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The following OECD assessment and recommendations summarise chapter 1 of the Economic survey of Japan published on 7 April 2008.
The expansion that began in 2002 remains on track despite slower growth in 2007…
The economic expansion, the longest in Japan’s post-war history, continued through 2007, although at a slower pace of around 2%. This protracted upturn has reversed a decade of economic stagnation that reduced Japan’s rank in per capita income from the fifth highest in the OECD area in 1992 to nineteenth in 2002. Business investment and exports have been the main drivers of growth, accounting for about three-quarters of increased output since 2002. Corporate restructuring to reduce excessive levels of debt, production capacity and employment laid the foundation for a rebound in business investment, while buoyant export growth boosted corporate profitability and demand for additional capacity. Closer trade links with Asia, which now accounts for one-half of Japanese exports, have sustained export growth during this expansion. In 2007, exports expanded almost 9% despite weak demand from the United States. With exports growing strongly and corporate profits at record levels, the expansion is projected to continue through 2009, with growth rates of between 1½ and 2%.
Japan's rebound from a decade of economic stagnation
1. The second preliminary estimate of GDP in the fourth quarter of 2007, which was made on 12 March 2008 – after the publication of Economic Outlook No. 82 -- was included in the data for 2007.
2. OECD estimate for the OECD average in 2007.
3. Including public corporations.
4. Contribution to GDP growth.
Source: OECD, OECD Economic Outlook, No. 82 (December 2007), OECD, Paris.
… and the uneven nature of the economic upturn…
Uncertainty about the world economy in the context of increased turbulence in international financial markets since mid 2007, coupled with the uneven pattern of growth in Japan, pose risks to continued growth. In contrast to buoyant exports and business investment, other components of domestic demand have decelerated since 2005. While strong export growth has favoured manufacturing, the non-manufacturing sector, which is more dependent on domestic demand, has been lagging in terms of profitability, confidence, investment and wage growth. With 90% of small and medium-sized enterprises in the non-manufacturing sector, the unbalanced recovery has also created a significant gap between large and small firms. In addition, regional inequality has increased, as areas specialising in manufacturing have benefited the most from this expansion. A more balanced economic expansion, with stronger growth in services, would ease these disparities.
… in part due to falling construction activity and wages
Domestic demand has been further weakened by the disruption of construction activity after the revision of the Building Standards Law in June 2007, which resulted in a 40% drop in housing and corporate construction starts in the third quarter of the year. In addition, a 0.7% decline in wages during 2007, which reduced labour’s share of national income to its lowest point since 1990, has limited private consumption. The persistent weakness of wages despite the marked fall in the unemployment rate is due in part to structural factors, notably the increasing portion of lower-paid non-regular workers in the labour force. Given weak domestic demand and falling wages, deflation continues with the core consumer price index (excluding food and energy) declining by about 0.2% in 2007, the ninth consecutive annual decline. The fall in the price deflators for GDP and private consumption was larger at around ½ per cent.
Wage growth has turned negative
Year-on-year percentage change
Source: Ministry of Health, Labour and Welfare, Monthly Labour Survey.
Most indicators of inflation remained negative through the end of 2007
Year-on-year percentage change
1. Japanese definition of core CPI excludes fresh food only.
2. OECD definition of core CPI excludes food and energy products.
Source: OECD, OECD Economic Outlook, No. 82 Database, OECD, Paris: Ministry of Internal Affairs and Communications; and Cabinet Office.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English and in Japanese. It contains the OECD assessment and recommendations.
The complete edition of the Economic survey of Japan 2008 is available from:
For further information please contact the Japan/Korea Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Randall S. Jones, Masahiko Tsutsumi and Taesik Yoon under the supervision of Stefano Scarpetta. Research assistance was provided by Lutécia Daniel.