Research Institute of Economy, Trade and Industry (RIETI)
RIETI BBL Seminar
Handout
April 16, 2015
Speaker: Dr. Randall S. JONES
Head of Japan/Korea Desk Economics
Department, OECD
http://www.rieti.go.jp/jp/index.html
2015 OECD ECONOMIC
SURVEY OF JAPAN
Revitalising Japan
Research Institute of Economy Trade and Industry
Tokyo, 16 April 2015
www.oecd.org/eco/surveys/economic-survey-japan.htm
OECD Economics
OECD
Japan’s growth potential has fallen well below
the government’s 2% real growth target
Per cent
3.5
Per cent
Potential employment
Trend labour productivity
Potential real GDP
3.5
3.0
3.0
2.5
2.5
2.0
Japan’s growth target¹
1.5
1.0
2.0
1.5
Average real GDP growth (1990-2014)
1.0
0.5
0.5
0.0
0.0
-0.5
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
-0.5
1. The 2% target was set in 2009 and maintained by subsequent governments.
Source: OECD Economic Outlook Database.
2
The standard of living and productivity in Japan are
well below leading OECD countries
Japan relative to the top half of OECD countries¹
Top half of OECD = 100
Top half of OECD = 100
130
130
120
Labour inputs
120
110
110
100
100
90
90
Per capita income
80
70
Labour productivity
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
80
70
1. Per capita GDP is calculated using 2005 prices and PPP exchange rates. Labour productivity
equals GDP per hour of labour input. Labour inputs equal total number of hours worked per
capita.
Source: OECD Going for Growth Database.
3
Government debt is the highest ever
recorded in the OECD area¹
Per cent of GDP
Per cent of GDP
240
210
180
150
240
Japan
United States
Greece
OECD
210
180
150
120
120
90
90
60
60
30
30
0
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
1. OECD estimates for 2014 and projections for 2015-16.
Source: OECD Economic Outlook Database.
4
Nominal GDP has fallen in a context of deflation
Index 2000 = 100
Index 2000 = 100
105
105
100
100
95
95
90
Nominal GDP
GDP deflator
85
80
90
85
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Source: OECD Economic Outlook Database.
80
5
The poverty rate
has been trending up
Per cent
17
Per cent
17
16
16
15
15
14
14
13
13
12
12
11
11
10
Total relative poverty rate
Relative poverty rate for the working-age population (18-64) with children (under 18)
9
8
10
9
8
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
The share of the population with an income after taxes and transfers below half the median
equivalent disposable income. Data are based on the Comprehensive Survey of Living Conditions,
which is submitted to the OECD by Japan. Another survey, the National Survey of Family Income
and Expenditure, shows a much lower relative poverty rate of 10.1% in 2012.
Source: OECD Income Distribution and Poverty Database; Ministry of Health, Labour and Welfare,
Comprehensive Survey of Living Conditions.
6
Main findings
1. Sluggish economic growth during the past two decades has
left Japanʼs living standards below the top half of OECD
countries.

Japanʼs growth potential has fallen sharply due to a
shrinking population and weak productivity gains,
reflecting many structural weaknesses.
2. Government gross debt has risen to uncharted territory at
226% of GDP and the gap between government expenditure
and revenue remains huge.
3. Persistent deflation has also pushed up the government debt
ratio, while acting as a headwind to growth.
4. Income inequality and relative poverty threaten social
cohesion.
7
Structural reforms are badly needed
Abenomics was launched in 2013 to revitalise
Japan
1. Bold monetary policy to exit deflation
2. Flexible fiscal policy
3. A growth strategy to boost real output
growth to 2% over the next decade
8
Challenge 1
Raising Japan’s output growth
in the face of:
•
•
•
•
Rapid population ageing
Weakness in the corporate sector
A lack of economic dynamism
Weak integration in the world
economy
9
Japan will remain the oldest population
through 2050
Population aged 65 and over as a share of the population aged
15 to 64
Per cent
90
80
Per cent
90
2012
2050
Average in 2012
Average in 2050
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
JPN DEU SWE FIN DNK EST AUT GBR HUN CZE CAN NZL LUX ISL SVK KOR TUR
ITA GRC PRT FRA CHE BEL ESP NLD SVN NOR AUS USA POL IRL ISR CHL MEX
Source: OECD Demography and Population Database.
0
10
Total factor productivity growth is slow in
Japan despite high business R&D
Annual TFP growth in per cent
2.0
CZE
SWE
USA
KOR
1.5
NOR
TUR
1.0
HUN
EST
IRL
AUS
ISL
CAN
0.5
NZL
0.0
GRC
FIN
DEU
SVN
GBR
NLD
FRA
LUX BEL
AUT
DNK
CHE
ISR
JPN
CHL
-0.5
PRT
-1.0
MEX
-1.5
0.0
ESP
ITA
0.5
1.0
1.5
2.0
2.5
3.0
Business R&D as a per cent of GDP
Source: OECD Economic Outlook No. 96; Long-term Scenario Database; OECD Main
Science and Technology Indicators.
11
The productivity gap between manufacturing
and services has widened sharply
Index 1970 = 100
Index 1970 = 100
300
300
275
275
Manufacturing
Non-manufacturing
250
250
225
225
200
200
175
175
150
150
125
125
100
1970
1975
1980
1985
1990
1995
2000
2005
2010
100
Source: Japan Industrial Productivity Database 2014.
12
The return on equity in Japanese firms is low
In 2012
Per cent
30
Per cent
30
Total
Manufacturing
Non-manufacturing
25
25
20
20
15
15
10
10
5
5
0
0
Japan
Europe
United States
Source: Ministry of Economy, Trade and Industry (2014).
13
Japanese firms have large cash hoards that
could be productively utilised
Per cent
30
25
Cash and marketable securities of listed companies
(Per cent of stock market capitalisation)
Per cent
30
Japan
United States
European Union
25
20
20
15
15
10
10
5
0
5
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
Source: Bloomberg; OECD calculations.
14
Japan's share of world exports has been falling
during the past 20 years
As a per cent of total world exports
Per cent
14
Per cent
14
United States
China
12
10
12
10
Germany
8
8
6
6
Japan
4
4
2
2
0
1994
1996
1998
Source: WTO Database.
2000
2002
2004
2006
2008
2010
2012
0
15
Japan’s terms-of-trade have been
declining
Terms of trade¹ in 2005 = 100
Index
Index
130
130
Japan
OECD
United States
Germany
120
110
120
110
100
100
90
90
80
80
70
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
70
1. Ratio of export prices to import prices, with 2005 set as the base year.
Source: OECD Economic Outlook Database.
16
Small firms in Japan are old, suggesting a
lack of economic dynamism
Startups (0-2 years)
Per cent
Young to mature (3-10 years)
Old (more than 10 years)
Per cent
100
100
80
80
60
60
40
40
20
20
0
0
JPN FIN ITA NOR CAN BEL SWE PRT AUT NZL USA NLD LUX GBR FRA HUN ESP BRA
Source: Criscuolo et al. (2014).
17
Large firms in Japan are also relatively old
Year of establishment of the 300 largest firms by market capitalisation¹
Number of firms
70
Number of firms
70
60
60
United States
Japan
50
50
After 2009
2000-09
1990-99
1980-89
1970-79
1960-69
0
1950-59
10
1940-49
10
1930-39
20
1920-29
20
1910-19
30
1900-09
30
1890-99
40
Before 1890
40
0
1. As of March 2015. The increase in the number of Japanese firms established between 2000
and 2009 reflects the creation of a large number of holding companies during that decade.
Source: Thompson Reuters; OECD calculations.
18
The role of venture capital in Japan is small
Per cent of GDP
0.20
In 2013 or latest year available
Per cent of GDP
0.20
0.31
0.16
0.12
0.16
Total
Later stage venture
Seed / start-up / early stage
0.12
0.08
0.04
0.04
0.00
0.00
CZE
GRC
ITA
POL
ESP
SVN
LUX
NZL
AUS
HUN
NOR
AUT
JPN
PRT
BEL
DEU
GBR
NLD
DNK
FRA
EST
CHE
KOR
SWE
FIN
IRL
CAN
USA
ISR
0.08
Source: OECD (2014f), Entrepreneurship at a Glance 2014, OECD Publishing, Paris.
19
The stock of inward FDI in Japan is the
smallest in the OECD
Inward and outward stocks of direct investment as a per cent of GDP in 2
Inward in per cent of GDP
100
90
EST
HUN
80
CHL
70
ISL
CZE
SWE
GBR
SVK
60
PRT
ESP
POL
50
NOR
NZL
40
AUS
MEXSVN
30
ISR
DNK
DEU
20
TUR
KOR
10
0
CAN
OECD
AUT
FRA FIN
ITA
USA
GRC
JPN
0
10
20
30
40
50
60
70
80
90
100
Outward in per cent of GDP
1. Belgium (189,200), Ireland (231,173), Luxembourg (301,234), The Netherlands
(134,83.7) and Switzerland (194,115).
Source: OECD (2014), Economic Globalisation Indicators 2014, OECD, Paris.
20
Japan’s innovation system is weakened by
problems in universities and a lack of
participation in international R&D¹
Bottom 5 OECD countries
Index
Middle range of OECD countries
A. Science base (relative to GDP)
Top 5 OECD countries
JAPAN
B. Internationalisation (per cent)
Index
200
200
150
150
100
OECD median
50
0
100
50
Top 500 universities
International co-authorship
Publications in the top-quartile journals
International co-patenting
0
1. Normalised index of performance relative to the median values in the OECD, which are set at 100. The top performer is set at 200 and the
lowest at zero. The fifth-highest performer in the case of the ''Top 500 universities'' had a score of 137 relative to the OECD median, while the fifth
lowest had a score of 5. Japan, with a score of 43, was in the middle range.
Source: OECD (2014), OECD Science, Technology and Industry Outlook 2014, OECD Publishing, Paris.
21
Japan’s inefficient agricultural sector depends
on a high level of government support
Per cent
70
Producer support in 2011-13¹
Per cent
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
NZL AUS CHL USA
ISR
MEX CAN OECD EU
TUR
ISL
KOR CHE JPN NOR
1. Producer support is the annual monetary value of gross transfers from consumers and
taxpayers arising from policies that support agriculture, regardless of their nature, as a
per cent of the value of gross farm receipts.
Source: OECD PSE/CSE Database 2014.
22
Recommendations
to boost economic growth
23
Increase the employment of women
Projected size of the labour force¹
Millions of people
65
Millions of people
65
Female participation rate increases to converge with male rate by 2030¹
60
60
55
55
50
45
50
Male and female labour force participation rates remain at levels observed in 2011
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
45
1. For the working-age population (15-64), assuming that the labour force participation rate for
men remains constant from 2011 to 2030.
Source: OECD (2014).
24
Reduce product market regulation and
barriers to trade and investment¹
Index
2.5
A. Overall product market regulation
Index
2.5
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
NLD
GBR
AUT
DNK
ITA
NZL
AUS
EST
FIN
DEU
PRT
HUN
SVK
BEL
CZE
JPN
CAN
ESP
IRL
LUX
NOR
FRA
OECD
ISL
CHE
CHL
SWE
POL
SVN
GRC
KOR
MEX
ISR
TUR
2.0
Index
2.5
B. Barriers to trade and investment
Index
2.5
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
NLD
BEL
AUS
FIN
GBR
LUX
HUN
POL
IRL
CHE
FRA
PRT
DEU
ESP
CZE
ITA
CHL
DNK
ISL
GRC
OECD
NZL
SVK
NOR
AUT
SWE
EST
JPN
SVN
CAN
ISR
TUR
KOR
MEX
2.0
1. Indicators for 2013. The OECD Indicators of Product Market Regulation are a comprehensive and
internationally-comparable set of indicators that measure the degree to which policies promote or inhibit
competition. Research shows that the indicators have a robust link to performance. The indicator, based
on more than 700 questions, ranges from zero (most relaxed) to six (most stringent).
Source: OECD Product Market Regulation Database; Koske et al. (2015).
25
Increase R&D links between firms, academia and
foreign sources
R&D funding in 2013
Allocation of R&D spending by sector
performing it
Source of funding
Share of total
R&D spending
Governmen
t
Universitie
s
Business
enterprises
Total
Government1
18.1
54.4
40.2
5.4
100.0
Universities
5.9
0.6
99.3
0.1
100.0
Business
enterprises
75.5
0.6
0.5
98.9
100.0
Foreign sources
0.5
9.6
1.6
88.8
100.0
1. Includes private non-profit institutes.
Source: OECD R&D Statistics Database.
26
Shift SME policies from support to fostering
restructuring
The stock of guarantees as a share of GDP in 2013
Per cent
Per cent
6
6
5
5
4
4
3
3
2
2
1
1
0
0
GBR AUT SVK CAN NLD TUR ISR BEL USA EST FIN GRC FRA ITA HUN CHL ESP JPN
Source: OECD (2015), Financing SMEs and Entrepreneurs 2015: An OECD Scoreboard,
OECD Publishing, Paris, forthcoming.
27
Ensure the exit of non-viable firms
A. The number of bankrupties is falling in Japan B. International comparison of number
of bankrupties in 2012
Thousand
Per cent Index 2007 = 100
Index 2007 = 100
250
6 250
20
Number of bankrupties (left scale)
Real GDP growth (right scale)
18
4
16
14
200
200
150
150
100
100
2
12
0
10
8
-2
6
4
-4
50
50
-6
0
CAN
CHL
JPN
DEU
BEL
FRA
SWE
FIN
GBR
AUS
NOR
USA
ISL
NLD
DNK
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
2003
2
Source: OECD (2014f, Entrepreneurship at a Glance 2014, OECD Publishing, Paris;
OECD Economic Outlook Database.
0
28
Improve the perception of entrepreneurship
Share of the population that views entrepreneurship as a good career
choice
Per cent
80
Per cent
80
70
70
60
60
OECD average
Source: Global Entrepreneurship Monitor (2015).
NLD
ITA
USA
CHL
POL
PRT
GBR
FRA
GRC
NOR
CAN
EST
ESP
AUS
SVN
BEL
0
DEU
10
SWE
10
MEX
20
IRL
20
HUN
30
SVK
30
CHE
40
FIN
40
LUX
50
JPN
50
0
29
Provide skills need for entrepreneurship in
schools
Per cent that agree that school education provided enabling skills and
know-how to run a business (2012)
Total ’agree’
Total ’disagree’
Don’t know / No answer
Per cent
Per cent
100
100
80
60
60
40
40
20
20
0
NOR
PRT
TUR
FIN
CHE
CZE
ISL
USA
LUX
ESP
DNK
DEU
KOR
SWE
AUT
BEL
OECD
FRA
GRC
SVK
EST
SVN
NLD
HUN
IRL
POL
ITA
GBR
ISR
JPN
80
Source: OECD (2013), Entrepreneurship at a Glance, OECD Publishing, Paris.
0
30
Japan’s elderly farm workforce creates an
opportunity for fundamental reform
83% of farmers were over 60 years old in 2010
Under 30
30-39
40-49
2%
3% 3%
50-59
9.0%
56.0%
70 and over
27.0%
60-69
Source: Ministry of Agriculture, Forestry and Fisheries, 2010 Census of Agriculture and
Forestry.
31
Summary of recommendations
to boost economic growth
1.
Mitigate the decline in the labour force by boosting the participation rate,
particularly for women, and expanding the use of foreign workers.
2.
Strengthen competition and corporate performance by reducing product
market regulation and improving the corporate governance framework.
3.
Enhance Japan’s integration in the world economy by participating in
high-level trade agreements, notably the TPP.
4.
Move to a more market-based agricultural system.
5.
Improve the R&D framework to increase the return on investment in
innovation.
6.
Revitalise venture capital investment to promote firm creation and
innovation.
7.
Improve the entrepreneurial climate and developing entrepreneurial
education.
8.
Reduce government support for SMEs to promote the restructuring of
viable firms and the exit of non-viable ones.
32
Challenge 2:
Reducing government debt
33
Japan’s gross debt ratio is the highest in the
OECD
Per cent
250
General government basis in per cent of GDP in
2014
Per cent
250
200
200
150
150
100
100
0
50
EST
LUX
NOR
AUS
KOR
NZL
CHE
SWE
CZE
POL
DNK
SVK
FIN
ISR
NLD
DEU
SVN
OECD
ISL
CAN
HUN
GBR
AUT
ESP
USA
FRA
IRL
BEL
PRT
ITA
GRC
JPN
50
Source: OECD Economic Outlook Database.
0
34
The impact of the high debt is mitigated by
low interest rates in Japan
Per cent
5
General government basis in per cent of GDP in
2014
Per cent
5
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
NOR
CHL
KOR
EST
LUX
FIN
SWE
CHE
DNK
CAN
AUS
MEX
JPN
NZL
CZE
NLD
DEU
OECD
SVK
AUT
FRA
POL
SVN
GBR
BEL
USA
ESP
ISR
IRL
ISL
GRC
HUN
ITA
PRT
4
Source: OECD Economic Outlook Database.
35
The gap between government expenditure
and revenue is large
Per cent of GDP
Per cent of GDP
20
20
Total expenditures
15
15
Tax revenues
10
10
Bond issues
5
0
1975
5
1980
1985
1990
1995
2000
2005
2010
0
2015
Note: Central government general account as per cent of GDP.
Source: Ministry of Finance; OECD calculations.
36
Japan’s primary deficit remains large
Per cent of GDP
Per cent of GDP
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
-8
-10
-12
Japan
United States
Euro area
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
-8
-10
-12
Source: OECD Economic Outlook Database.
37
Public debt service
is now the biggest item in the budget
FY 2015 central government budget
Health and
long-term care
Public debt service¹
14.8%
24.3%
17.9%
26.9%
Pensions
other
social spending
16.1%
Other
Transfers to local
governments
1. National debt service includes 13.3 trillion yen of debt redemption, which is not
included in general government spending, and 10.1 trillion yen of interest payments.
Source: Ministry of Finance.
38
Reducing government debt requires fiscal
consolidation while boosting real growth and inflation
Per cent
Gross government debt as percentage of GDP¹
450
Per cent
450
No fiscal consolidation
Fiscal consolidation; slow growth
Fiscal consolidation; high growth
400
350
400
350
300
300
250
250
200
200
150
150
100
100
50
0
2010
50
2015
2020
2025
2030
2035
0
2040
1. In the no fiscal consolidation scenario, nominal growth is around 2¾ per cent (1% real growth, 1¾ per cent
inflation).
Fiscal consolidation of 7% of GDP over the decade 2017-26 is assumed in the other two scenarios. Output growth rates
over 2015-40, resulting in varying levels of interest rates:
Low growth: nominal growth of 1½ per cent (1% real growth, ½ per cent inflation).
High growth: is nominal growth of 4% (2% real growth and 2% inflation).
Source: OECD Economic Outlook Database; OECD calculations.
39
Government social spending has doubled as
a share of GDP
Per cent of GDP
45
40
35
30
25
20
15
10
5
0
Per cent of GDP
45
Government expenditure
Social spending
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
40
35
30
25
20
15
10
5
0
Source: OECD Economic Outlook Database.
40
Public social spending in Japan is concentrated in
health and elderly-related outlays
Per cent of GDP
35
In 2011
Per cent of GDP
35
Old age and survivors
Health
Other
30
25
30
25
OECD average
20
20
15
15
10
10
5
0
0
MEX
KOR
CHL
TUR
ISR
EST
CAN
AUS
ISL
SVK
USA
CHE
CZE
POL
NZL
NOR
IRL
LUX
HUN
GBR
JPN
NLD
SVN
PRT
DEU
GRC
ESP
SWE
ITA
AUT
FIN
BEL
DNK
FRA
5
Source: OECD Social Expenditure Database.
41
Cut healthcare costs by reducing hospital
stays and doctor visits
In 2012 or latest year available
Average
total
hospital
stay1
Average
hospital
stay for
curative
care1
Total
number of
hospital
beds2
Number of
acute-care
beds2,3,4
Number of
long-term
care
beds2,3,4
Number of
beds in
long-term
care
facilities2,4
Number of
doctor
consultations
per capita per
year
Japan
31.2
17.5
13.4
7.9
2.7 (11.1)
6.0 (25.0)
13.0
OECD
average
8.4
7.4
4.8
3.3
0.6 (3.8)
7.7 (48.5)
6.7
Highest
country
31.2
17.5
13.4
7.9
3.2 (27.4)
13.5 (72.2)
14.3
Lowest
country
3.9
3.9
1.6
1.5
0.0 (0.0)
2.4 (17.7)
2.7
1. In days.
2. Per 1 000 population.
3. In hospitals.
4. The numbers in parentheses show the number of beds per 1 000 population aged 65 and
over.
42
Source: OECD Health Database.
Pharmaceutical consumption per capita is
high in Japan
Per capita expenditure on pharmaceuticals in 2012 or latest year
available¹ (in USD)
Per capita, USD PPP 2005
900
Per capita, USD PPP 2005
900
800
700
700
600
600
500
500
400
400
300
300
200
200
100
100
0
MEX
CHL
DNK
NZL
EST
POL
ISR
LUX
NOR
GBR
NLD
CZE
FIN
SWE
ITA
PRT
ESP
OECD
CHE
KOR
HUN
SVK
SVN
ISL
AUT
GRC
AUS
FRA
IRL
DEU
BEL
JPN
CAN
USA
800
1. Includes medical non-durables.
Source: OECD Health Database.
0
43
The high level of spending reflects less use of
generic drugs in Japan
Share of generics in the total pharmaceutical market in 2013 or
latest year available¹
Per cent
80
Per cent
80
70
70
Value
Volume
60
60
0
GBR²
CHL³
DEU²
NZL²
DNK²
SVK
TUR
AUT²
NOR
OECD
1. Includes medical non-durables.
2. Reimbursed pharmaceutical market.
3. Community pharmacy market.
Source: OECD Health Database.
ESP²
GRC²
LUX²
0
FIN
10
PRT
10
CZE
20
EST
20
FRA²
30
BEL²
30
JPN
40
CHE
40
IRL²
50
ITA
50
44
Reduce the growth of social spending
 Reduce the length of hospital stays by shifting long-term care away
from hospitals to home-based care or specialised institutions.
 Shift away from a fee-for-service system to reduce the number of
doctor visits and shorten hospital stays for curative care.
 Increase efficiency and raise co-payments for health and long-term
care, while taking account of equity implications.
 Reduce spending on pharmaceuticals by boosting the use of generics
from their relatively low level at present.
 Increase the pension eligibility age to limit the increase in spending on
pensions, while raising the labour participation of older workers and
reducing intergenerational transfers.
45
Raise the consumption tax further
Standard tax rate in 2014¹
Per cent
30
Per cent
30
25
20
25
OECD average
20
15
15
10
10
5
0
0
CAN
CHE
JPN
AUS
KOR
LUX
NZL
MEX
ISR
TUR
CHL
DEU
AUT
EST
FRA
GBR
SVK
BEL
CZE
ESP
NLD
ITA
SVN
GRC
IRL
POL
PRT
FIN
DNK
NOR
SWE
ISL
HUN
5
1. In January 2014, except for Japan, which reflects the consumption tax hike to 8% in
April 2014.
Source: OECD, Consumption Tax Trends 2014.
46
Broaden the personal income tax base
Deductions as a percentage of personal income1
Japan
Basic
deduction
Spouse
deduction
7.8
7.8
United States
41.3
Germany
36.0
United
Kingdom
26.6
Childrearing
deduction
Deduction for
social
insurance
premium
Wage
income
exemption
13.9
31.0
Others
60.5
16.1
57.4
13.8
2.2
0.2
Netherlands
Sweden
1.
Total
deduction
52.2
26.6
0.0
3.3
3.3
Married household with two children with one worker earning the average wage.
Source: OECD (2014b), Taxing Wages 2014, OECD Publishing, Paris.
47
Challenge 3:
Achieving a definitive exit
from deflation
48
Quantitative and qualitative easing is rapidly
increasing the monetary base
A. The monetary base target
Trillion yen
350
355 trillion yen
(end-2015)
X
B. Central bank balance sheets
Per cent of GDP
65
60
United States
Japan
Euro area
United Kingdom
300
275 trillion yen¹ X
(end-2014)
250
200
55
50
45
40
202 trillion yen
X
(end-2013)
35
30
150
138 trillion yen
(end-2012) X
25
20
100
15
Introduction of
50 ’’quantitative and quality monetary easing’’
10
5
0
0
2002 2004 2006 2008 2010 2012 2014
2007
2009
2011
2013
15
1. The target increased from 270 trillion yen to 275 trillion yen with the increase in
QQE in October 2014.
Source: Bank of Japan; Thomson Financial.
49
Quantitative and qualitative easing has
reduced interest rates across the yield curve¹
Interest rate on government bonds
Per cent
Per cent
2.5
2.5
April 2012
April 2013
April 2014
March 2015
2.0
1.5
2.0
1.5
1.0
1.0
0.5
0.5
0.0
1
2
3
4
5
6
7
8
9
10
15
20
25
30
0.0
40
Years
1. Market base rate using compounded growth rate. The data refer to the rate at the
end of the month.
Source: Ministry of Finance.
50
Inflation expectations have increased
Per cent
3
Per cent
3
Survey of 2 to 10 years ahead¹
Break-even inflation rate²
2
2
1
1
0
0
-1
-1
2015
2011
2012
2013
2014
1. The QUICK Monthly Market Survey.
2. Yield spreads between fixed-rate coupon-bearing JGBs and inflation-indexed JGBs.
Source: Bank of Japan; Thomson Financial.
51
The yen has depreciated sharply since 2012
A. Yen vis-à-vis dollar
$/¥
70
B. Real effective exchange rate¹
Index 2010 = 100
150
80
140
90
130
100
120
110
110
120
100
130
90
140
80
150
1995
2000
2005
2010
2015
1995
2000
2005
2010
70
2015
1. Trade-weighted, vis-à-vis 49 trading partners and deflated based on consumer price
indices.
Source: OECD Economic Outlook Database; Bank of Japan.
52
Despite quantitative and qualitative easing,
inflation has slowed close to zero
Year-on-year percentage change
Per cent
4
CPI (without tax hike)
CPI¹ (with tax hike)
Core inflation² (without tax hike)
3
2
Per cent
4
3
Inflation target
2
1
1
0
0
-1
-1
April 2014 tax hike
-2
-3
2000
2002
2004
2006
2008
2010
2012
-2
-3
2014 2015³
1. In April 2014, the consumption tax was raised from 5% to 8%. The tax hike added 2
percentage points to inflation according to estimates by the Bank of Japan and the Cabinet
Office.
2. OECD measure, which excludes food and energy.
3. January and February 2015.
Source: OECD Economic Outlook Database; Bank of Japan (2014); Cabinet Office (2014)
53
Challenge 4:
Promoting social cohesion
54
Break down labour market dualism to reduce
income inequality and poverty
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
0
Age group
65-69
100
60-64
100
55-59
200
50-54
200
45-49
300
40-44
300
35-39
400
30-34
400
Income by head of household
Income by spouse
25-29
500
B. Household headed by a non-regular worker
Thousand yen
600
Income by head of household
Income by spouse
500
20-24
A. Household headed by a regular worker
Thousand yen
600
0
Age group
Source: Ministry of Health, Labour and Welfare (2014).
55
Non-regular worker households suffer
from a high poverty rate
Poverty rate by employment status of spouses1
Wife (%)
Husband (%)
Regular
Non-regular
Selfemployed
Not employed
Regular
1
3
3
5
Non-regular
7
19
16
35
Self-employed
5
16
13
23
Unemployed
8
38
21
47
1. The data are based on a survey of nearly 10 000 people.
Source: Higuchi (2013).
56
Impact of tax and transfers on income
inequality is weak in Japan
Reduction in inequality (Gini coefficient)¹, working-age population in 2012 or latest year ava
Basis points
18
Basis points
18
15
15
12
12
9
6
6
3
3
0
0
SVN
GRC
BEL
LUX
FIN
FRA
AUT
DNK
PRT
CZE
NOR
GBR
DEU
ESP
POL
OECD
NLD
ITA
SVK
ISL
SWE
EST
AUS
CAN
ISR
USA
NZL
JPN
TUR
CHE
CHL
KOR
9
1. The Gini coefficient is a measure of income inequality that ranges from 0 (where all individuals
have the same income, or complete equality) to 1 (where one individual has all the income).
Source: OECD Income Distribution and Poverty Database.
57
Impact of tax and transfers on poverty is
weak in Japan
Reduction in relative poverty rate¹, working-age population in 2012 or latest year availab
Percentage points
Percentage points
18
18
15
15
12
12
9
6
6
3
3
0
0
FRA
LUX
FIN
BEL
SVN
CZE
AUT
ESP
GBR
SVK
DNK
GRC
PRT
NLD
POL
NOR
DEU
OECD
EST
ITA
ISL
AUS
CAN
NZL
USA
SWE
JPN
ISR
MEX
TUR
CHL
KOR
CHE
9
1. The relative poverty rate is the percentage of the population whose income is less than half
median income.
Source: OECD Income Distribution and Poverty Database.
58
Japan’s tax and benefit system transfers
income from young to old
In 2011
Million yen
Million yen
400
400
Benefit in kind
Cash benefit
Tax
Pension contribution
Health and long-term care contribution
Net benefit
300
200
300
200
100
100
0
0
-100
-100
-200
-200
Under 30 30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74 Above 74
Age group
Source: Ministry of Health, Labour and Welfare, Survey on Income Redistribution in
2011.
59
Japan’s tax and benefit system has little impact
on income inequality, except among the elderly
Gini coefficient
0.9
0.8
In 2011
Gini coefficient
0.9
0.8
Income before redistribution
0.7
0.7
Income after redistribution
0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
0.0
0.0
Under 30 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 Above 74
Age group
1. The relative poverty rate is the percentage of the population whose income is less than half
median income.
60
Source: Ministry of Health, Labour and Welfare, Survey on Income Redistribution in 2011.
The Basic Livelihood Protection Programme
provides generous in-kind and cash benefits¹
Income levels² provided by cash minimum-income benefits in 2012
In per cent of median household income
80
70
Couple, two children³
Single, no children
In per cent of median household income
80
Lone parent, two children³
Relative poverty line
70
60
50
50
40
40
30
30
20
20
10
10
0
GRC
CHL
BUL
USA
HUN
SVK
ROM
CAN
PRT
POL
LTU
SVN
ISR
KOR
ESP
EST
LTV
NZL
AUS
FRA
BEL
NOR
DEU
AUT
LUX
CZE
MLT
ISL
SWE
FIN
CHE
GBR
DNK
NLD
IRL
JPN
60
0
1. The results from the OECD tax-benefit model are shown on an equivalised basis (square root of household size).
2. Income level includes all relevant cash benefits (such as social assistance) for a family with a working-age head, no ot
income sources and no entitlements to primary benefits such as unemployment insurance. However, it excludes in-kind
benefits such
as free healthcare . Benefits are net of any income taxes and social contributions.
3. Calculations for families with children assume two children aged 4 and 6 and do not include childcare benefits and61cost
Source: OECD, Tax-Benefit Models; Ministry of Health, Labour and Welfare.
Key recommendations
 Effectively implement Abenomicsʼ three arrows to revitalise Japan.
 Make reducing debt the top fiscal priority.
 Continue monetary expansion to durably raise inflation to the 2%
target.
 Boost economic growth through bold structural reforms.
•
Increase female employment by expanding childcare and breaking
down labour market dualism to reduce gender inequality.
•
Participate in high-level trade agreements, notably the TransPacific Partnership and a Japan-EU Economic Partnership
Agreement.
 Improve the targeting of public social spending and introduce an
earned income tax credit for low income workers.
62
Reduce income inequality and poverty
 Break down labour market dualism, thereby reducing wage
inequality.
 Introduce an earned income tax credit to assist those with low
incomes and promote work incentives.
 Improve social assistance by reducing the generosity of the Basic
Livelihood Protection Programme and expanding its coverage.
63
More information…
www.oecd.org/eco/surveys/economic-survey-japan.htm
OECD Economics
OECD
Disclaimers:
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli
64
settlements in the West Bank under the terms of international law.
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