Front Matter Page
© 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.
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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