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EXCHANGE RATE
The Japanese yen has appreciated substantially from 124yen/US dollar
in May to 102yen/US dollar in December 1999, representing around
17.8 percentage point appreciation. The rapid rise of the yen is
regarded as a major concern for the recovery of the Japanese economy
in the short-run as it leads to decreases in the profits of export-oriented
firms.
Experiencing a temporary depreciation at the beginning of 2000,
the yen came close to 111yen/US dollar in February 2000. After that,
the yen appreciated once ore and has since been moving in the range
of 103 to 110 yen/US dollar.
FISCAL POLICY
Fiscal policy has played a major role in supporting economic activities.
The government launched the Policy Measures for Economic Rebirth
in November 1999, aiming to achieve a smooth transition from public
sector-led growth to private sector-led growth and to put the Japanese
economy back on the path of full-fledged recovery. The total amount
of the measure in project volume was about 17 trillion yen (or 18
trillion yen in total, including nursing care measures), including
measures for the financing of small- and medium-sized enterprises
(7.4 trillion yen) and spending on social infrastructure projects
(6.8 trillion yen).
The FY2000 budget has been prepared with the objective of fully
supporting the government in putting the economy back into the track
of full-scale recovery. In addition, the government decided in September
2000 to compile a supplemental budget of 3.5 to 4 trillion yen to
strengthen the move of the Japanese economy onto an autonomous recovery
path.
On the other hand, the ratio of government bond issues to total
government expenditures in the FY2000 budget is expected to reach
38.4 percent and outstanding government bonds are expected to reach
around 364 trillion yen (73 percent of GDP) at the end of FY2000.
Under these circumstances, the fiscal structure should be reformed.
It will be necessary to promptly review various fiscal and taxation
issues and carry out comprehensive measures once the economic recovery
is firmly established.
MONETARY POLICY
Facing the severe economic situation, the Bank of Japan (BOJ) followed
the "zero interest rate" policy since early 1999. Short-term
interest rates were virtually zero since early March 1999, except
for a period in which money demand rose because of the Y2K issues.
The BOJ terminated the zero interest policy in August 2000, and
short-term interest rates have made a slight increase after that.
Long-term interest rates declined to 1.2 percent until mid-May
in 1999 following BOJ¡¯s zero interest rate policy and the Ministry
of Finance¡¯s announcement to change the composition of maturity
periods of government bonds. Afterwards, they started to pick up
and rose up to nearly 2.0 percent in end-August in 1999 and have
been moving within a narrow range of 1.5 percent to 1.9 percent
since then. Long-term interest rates rose in August 2000 after the
termination of the zero interest policy.
Although the stringent corporate climate finance has been relieved
not only for large firms but also for medium-sized firms, lending
by financial institutions remains stagnant.
MEDIUM-TERM OUTLOOK
The main thrust of the economic and fiscal policy of the Japanese
government should continue to be to sustain economic recovery. In
making every effort to bring the economy to an autonomous recovery
path, the government is to carefully monitor economic conjunctures
and take appropriate actions. Priority should also be placed on
the bold reform of the economic structure. From this perspective,
the government is compiling a set of new economic policy measures
that should be rapidly implemented with the four pillars: the IT
revolution, environmental countermeasures, response to the aging
society, and urban redevelopment.
The growth rate of real GDP in FY2000 is expected to be around
1.0 percent. This will be achieved by the strong increase in private
non-residential investment reflecting the improvements in corporate
confidence and the recovery of profits as well as moderate increase
in private consumption.
The Cabinet decided to adopt the economic plan in July 1999, outlining
the long-term perspective of the Japanese economy and society up
to 2010. In the annex to the economic plan, the prospects of the
main economic indicators up to 2010 are given as follows:
Real growth rate: approximately 2 percent (in terms of "growth
accounting")
Inflation rate: approximately 2 percent
Unemployment rate: the latter half of 3 percent to the first half
of 4 percent
JAPAN: OVERALL ECONOMIC PERFORMANCE
| |
1992 |
1993 |
1994 |
1995 |
1996 |
1997 |
1998 |
1999 |
| GDP and Major Components (% change, year over year,
except as noted) |
| Nominal GDP (billion US$) |
3725 |
4293 |
4700 |
5144 |
4595 |
4210 |
3832 |
4368 |
| Real GDP |
1.0 |
0.3 |
0.6 |
1.5 |
5.1 |
1.6 |
-2.5 |
0.2 |
| Total Consumption |
2.1 |
1.3 |
2.0 |
2.2 |
2.8 |
0.6 |
-0.3 |
1.2 |
| Private Consumption |
2.1 |
1.2 |
1.9 |
2.1 |
2.9 |
0.5 |
-0.5 |
1.2 |
| Government Consumption |
2.0 |
2.4 |
2.4 |
3.3 |
1.9 |
1.5 |
1.5 |
1.3 |
| Total Investment |
-2.9 |
-2.4 |
-1.3 |
2.4 |
12.3 |
-0.6 |
-9.2 |
-1.0 |
| Exports of Goods and Services |
4.9 |
1.3 |
4.6 |
5.4 |
6.3 |
11.6 |
-2.5 |
1.9 |
| Imports of Goods and Services |
-0.7 |
-0.3 |
8.9 |
14.2 |
11.9 |
0.5 |
-7.6 |
5.3 |
| Fiscal and External Balances (% of GDP) |
| Budget Balance (1),(2) |
-3.3 |
-4.5 |
-5.7 |
-6.7 |
-6.6 |
-5.9 |
-7.7 |
|
| Merchandise Trade Balance |
3.3 |
3.3 |
3.1 |
2.6 |
1.8 |
2.4 |
3.2 |
2.7 |
| Current Account Balance |
3.0 |
3.1 |
2.8 |
2.1 |
1.4 |
2.2 |
3.2 |
2.5 |
| Capital Account Balance |
-2.7 |
-2.5 |
-1.9 |
-1.3 |
-0.7 |
-2.9 |
-3.5 |
-1.1 |
| Economic Indicators (% change year over year earlier
period, except as noted) |
| GDP Deflator (% change) |
1.7 |
0.6 |
0.2 |
-0.6 |
-1.4 |
0.3 |
0.3 |
-0.9 |
| CPI (% change) 1994=100 |
1.6 |
1.3 |
0.7 |
-0.1 |
0.1 |
1.8 |
0.6 |
-0.3 |
| M2 (% change) |
0.6 |
1.1 |
2.1 |
3.0 |
3.3 |
3.1 |
4.0 |
3.6 |
| Short-term Interest Rate (percent) (3) |
4.4 |
2.9 |
2.2 |
1.2 |
0.6 |
0.6 |
0.7 |
0.2 |
| Exchange Rate (P/US$) |
126.6 |
111.2 |
102.2 |
94.1 |
108.8 |
121.0 |
130.9 |
113.9 |
| Unemployment Rate (%) |
2.2 |
2.5 |
2.9 |
3.2 |
3.4 |
3.4 |
4.1 |
4.7 |
| Population (millions) |
124.5 |
124.8 |
125.0 |
125.6 |
125.9 |
126.2 |
126.5 |
126.7 |
- as of 2 Oct 2000
Notes:
(1) Budget balance refers to general government.It excludes the
social security.
(2) The 1998 Budget Balance is -13.0% if including fiscal deficit
resulting from the General Account's assumtion of the debts of the
Japan National Railway Settlement Corporation and the National Forest
Service.
(3) Short-term interest rate refers to 3-months certificates of
deposits (CDs)
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