.8 110.2 1959 104.1 102.3 97.7 9h.4 117.6 1960 106.6 104.5 98.0 90.6 120.7 1961 108.6 106.7 05.5 86.4 120.8 Table 10: JAPAN - OFFICIAL LONG-RAEG ECONOIC OBJECTIVES Base Year Target Year Year Index 1956-58 Av. 1970 (Base Yr.=100) Population (million) 91.1 102.2 112 Population over 15 yrs. of age (million) 62.2 79.0 127 Gross Natl. Prod. (9 billion at 19 8 prices) 9,781 26 000 267 Natl. Income Per Capita (dollars) 244 580 238 Gross Capital Formation (' billion 1958 prices) 2,947 8,283 281 Mining & Mfg. Production Index 100 432 432 Agriculture. Forest & FishinE Prod. Index 100 144 144 Export ($ million) 2,701 9,320 345 Import (0 million) 3,126 9,.891 316 Source: Economic Council: New Long-Range Economic: FLan of Japan (1Q(61-1Q70) - nnoubling NainlT-rcone Planr- Table 11: JAPAN - VALUE ID CODPITI0i- OF TRIIDE Composition (Percent) Total Crude Fabricated Finished (U.S.$ mil) Food Materials Materials Products Others Exports (f.o.b.) 1955 2,011 6 6 0 87 1 1956 2,01 7 5 0 88 0 1957 2,858 6 h 0 89 1 1958 2,877 8 h 0 88 0 1959 3,56 7 1 88 0 1960 4,055 6 4 1 89 0 1961 I, 236 6 1 1 89 0 1962 h,916 7 4 0 89 0 Imports (c.i.f.) 1955 2,71 25 51 12 12 1956 3,230 17 54 13 16 0 1957 h,28h 13 8 16 23 0 1958 3,033 17 h 17 22 0 1QQ 3,59 1- 19 16.0 21 1960 4,492 12 49 17 22 0 1961 5,210 12 8 16 n 0 1962 5,637 13 42 19 26 0 Remark: This classification was revised in January 1961. Table 12: JAPAN - INDEXES OF VOLUHE AND VALUE OF TRADE ID TE,RlS OF TRADE (1960 = 100) Export Unit Export Import Unit Import Terms of Volume Value Volume Value Trade 1954 39 103 49 110 93 1955 52 96 5o 11 87 1956 62 99 62 116 86 1957 69 103 77 125 83 1958 72 98 65 104 94 1959 87 97 81 99 99 1960 100 100 100 100 100 1961 108 97 131 99 98 1962 128 95 129 97 97 Source: -Hinistr- of Finance. TaDle 13: JAVA!j -AU U.- RATLO O I TU i (Percentage) 1/ In Real Termsz' 1953 11.5 1954 11.5 1955 10.9 1956 12.9 1957 14.8 1958 12.1 1959 13.0 1960 i.8 1/ Imports and GNP calculated at 1955 prices. Source: MITI. !-hite Paper on Foreign Trade, p. 184. TabIfle I. T Å DATT -T DrPTN n TA AA\ErQE EVWDMPRT (Per cent) 193h 1956 1959 1961 Asia 64 41 34 37 Europe 8 10 11 14 North America 17 26 36 31 U. S. (16) (22) (30) (26) Canada (1) (h) (>4) (5) Latin America 2 5 4 6 Africe 6 16 12 9 Oceana 3 2 3 3 Total: 100 100 100 100 Tatle .i': jrAAN - D±ITIT±uuIONO Aj ACT £u.iRING.i PROUCTIONUP AND EXPORTS OF INDUSTRIAL PRODUCTS (Per cent of total) 1950 -1.959 1960 Prodctn Exports Prodctn Exports Prodctn hxports, Products of Light Industry Textiles 26.7 53.5 21.2 4l.3 14.2 32.7 Others 23.3 13.7 26.2 16.5 22.3 19.1 Sub-total 50.0 67.2 47.4 57.b 36.5 51-b Products of Heavy and Chemical Industries Chemical Products 15.1 2.1 13.6 5.2 12.8 4.6 Metal Products 18.7 20.2 21.0 21.5 21.9 15.4 Machinery 16.2 10.5 18.0 15.4 28.9 28.2 General (5.6) (h.o) (5.6) (5.4) (7.5) (5.8) Electrical (3.7) (1.1) (4.6) (1.7) (9.6) (7.5) Transport Equipment (6.0) (55) (6.8) (6.6) (104.) (11.8) Precision (0.9) -- (1.0) (1.6) (1.3) (2.8) Sub-total 50.0 32.6 52.6 42.1 63.5 5.2 Total: 100.0 100.0 100.0 100.0 100.0 100.0 Source: Keizai Doyukai Report, p. 21, 22. Table 16: JAPAJ-FOREIGi E.XCHANGE TRAtSACTIONS (Million of U.S. dollars) 1959 1960 lver IIa disk ) ' _)c 07 O7 1, Q 1. '7 Receipt 353 - + 353 392 + 392 Other Invisibles 281 566 - 285 322 750 - 428 Total Current 3 914 3,575 339 1,588 4,77 111 Long Term Capital 114 142 + 2 Short Term Capital - + 409 Total Capital - + 11 Note: These figures differ from the official balance of payments primarily as a result of differences in classification. Data on capital transactions in 1959 are not available. The capital figures exclude changes in foreign exchange reserves. (to be continued on next page) Table lb (continued) kA11110n 01 U.S. dollars) 1961 1562 Receipts Payments Balance Receipts Payments Balance Herchandise 3,992 4,924 - 932 4,787 ,546 + 241 Special Gov't Receipt 371 - + 371 366 - + 366 Other Invisibles 413 937 - 524 4_7 1,017 - 570 Total Current 4,776 5,861 -,085 5,600 5,563 37 Long Term Capital 319 156 + 163 458 196 + 262 Short Term Capital - - + 610 - + 172 Total Capital + 773 + 34 Note: These figures differ from the official balance of payments primarily as a result of differences in classification. Data on capital transactions in 1959 are not available. The capital figures exclude changes in foreign exchange re5erve. Source: H'inistry of Finance, Table 17: JAPAN - GOLD AND FOR7IGN EXCHANGE RT1SERVES9/ (In millions of U.S. dollars) End of Period 1952 979 1953 823 1954 738 1955 769 1956 941 1957 524 1958 861 1959 1,322 1960 1,824 1961 1,486 1962 1,842 1963, January 1,884 February 1,856 March 1,863 Anri 1 1.878 a/ Icludes gold and foreign exchange holdings of the Govern- ment and Bank of Jaran only. Excludes Pold and foreian exchange holdings of commercial banks and outstanding balances under hilateral navments agreements. Table 18: JAPAN - NATIONAL GOVER.115INT BUDG-T ( NRAL ACCUNT), BY FISCAL YEARS (In billions of yen) 1959 1960 1961 1962 1963 Budget Budget Revenue Income tax 278 391 496 571 636 Corporation tax 391 573 71h 763 761 Liquor tax 218 249 297 292 30h Other taxes 326 406 511 552 605 Total taxes 1,213 1,61 ,01 2,17d 2,305 Monopoly profits 126 1l7 165 160 158 Other revenue 136 96 115 100 124 Total 1,475 1,861 2,298 2,438 2,587 Expenciture General administration 168 170 192 198 219 Defense 157 163 183 215 242 Economic develonmnt 325 h59 5L6 717 751 Education 177 211 256 315 363 Social Security 196 231 302 37h L30 Pensions 112 116 122 123 127 National debt service 5h 26 )o 68 116 Other 326 367 422 553 602 Total 1,h95 1,743 2,063 2,563 2,850 Excess of Revenue (+) or Expenditure (-) 20 + 116 + 236 - 125 - 263 Sore Min~stry-' ofFnne Tnbe 19: jAPANM - 7: LCL OF T7JAUR -T ANSATINSV -,JTIM TH7, DTPUDTB (In biios ofyen ( - =~ sJuluo paymentsLU. (+) =surplus of receipts Special Accounts, Total General Public Foreign Eu~in uIg Fiscal Account Corporations Exchange Foreign Deruugeu and Uthers vFund Total Exchange F1uid .n'r n l n" " .In , ' - - I . -1 2.+79 -172.7 - .6 +- 1 1953 +ll.5 -176 h +129.8 + 9h.9 - 3.9 +43 9 - 74.1 -190,2 -116.1 1955 + 61.3 -168.0 -169.9 -276.6 -106.7 9 205. -105.7 + 63.3 +163.5 +100.1 1957 +166.9 - 20.6 +113.4 +259.7 +146.3 1958 +125,7 -13.2 -193.5 -251,0 - 57.5 1959 +229,2 -211.2 -151.3 -133.3 + 18.0 1960 +481.o -237.7 -238.7 + 4.6 +243.3 1961 +656.4 -380.0 +220.9 +497.3 +276.4 1 + 48.9 - 41.8 + 31.8 + 38.9 + 7.1 2 +243.0 - 65.7 + 90.6 +267.9 +177.3 3 + 83.6 -436.7 + 86.4 -266.7 -353.1 h +280.9 +164.2 + 12.1 +457.2 +415-1 1962 +515.4 -550.2 -161.3 -196.1 - 34.8 1 + 19.9 -122.3 + 6,7 - 95.7 -102.4 2 +218.7 -129.0 - 32.7 + 57.0 + 89.7 3 + 29.7 -496.1 - 77.9 -54.3 -466.4 4 +247.1 +197.2 - 57.4 +386.9 +hhh.3 TabLe 2cL: JAPAN - NATIONAL GOVERIENLIIT DEBT-/ (In billions of yen) Dec. Type of 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 31, Debt _ 1962 Bonds Domestic 335.2 hh5.0 440.9 425.8 409.3 405.8 4o.1 459.8 4h.6.8 436.4 413.3 Foreign 102.3 98.5 9h4.6 8B..8 8.5 80.7 86.9 81.7 74.1 56.3 56.o Total 437 .5 543.6 53355 1-,.7 493.8 1,86.5 487.0 51.5 520.9 )492 Short-term Bills Feod bills 147.1 195.1 194.1 310.1 329.8 263.1 289.3 328.2 351.0 307.1 253.0 Foreign exchange Fund bills 132.0 15.0 140.0 15 _.0 80.1 100.0 178.0 250.1 328.6 2714.1 253.0 Total 279.1 214c,1 334.1 455.1 4C9.9 363.1 467.3 $78.3 679.6 581.2 506.0 Other Borrowing 110.1 67.4 63.1 87.4 96.o 120.7 121.1 133.2 139. -49_.1 143.3 Grand Total 826.1 851,1 932.7 1,057.2 1,000-3 970.3 1,075. 1,253.0 1,340.3 1, 2230 1,118.8 a7inounit outstanding end of fiscal year. SoTirce: Bank of Japan. Table 21: JAPAM - LTVESTiL ET IN THE PUILIC SECTOR (IN REAL TERMS) ± (Billion Yen) 1961- Total Ratio 1961- Ratio 6 Invest- 1963 f 1961 1962 1963 Total ment Progress Est'd Comple- (Et) Bdgt A+n Amt+ +ion A Planned A c A Roads 299.1 363.3 o638 1126.2 n900 0 23. 5.7 127.2 Ports a. 3 9 1.7. 57 .2 1. .. 1 Cin 27. 1n2- f. Harbors Agriculture, T,~ n,' n',f n~ i'~ nnr n~r -5, nfP r n ,_r' -5 -1-)ff 17 Forestry, & .5 1.3 LCU.3 3u. -UU.U 3.0 25.3 1 Fishery Subtotal: 452.5 530.6 6h7.3 1630.4 6430.0 25.4 1253.6 130.1 Research on Industrial - 1.1 2.0 3.1 500.0 6.2 66.0 h.7 Location Housing 66.9 73.6 77.1 217.6 1300.0 16.7 216.1 100.7 Environment 34.9 40.6 53.1 128.6 570.0 22.6 98.5 130.6 Sanitation Welfare 31.5 33..1 ho.h 105.0 h00.0 26.3 87.3 120.3 Sub-total: 133.3 147.3 170.6 h51.2 2270.0 19.9 hOl.9 112.3 Flood Control 87.8 100.h 118.4 306.6 1120.0 27.4 267.7 114.5 Rehabilitation 121.6 111.4 75.0 308.0 530.0 58.1 202.5 152.1 Sub-total: 209.4 211.8 193.h 614.6 1650.0 37.2 470.2 130.7 Other 393.3 483.2 562.1 1h38.6 5280.0 27.2 1200.0 119.9 Total 1188.5 1374.0 1575.4 4137.9 16130.0 25.7 3391.7 122.0 1/ Deflator 1960=100.0 1961=105.7 1962=108.2 1963=110.2 7/ On the basis of a constant rate of increase as compared with 1960. Source: Economic Planning Agency. Table 22: JAPA]N. --l:ETMEN IM -M PUBLIC SECTOR (CURREMPr PRICES) (UIJ:t: 1OG mJllion yen) FIscal 1955 1956 1957 1958 :1959 1960 1961 1962 (1) 1963 (1) Year -- l Item u Percn- Percen- Per en- m Percen- Percen- Amt Percen- Percen- mOt Percen- mount Percen- __-tage tage tage tage tage tage tage tage tage Road 609 14.5 795 17.2 1,147 20.1 1,401 20.9 1,793 22-3 2,055 21.5 3,161 25-1- 3,931 26.4 5,111 29.4 Larbor 92 2.2 110 2-4 142 2.5 169 2.5 270 3.4 305 3-2 422 3.4 508 3-4 630 3.6 kgriculture Forestry and Fishery 422 10.0 464 10.1 i 536 9.4 599 8.9 654 8.1 1,015 10.6 1,200 9.6, 1,302 8.8 1,392 8.0 sub-Total 1,123 26.7 1,369 29.7 1,825 32.0 2,169 32.3 2,7:17 33.8 3,375 35.2 4,783 38.1 5,741 38,6 7,133 41.1 Research on Industrial I4cation - - - - - - - - - - - - - 12 0.1 22 0.1 Housing 312 7.4 338 7.4 416 7.3 502 7.5 470 5.9 465 4.8 707 5.6- 797 5.3 850 4.8 Environment Sanitation 50 1.2 65 1.4 115 2.0 122 1.8 200 2.4 265 2.8 369 2.9 439 3.0 506 3.4 elfare 219 5.2 202 4.3 219 3.8 201 3.0 242 3.0 246 2.6 333 2.7 358 2.4 445 2.6 Sub-Totai 581 13.8 605 13-1 750 13.1 825 12.3 912 11.3 976 10.2 1,409 11.2 1,594 10.7 1,881 10.8 Flood Control 468 11.1 440 9.5 500 8.8 518 7.7 560 7.0 772 8.1 928 7.4 1,087 7.3 1,305 7.5 biwdIta.IOr fDi, tere 601 14-3 533 11.6 491 8.6 573 8.5 8:32 10.3 1,188 12.4 1,285 10.2 1,205 8.1 826 4.8 Sub-Total 1,o69 25.4 973 21.1 991 17.4 1,091 16.2 l 1,392 17.3 1,960 205 2,213 17.6 2,292 15.4 2,131 12.3 Total 2,773 65.9 2,947 63-9 3,566 62.5 4,085 60.8 5,021 62.4 6,311 65.9 8,405 66.9 9,639 64.8 11,167 64.3 Others 1,435 34,1 1,665 36.1 12,135 37.5 2,629 39.2 3,0:15 37.6 3,259- 34.1 4,157 33.1 5,228 35.2 6,194 35.7 Grand Total + 4,208 100.04,612 100.0 5,701 100.0 6,714 100.0 8,036 100.0 9,570 100.0 12,56g 100.0 14,867 100.0 17,361 100.0 F.Y. Remarkt (1) shows the estimated figures for 1962, and the budget figures for F.Y. 1963. Tnhlp 23 J FLV nP FUND'MS (Pill inn Yp-n) -1962 Assets L nIi - i ties Time and Savings Deposit 1,825<6 TrUSt- and I1Tncurance 3, Dank Debeitures and Investment Trust 349c5 Other 335.6 -3, öb9.6 Loans 3,207,h 3,89.6 Private Sector (net) iloney937.8 Time and Savings Deposit 2,597.2 Securities (net.) 49.5 Other 286.8 3,ö26.3 Borrovings (domestic) 3,h82.6 Foreign debt 134.2 Increase in net assets 209.5 Government and Public Corporations Loans 572.2 Securities 82.7 Foreign Reserves 117.9 Other 14.8 Money 19.5 807.1 Postal Savings 355.1 Debentures Issues 223.3 Borrowing 297.0 Securities Issued 95.9 Foreign Debt 43.9 1,015.2 Net 208.1 Net "Rest of World" 1.4 Increase in Net Liabilities 209.5 Tab.e 24 : JAPAN - INTEREST RATE C0ODPARISONS,AVERAGE YIELDS Loans and Loans Indus- Public Uncon- Yield on End Di scounts Long- trial Corpo- ditional t Japanese Year of All Term Bonds ration Call Bonds Bonds in Month, Banks, Cr edi AJ 1rass Bonds- Mone NewT York1, *å~J±LZU 4J flý uJJ -~A. ~. 'J.G. -USżt *L.. J.It-Ltf- Banks A Tokyo 1 1955 June 9.00 7.43 6.33 Dec. 8.98 10.74 8.82 7.80 8.0.3 6.34 6.28 1956 June 7.97 7-36 6.34 Dec. 8.64 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 9.49 6.43 - Dec. 8.20 9.30 7.50 7.05 13.87 6.43 6.23 1962 June 8.23 9.24 7.47 7.05 10.59 6.43 Dec. 8.09 9.17 7.84 7.015 9.68 6.h3 5.86 1963 Ma4rch 7.92 9.11 8.4l0 6.43 May 7.92 7.41 6.94 6.43 5.61 1/ Data 1955 through 1958 are for Japan 62 per cent, 1924 - 54 ~ tended to 1 1i959 through a v I 963 are for Jannn 54 ner cent, 1959 - 74. Source: Economin S titis of Japn - Bank of Japan. Table ~ ~~ 25 AA RI-EIDEE holes a'le Conswuer Year Prices Prices (Tokyo) (1952 = lCo) (1960 = 100) 1953 100.4 87.2 1954 99.7 92.0 1955 97.9 90.7 1956 102.2 91.5 1957 105.3 94.2 1958 98.4 95.1 1959 99.4 96.4 1960 101.3 100.0 1961 105.2 105.2 1962 104.9 112.2 Source: Bank of Japan and Prime Minister's office. Table 26: JAPAN - FI NANCING OF PRIVATHE INVETIMENT -1Qf A-I ocfo I OAf) -1 Q.A.l A 1957 - 61 Own Capital 39.5 39.0 41.8 41.5 39.2 40.2 Depreciation 22.5 28.3 24.3 22.2 21.8 23.8 Retained Profits 17.0 10.6 17.5 19.2 17.4 16.3 Outs1ae Capital ou.? o.u 0.< . ou.U U y.o Government Funds 4.o 5.9 5.1 4.3 3.3 4.7 Private Funds 55.6 55.0 51.7 53.4 56.6 5.4 Stocks and Shares .o 08.7 6.3 9.3 13.3 9.4 Industrial Bonds 1.8 2.2 3.9 3.0 5.5 3.3 Borrowings 144.2 44.1 41.5 [i.1 37.06 41.7 All Banks 32.2 28.4 25.5 26.1 21.7 26.8 Trust Accounts 1.8 2.9 3.5 3.1 2.6 2.0 Mutual Loans & Savings Banks & Credit Asso- ciation 5.2 6.3 8.7 7.2 7.8 7.0 Insurance Companies 2.2 3.0 2.4 2.0 1.5 2.2 Other 2.8 3.5 1.4 2.7 4.2 2.9 Foreign Investment - - 1.4 0.8 0.9 0.6 Grand Total 100 100 100 100 100 100 Own Capital 39.5 39.0 41.8 41.5 39.2 40.2 (ntse (Direct Financing 11.4 10.9 10.2 12.3 18.8 12.7 Capital (Indirect Financing 49.1 50.1 48.0 46.2 42.0 47.1