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© 1998 International Monetary Fund

October 1998

IMF Staff Country Report No. 98/113

Japan: Selected Issues

This Selected Issues report on Japan was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with this member country. As such, the views expressed in this document are those of the staff team and do not necessarily reflect the views of the Government of Japan or the Executive Board of the IMF.

Copies of this report are available to the public from

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Front Matter Page

INTERNATIONAL MONETARY FUND

JAPAN

Selected Issues

Prepared by T. Bayoumi, C. Towe, J. Morsink, and I. Oishi (all APD), and J. Levy (RES)

Approved by the Asia and Pacific Department

October 1, 1998

Contents

  • Selected Economic Indicators, 1992–97

  • I. Macroeconomic Developments and Prospects

    • A. Macroeconomic Developments

    • B. What Explains the Recent Weakness of Household Spending?

    • C. To What Extent Does the Recent Weakness Reflect Lower Potential Growth?

    • D. Economic Prospects in 1998

    • E. Medium-Term Prospects for the Saving-Investment Balance

  • Text Figures

    • I.1. The Collapse of the “Bubble” Economy

    • I.2. Public Investment

    • I.3. Japan’s Trade and the Regional Slowdown

    • I.4. Trade Developments, 1990–98

    • I.5. Contributions to Nonagricultural Employment Growth

    • I.6. Unemployment Rates

    • I.7 Part-Time Employment

    • I.8. Unemployment and Vacancy Rates, 1970–97

  • Charts

    • I.1. Gross Domestic Product at 1990 Prices, 1990–98

    • I.2. Consumption and Residential Investment Indicators, 1990–98

    • I.3. Indicators of Business Activity and Investment, 1980–98

    • I.4. External Balance and its Determinants, 1990–98

    • I.5. Indicators of Prices and Labor Market Conditions, 1990–98

    • I.6. Household Spending and Consumption Tax Hikes

    • I.7. Residential Investment and Consumption Tax Hikes

    • I.8. Predictions from Models

    • I.9. Total Factor Productivity, Hours, and Potential GDP

    • I.10. Alternative Measures of the Real Effective Exchange Rate, 1951–98

  • Text Tables

    • I.1. Growth of Real GDP and Demand Components, 1993–98

    • I.2. Current Account Summary, 1993–98

    • I.3. Capital and Financial Account Summary, 1993–98

  • II. Fiscal Policy Issues

    • A. Recent Developments

    • B. How Effective is Counter-Cyclical Fiscal Policy?

    • C. How Serious is Japan’s Fiscal Situation?

    • D. How Predictable is the Fiscal Stance?

    • E. The Tax System—Where is Reform Needed?

    • F. Public Investment: Sources of Inefficiency and Prospects for Reform

  • Text Boxes

    • II.1. The Fiscal Structural Reform Act

  • Text Figures

    • II.1. Marginal Product of Government Capital Stock

  • Charts

    • II.1. General Government Balance, FY1973–98

    • II.2. Public Investment Profile, 1990–1998

    • II.3. General Government Fiscal Indicators, FY 1984–98

    • II.4. Structural Balances

    • II.5. Comparative Indicators of General Government Fiscal Position, 1990–2003

    • II.6. Comparative Indicators of General Government Fiscal Position, Excluding Social Security, 1990–2003

    • II.7 International Comparison of Tax Revenue: National and Local Taxes

    • II.8. Public Investment Indicators, 1975–97

  • Text Tables

    • II.1. Summary of Economic Stimulus Packages, 1993–98

    • II.2. General Government Balances, FY1991–98

    • II.3. Central Government General Account Budget, FY 1994–98

    • II.4. Tax Receipts of the Central Government General Account, FY1994–98

    • II.5. Fiscal Investment and Loan Program (FILP), FY1994–98

    • II.6. International Comparison of National Income Taxes

    • II.7. Effective Corporate Tax Rates and Distribution of Firms

    • II.8. Number of Taxpayers, Total Employment Income, and Income Tax Payment by Income Bracket (1996)

    • II.9. Stratification of Corporations by Capitalization, 1995

  • III. Monetary Policy Issues

    • A. Recent Developments

    • B. Has There Been a Credit Crunch?

    • C. How Could Monetary Policy Further Support The Economy?

  • Text Figures

    • III.1. Official Interest Rates

    • III.2. Market Strains

    • III.3. Public Sector Loans to Business

    • III.4. Small- and Medium-Sized Enterprise Loans

  • Charts

    • III.1. Interest Rates, Money, and Credit, 1998–98

    • III.2. Indicators of Corporate Distress, 1980–98

    • III.3. Bank Loans, 1996–98

    • III.4. Private Market Interest Rate Developments, 1997–98

    • III.5. Indicators of Monetary and Financial Conditions, 1980–98

  • IV. Resolving Japan’s Banking System Problems

    • A. Origins of Banking System Weakness and the Emerging Policy Response

    • B. Recent Banking Developments

    • C. The Bad Loan Problem and Impediments to its Resolution

    • D. Use of Public Funds

    • E. Recent Initiatives to Help Debt Workouts

    • F. Changes in Bank Regulation and Supervision

    • G. Remaining Challenges and Risks

  • Text Boxes

    • IV.1. The Collapse of Hokkaido Takushoku Bank

    • IV.2. Resolution Agencies in Japan

    • IV.3. The Design and Operation of the Bridge Bank Scheme

  • Text Figures

    • IV.1 Profitability and Loan Loss Provisioning of Major Japanese Banks

  • Charts

    • IV.1. Banking Sector Indicators, 1990–98

  • Text Tables

    • IV.1. Structure of the Banking System, March 1998

    • IV.2. Capital Adequacy Ratios Under New and Old Accounting Standards for the Major 19 Banks

    • IV.3. Profit and Loss Accounts of the Major Banks, end-FY1997

    • IV.4. Japanese Bank Exposure to Asia

    • IV.5. Conditions for the Subscription of Capital Using Public Funds, March 1998

    • IV.6. Japan and the United States: Summary of Prompt Corrective Action Provisions

  • V. Financial Sector Reforms: Opportunities and Challenges

    • A. “Big Bang” Financial Liberalization

    • B. Government Financial Intermediation

    • C. New Supervisory Structure

    • D. Life Insurance Companies

    • E. Securities Firms

    • F. Corporate Pension System

  • Appendix

  • Charts

    • V.1. Postal Saving Deposits, 1987–98

  • Text Tables

    • V.1. Principal Assets of Life Insurance Companies and Banks, End-1997

    • V.2. Solvency Margins of Life Insurance Companies, End March 1998

  • VI. Governance, Deregulation, and Economic Performance

    • A. Weakness in Corporate Governance

    • B. Capital Market Inefficiencies

    • C. Employment Policies and Practices

    • D. Globalization, Deindustrialization, and the Manufacturing Sector

    • E. What are the Likely Benefits of Deregulation?

  • Appendix

  • Text Figures

    • VI.1. Rate of Return on Equity

    • VI.2. Industrial Country Saving/Investment Ratios

  • Charts

    • VI.1. Structural Comparisons Between Japan and the G-5

  • Text Tables

    • VI.1 Estimates of Sector Productivity and Regulatory Burden

    • VI.2. The Economic Benefits of Comprehensive Deregulation

  • VII. The Asia Crisis and Japan

    • A. Increasing Economic Integration Within the Asia Region

    • B. Spillover Effects Between Japan and East Asia

    • C. Quantifying the Spillover Effects

  • Appendix

  • Text Figures

    • VII.1. Share of Asia-5 in FDI Outflows

    • VII.2. Effective Exchange Rates, 1985–98

    • VII.3. Share of Exports to Asia-5

    • VII.4. Share of Imports from Asia-5

    • VII.5. Share of Japan in Asia-5’s Trade

    • VII.6. Nominal Effective Exchange Rates, 1995–98

  • Charts

    • VII.1. Composition of Trade with Asia-5

    • VII.2. Recent Trade Developments

  • Text Tables

    • VII.1. BIS-Area Bank Lending to Asia, 1993–97

    • VII.2. Asian Country Trade Growth, 1997Q1–1998Q2

    • VII.3. MULTIMOD Simulation Results

  • Collapse
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Japan: Selected Issues
Author:
International Monetary Fund