The Japanese economy is vulnerable to external and domestic shocks. The new government has made a commitment to turn the fiscal situation around. The new policy framework provides the Bank of Japan with the scope to ease the policy stance. A deteriorating macroeconomic environment has exposed underlying structural problems in the banking sector. Over the past year, Japan maintained its traditional emphasis on pursuing further trade liberalization through the World Trade Organization (WTO) framework, while at the same time initiating talks on bilateral free trade agreements.

Abstract

The Japanese economy is vulnerable to external and domestic shocks. The new government has made a commitment to turn the fiscal situation around. The new policy framework provides the Bank of Japan with the scope to ease the policy stance. A deteriorating macroeconomic environment has exposed underlying structural problems in the banking sector. Over the past year, Japan maintained its traditional emphasis on pursuing further trade liberalization through the World Trade Organization (WTO) framework, while at the same time initiating talks on bilateral free trade agreements.

Table 1. Japan: Selected Economic Indicators, 1994–2002

Population: 126.9 million (2000)

GDP per capita: US$37,470 (2000)

Quota: SDR 8,241.5 million

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Sources: Nikkei Telecom; and staff estimates and projections as of July 3, 2001.

Contribution to GDP growth.

Including social security, excluding bank support.

Based on normalized unit labor costs; 1990=100.

June 2001.

May 2001.

April 2001.

July 18, 2001.

I. Real and External Sector Developments1

1. The legacy of the collapse of the asset price bubble and the failure of the bank and corporate sectors to reduce the excess debt and capital built-up during the 1980s continue to weigh on the Japanese economy and make it vulnerable to external and domestic shocks. These vulnerabilities have been clearly evident in recent years as the economy has failed to turn temporary upturns into longer periods of self-sustaining growth. For example, the recovery in 1996 gave way to a severe downturn in 1998—with real GDP declining by 1 percent—as the government withdrew fiscal stimulus, concerns about the health of the banking system following the closure of three financial institutions hurt confidence, and the Asia financial crisis adversely impacted external demand. Following the moderate recovery that began in 1999, the economy has again stumbled since the middle of 2000 as the downturn in the world economy and the global electronics market undermined exports and investment. With real GDP contracting in the first quarter of 2001, there is again considerable concern about the short-term outlook for the Japanese economy.

2. This chapter discusses economic developments since 1999. It emphasizes that the recovery from the 1998 recession was unbalanced, initially being based on a large fiscal stimulus and subsequently on the strength of the global economy and the booming world electronics market. The failure of domestically-driven private demand, particularly consumption, which accounts for over 50 percent of GDP, to support growth has meant that the economy faltered as the positive impact of these factors dissipated. Consequently, until the factors that are currently constraining private expenditure—including uncertainty about bank and corporate restructuring and questions about long-term fiscal sustainability—are decisively dealt with, a self-sustaining recovery is likely to continue to prove elusive.

A. Real Sector Developments in 1999

3. A strong expansion of public sector demand underpinned a modest economic recovery during 1999. Following the 1998 recession, real GDP grew by ¾ of a percent in 1999, while the all-industries production index—the best supply-side proxy for real GDP—increased by 1 percent. A return to an expansionary fiscal stance resulted in public consumption and investment growing strongly, by 4 percent and 6 percent, respectively, with public demand contributing 1 percentage point to GDP growth (Figure I.1). However, private demand continued to subtract from growth. Private consumption rebounded modestly as consumer confidence improved following official intervention to address the problems in the financial sector, but this was offset by a further decline in business investment and stockbuilding (Figures I.2 and I.3). The contribution from the external sector also turned negative as exports continued to be affected by the aftermath of the Asia financial crisis, but imports picked-up with the domestic recovery and the continued rise in import penetration of Japanese markets.

Figure I.1.
Figure I.1.

Japan: Gross Domestic Product at 1995 Prices, 1990–2001

Citation: IMF Staff Country Reports 2001, 221; 10.5089/9781451820621.002.A001

Sources: Nikkei Telecom; and WEFA.
Figure I.2.
Figure I.2.

Japan: Trends in Private Consumption

Citation: IMF Staff Country Reports 2001, 221; 10.5089/9781451820621.002.A001

Sources: Nikkei Telecom; and WEFA, Nomura Database.
Figure I.3.
Figure I.3.

Japan: Indicators of Business Activity and Investment, 1990–2001

Citation: IMF Staff Country Reports 2001, 221; 10.5089/9781451820621.002.A001

Sources: Nikkei Telecom; and WEFA, Nomura Database.1/ TSE stock market value in percent of GDP.

4. Growth, however, was largely concentrated in the first half of the year (Table I.1). The fiscal stimulus packages of ¥17 trillion in April 1998 and ¥24 trillion in November 1998 had a particularly large impact in the first half of 1999. Public investment grew by 12 percent relative to the second half of 1998, and residential investment also increased robustly, rising by 3¼ percent, in response to the increase in tax credits for housing loans introduced in the FY1999 budget (Figure I.4). However, private consumption remained subdued, while business investment and net exports declined.

Table I.1.

Components of Real GDP

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Source: Data provided by the Japanese authorities.
Figure I.4.
Figure I.4.

Japan: Residential Investment and Inventory Investment, 1990–2001

Citation: IMF Staff Country Reports 2001, 221; 10.5089/9781451820621.002.A001

Sources: Nikkei Telecom; WEFA, Nomura Database; and staff estimates.

5. As the impact of the large fiscal stimulus waned in the second half of the year, the economy stalled. As has been the case in recent years, public investment fell sharply in the third quarter of 1999—by 12¾ percent and residential investment also slowed as the initial surge in demand following the introduction of the tax incentives eased. However, at the same time, there were signs of a pick-up in other components of private demand. As corporate profits rebounded, business investment began to recover in the third quarter, and surged by 2½ percent (quarterly rate) in the fourth quarter. Private consumption also rose modestly in the second half of 1999 despite a large, and difficult to explain, 3¼ percent (quarterly rate) slump in the fourth quarter (other indicators of consumption—such as shipments of consumer goods for domestic use, sales at large retail stores, and registrations of new passenger vehicles—did not suggest a large decline, raising the possibility that consumption may have been under-recorded in the national accounts). Further, with the lagged impact of the weakening of the yen during 1998 and the strengthening of the world economy resulting in a considerable acceleration in export growth, the contribution from the external sector turned positive in the second half of the year, despite some acceleration in import growth in the fourth quarter as preparations were made for potential supply disruptions over the new year period.

B. Real Sector Developments in 2000 and 2001

6. On the back of the buoyant world economy and global electronics market, the economy strengthened in early 2000, and for the year as a whole real GDP grew by 1½ percent. Again, however, growth was not broad-based, with the principal drivers being business investment (¾ percentage point contribution) and net exports (½ percentage point contribution), while the other components of demand made small or zero contributions.

7. Growth was again concentrated in the first half of the year. With the growth of the global electronics market peaking at around 50 percent (y/y in nominal terms) in the second quarter of 2000, demand for electrical machinery products grew strongly and underpinned robust export growth. Further, as the stocks that had accumulated in late 1999 were wound down, import growth was subdued, and consequently net exports contributed significantly to growth. Business investment also strengthened further—which had been foreshadowed by the sharp acceleration in machinery orders during the second half of 1999—underpinned by robust corporate profit growth. A rebound in private consumption in the first quarter, following its fourth quarter slump, and the impact of the fiscal stimulus from the November 1999 supplementary budget also added to the growth momentum. For the year as a whole, however, public investment declined by 7¼ percent, as the central government package was considerably smaller than in 1998, while the local governments increasingly cut back their spending in an attempt to strengthen their finances (even with this decline, the ratio of public sector investment-to-GDP remained at over 7 percent, considerably higher than the 2–3 percent rates in the United States and Germany).

8. In this environment, industrial production expanded rapidly, with growth peaking at 8¾ percent (12-month rate) in August 2000 (Figure I.5). Industrial shipments for exports were particularly strong, rising by 11½ percent (4-quarter rate) in the second quarter of 2000. However, the strong production growth was largely attributable to the very rapid growth in the electrical machinery (22½ percent, 12-month rate) and industrial machinery sectors (14¼ percent, 12-month rate) (see Box I.1 for details of the role of the IT sector in recent years). However, highlighting the narrow base of the expansion, many other sectors—particularly chemicals, transportation equipment, and food and tobacco—performed poorly. The expansion also did not spread to the same extent in the tertiary sector, and consequently growth of the all-industries production index peaked at a much lower rate—of 3¾ percent in mid-2000.

Figure I.5.
Figure I.5.

Japan: All Industry Activity Index

Citation: IMF Staff Country Reports 2001, 221; 10.5089/9781451820621.002.A001

Source: CEIC database.

The Impact of the IT Sector on Recent Economic Developments

The information technology (IT) sector contributed significantly to growth during 2000. As the global electronics market strengthened during the first half of 2000, IT related production, exports, and investment all surged (Figure I.6). Growth in IT-related exports hit 50 percent (y/y) and IT-related production 25 percent (y/y) during the first half of 2000, and at their peak contributed around one-third and nearly one-half of the increase in overall exports and industrial production respectively. Orders for IT-related investment goods and new job offers in the IT-sector also surged. While, a less disaggregated breakdown is available for investment itself, the MOF corporate survey indicates that investment by the electrical machinery sector—a broad proxy for IT products—has also grown strongly, contributing around one-third of total investment during 2000.

However, growth in the IT-sector has slowed sharply since the third quarter of 2000. IT-related exports fell by 25 percent (y/y) in April 2001 and IT production by 12 percent (y/y), contributing significantly to the slowdown in aggregate exports and production. Likewise, new orders and job offers have slowed, although actual investment by the electrical machinery sector remained around 30 percent (y/y) in the first quarter of 2001.

Figure I.6.
Figure I.6.

Japan: Information Technology Indicators, 1997–2001 1/

Citation: IMF Staff Country Reports 2001, 221; 10.5089/9781451820621.002.A001

Sources: Ministry of Economy, Trade and Industry; Cabinet Office; and Ministry of Finance, Japan Tariff Association.1/ Customs clearance basis; in U.S. dollar terms.

9. However, the economy began to stall from the middle of the year as the external environment deteriorated, and activity turned down quite sharply at the beginning of 2001. Export growth slowed with the deterioration in the external environment—and the demand for IT-related products in particular—and the lagged impact of the appreciation of the yen during 1999. Import growth continued through the second half of 2000, before turning down in early 2001, and the contribution of net exports to growth turned significantly negative from the third quarter of 2000.

10. Business investment initially remained robust, but has subsequently weakened. Despite evidence that the economy was slowing, business investment continued to expand quite strongly in the second half of 2000—particularly in the fourth quarter—as the electrical machinery sector spent heavily and there was a surge in investment in the retail sector as businesses pushed to finish stores ahead of new regulations governing store sitings. However, from the fourth quarter, evidence that this growth would not be sustained was mounting. New machinery orders eased, and then fell sharply in the first quarter of 2001, while the deterioration in business conditions was clearly evident in the sharp slowing of corporate profits—according to the MoF Corporate Survey, profit growth declined to zero (y/y) in the first quarter, from 32 percent (y/y) growth in the previous quarter—and in the results of the March and June 2001 Tankan surveys. Business investment declined by 1 percent in the first quarter of 2001. Although investment in the manufacturing sector remained strong, led by the electrical machinery sector and new strength in transportation, this was more than offset by weaker spending in the nonmanufacturing sector, partly in response to the investment in the retail sector that had been brought forward into the fourth quarter.

11. Uncertainties about bank and corporate restructuring and their implications for job prospects, together with questions about the long-term fiscal situation, may have exacerbated the adverse impact of external developments on consumer confidence. Private consumption weakened during the second half of 2000 as households saved an increasing proportion of their income in light of the rising economic uncertainties, while monthly earnings also fell (see discussion in paragraph 17). Private consumption remained flat in the first quarter of 2001 despite a boost to purchases of consumer durables ahead of the introduction of a new recycling law on April 1, 2001 (which requires the payment of a disposal fee on the purchase of new household appliances). During this period, public investment continued to fluctuate widely, being sharply negative in the third quarter of 2000 as the impact of the November 1999 supplementary budget waned, but contributing strongly in the first quarter of 2001 as the measures in the November 2000 supplementary budget began to take effect.

C. The Output Gap and Prices

12. The output gap has widened since the middle of 2000 as growth has slowed. Staff estimates from a Cobb–Douglas production function suggest that potential growth in Japan is currently around 1½ percent, although given the ongoing structural change in the economy there is considerable uncertainty around this estimate.2 Consequently, despite the return to growth in 1999, the output gap is estimated to have widened to around 3 percent (i.e. output was 3 percent below potential) (Figure I.7). After narrowing slightly in the first half of 2000, the gap has again widened, and is estimated at around 4 percent in the first quarter of 2001.

Figure I.7.
Figure I.7.

Japan: Output Gap and Prices, 1990–2001 1/

Citation: IMF Staff Country Reports 2001, 221; 10.5089/9781451820621.002.A001

Sources: Nikkei Telecom; and WEFA.1/ Seasonally adjusted data.

13. Deflationary pressures have continued. Having stabilized during the second half of 1999, the consumer price index excluding fresh food, fuel, water, and light—a measure of underlying prices—resumed its decline in early 2000, and is currently falling by ½–¾ percent year-on-year (Figure I.7). Wholesale prices of domestic products have shown a similar recent trend. On the other hand, the headline CPI and WPI indices have been boosted by energy price developments and yen depreciation. In recent months, the CPI has declined by ½ percent year-on-year, while wholesale prices have risen by around 1 percent year-on-year.3 Lastly, a large jump in the GDP deflator in the first quarter of 2001 resulted in the decline in this index moderating to 1¼ percent year-on-year, compared to the 1½–1¾ percent declines during 2000.

14. In addition to the weak demand environment, a number of other factors may have contributed to deflation in Japan in recent years. Nagaoka (2000) found that there was a sizable departure from the historic Phillips curve relationship (using the core CPI) during 1998 and 1999. While it is difficult to disentangle the impact of demand and supply shocks on the price level, the Bank of Japan believes that in recent years the impact of deregulation and the streamlining of distribution channels in the retail sector have, in addition to the weak demand environment, contributed to price declines (see Bank of Japan, 2001).

D. The Labor Market

15. The impact of the slowing economy is also evident in the labor market. Overtime hours, which had increased quite strongly between early 1999 and mid-2000, particularly in the manufacturing sector, began to decline in late 2000 as firms responded to slowing exports and shipments. Employment, which had actually continued to decline in the first half of 2000, rose modestly during the second half of the year, but has begun to fall again in recent months, while the ratio of job offers to applicants has also turned down (Figure I.8). In terms of sectoral composition, employment in the construction sector has declined quite sharply over the past two years, that in the services sector has continued the trend increase evident during the 1990s, while in the manufacturing sector, employment levels have stabilized.

Figure I.8.
Figure I.8.

Japan: Labor Market Conditions, 1990–2001

Citation: IMF Staff Country Reports 2001, 221; 10.5089/9781451820621.002.A001

Sources: Nikkai Telecom; and WEFA.

16. However, the unemployment rate has yet to be significantly affected. The unemployment rate, which had risen from 3½ percent to 4½ percent during the 1998 recession, has risen only modestly further, and has fluctuated around 4¾ percent over the past two years. Official estimates (by the Ministry of Health, Labour, and Welfare) suggest that the structural unemployment rate is around 3½–4 percent (compared to around 2 percent in the early 1990s), implying that a modest amount of this unemployment is due to cyclical factors. Evidence of an increased structural mismatch in the labor market is also evident in the outward movement of the Beveridge curve since the mid-1990s.4 The unemployment and vacancy rates have both risen at the same time suggesting that people who are losing their jobs do not have the skills that new employers are seeking.

17. A modest recovery in wages has recently faltered. Monthly earnings grew by a modest ½ percent in 2000 (1½ percent in real terms), after declining by 3¼ percent in 1999. The recovery in earnings was due to some pick-up in scheduled earnings, an increase in overtime pay as more overtime hours were worked, and a smaller decline in bonus payments (which are tied to past corporate profits) than had occurred in 1999. However, most recently earnings growth has faded as firms have cut back overtime in line with production.

E. External Sector Developments

18. Developments in the current account over the past two years have been dominated by the global electronics cycle, increased import penetration in domestic markets, and the rise in international oil prices. Export volumes (customs-clearance basis), which had recovered modestly in 1999 as the impact of the Asia financial crisis waned, grew by 9¼ percent in 2000 as the strong growth in the world economy and the buoyant global electronics market underpinned demand for Japanese products in the first half of the year (Figure I.9). However, as the positive impact of these factors dissipated in the second half, export volumes declined, and fell by a particularly sharp 3¼ percent in the first quarter of 2001. Import volumes grew strongly—by 9½ percent in 1999 and 11 percent in 2000—partly due to the recovery of the domestic economy from the 1998 recession, but also because of a considerable rise in import penetration as businesses, particularly in the retail sector, increasingly sourced high-quality, low-cost goods from overseas. Again, however, import growth has more recently eased as the domestic economy has slowed. After improving in 1999, the terms of trade deteriorated substantially during 2000 as import prices (in dollar terms) rose by 10¼ percent as a result of the sharp rise in international oil prices. As a result of these developments, the trade surplus narrowed from 3 percent of GDP in 1998 to 2½ percent of GDP in 2000, and, to around 2 percent of GDP in the first quarter of 2001. With the invisibles account in broad balance, the current account surplus also narrowed from 3 percent of GDP in 1998 to 2½ percent of GDP in 2000, although a strong increase in investment income meant that the current account surplus remained at 2½ percent of GDP in the first quarter of 2001.

Figure I.9.
Figure I.9.

Japan: External Sector Developments, 1990–2001

Citation: IMF Staff Country Reports 2001, 221; 10.5089/9781451820621.002.A001

Sources: Nikkei Telecom; WEFA, Nomura Database; and staff estimates.

19. Japanese trade with Asia expanded strongly during 2000. Exports to Asia grew by 28½ percent (U.S. dollar terms) during 2000, while imports from these countries rose by 29 percent (U.S. dollar terms). This compares to the more modest growth in trade with the U.S. and Europe. Around 40 percent of Japanese exports currently go to Asia, which is now the largest destination for Japanese exports, with Taiwan POC, Korea, and China being the most important countries in the region.5 Some 40 percent of imports are also now sourced from Asian countries. Imports from China, in particular, have shown remarkable growth in recent years, and their share has risen to 14½ percent of the total.

20. In the financial account, net FDI and portfolio outflows both increased during 2000. Net FDI outflows increased to $23.4 billion (½ percent of GDP) in 2000 from only $10 billion in 1999. Japanese FDI abroad increased with new investments concentrated in the U.S. and U.K., while flows to Asia, which have declined substantially in recent years, remained weak. Direct investment in Japan declined slightly to $8 billion in 2000, although this was due to the withdrawals of investment in two large companies as new investments actually reached a record level. While net portfolio outflows increased to $37 billion in 2000, from $25.6 billion in 1999, gross flows declined substantially. On the asset side, Japanese investment abroad was about half of that in 1999 as investments in bonds and money market instruments declined, while foreign portfolio investments in Japan fell from $143 billion in 1999 to $49 billion in 2000 as a large inflow into equities turned into a small outflow. Reserves increased by close to $50 billion in 2000 to stand at $362 billion (9.8 months of imports of goods and services).

F. Statistical Issues

21. The assessment of economic developments in Japan has been complicated by statistical weaknesses. As documented in last year’s Economic and Policy Developments paper, the national accounts statistics have been very volatile over the past decade.6 Concerns about the quality of the national accounts data resulted in the establishment of a working group of statisticians in April 2000 to recommend improvements to the methodology.

22. In October 2000, revised national account statistics were published which have addressed a number of the shortcomings in the earlier data. The new statistics, which are only available back to 1980, were compiled under the System of National Accounts 1993 (SNA93) methodology. The major changes to the expenditure side data are: the inclusion of computer software in capital formation (and the capital stock); the inclusion of consumption of fixed capital of government-owned assets in public consumption; and the transfer of medical expenses insured by the government from private to public consumption. A new seasonal adjustment methodology has also been adopted with the introduction of the X12-ARIMA procedure which adjusts for the effects of differences in the number of trading days and the presence of leap-years when calculating seasonal factors, while the “Income and Expenditure Survey for One-Person Households” is now being used in the estimation of private consumption.

23. The new statistics raised the estimated level of nominal GDP by around 2½ percent. The inclusion of software investment and public capital depreciation each added about 1 percent to the level of real GDP, while the composition of real GDP has also changed with the share of public consumption rising by around 5½ percentage points (to 15 percent) and private consumption declining from around 60 percent to 55 percent. In turn, these revisions raised the estimated level of potential GDP, but have done little to change estimates of the output gap.

24. More recently, a new estimation method for public investment has been introduced (from the March 2001 quarter) to improve the quality of the data in the preliminary quarterly estimates. Previously, the March quarter data was estimated as the difference between the preliminary fiscal-year figure and the sum of public investment in the preceding three quarters. Under the new methodology, construction statistics as well as preliminary fiscal year data estimated by more accurate fiscal information are used to estimate the March quarter data, with the preceding three quarters’ figures being retroactively revised as needed.

25. Despite the methodological improvements, the volatility of real GDP remains high. The coefficient of variation of real GDP rose from 0.71 during 1981–1990 to 3.25 during 1991–2000 under the new methodology, (this compares to 3.75 for the period 1991–99 under the old methodology) while for private consumption it rose from 0.8 to 3.83 (Figure I.10). While part of this is attributable to the way policies have been formulated and implemented, technical factors relating to the measurement of the national account statistics have also been responsible. By comparison, the coefficient of variation of real GDP in Germany during 1991–2000 was 1.75 and in the U.S. 0.58.

Figure I.10.
Figure I.10.

Japan: Growth and Volatility Comparisons

Citation: IMF Staff Country Reports 2001, 221; 10.5089/9781451820621.002.A001

Sources: IMF, CEI Database; Nikkei Telecom; and staff calculations.

26. Since the beginning of 1999, growth has been negative in four of the nine quarters despite the fact that the economy expanded in both 1999 and 2000. However, movements in real GDP have sometimes been at odds with other statistical indicators. For example, as noted above, the sharp drop in private consumption in the fourth quarter of 1999 and the subsequent rebound in the first quarter of 2000 do not appear consistent with other indicators of consumption. The national accounts statistics also give a somewhat confusing picture of developments in the second half of 2000—showing the economy contracted in the third quarter and then expanded in the fourth quarter—and the overall picture of a moderate decline in activity relative to the first half of the year sits at odds with the continued growth in the all-industries production index. Again in the first quarter of 2001, real GDP declined while the all-industries production index recorded growth of ½ percent, due to strength in the tertiary sector, and the sharp increase in the GDP deflator in the quarter raises the possibility that real expenditures have been underreported.

27. One of the primary weaknesses of the quarterly national accounts data is that the household surveys on which the estimates of private consumption are based are small. The Family Income and Expenditure Survey (FIES) has a sample of 8,000 who are surveyed on a rolling six month period (with one-sixth of the survey changing each month). The relatively small size of the sample leads to volatility, particularly in “lumpy” expenditure items such as consumer durables. Meanwhile, the survey of one-person households has a sample of only 750 and is conducted on a rolling three month basis. Again, the small sample size leads to considerable volatility in the data. To improve the quality of the data, a new survey will be introduced in October 2001 which will sample the expenditure of 30,000 households on specific durable consumption goods.

28. A number of other factors also reduce the usefulness of the national accounts statistics:

  • Timeliness of the data. The national accounts data are generally published two months and ten days after the end of the quarter. The main impediment to the more timely release of the data is the Corporate Survey (published by the Ministry of Finance) which is the main input into the business investment data and is generally released two months and seven days after the end of the quarter.

  • Coverage of computer software remains limited. Only “order-made” software is currently included in business investment, while software packages and in-house developed software are not included as capital formation because of a lack of information.

  • Investment deflator. There are some doubts about whether the index of computer prices in the WPI (which is also used in the construction of the investment deflator) is adequately capturing the decline in quality-adjusted prices, which may be leading to an understatement of real investment expenditures.

  • Lack of quarterly income and production side data. Data limitations mean that only expenditure side statistics and compensation of employees are calculated on a quarterly basis.

References

  • Bank of Japan, 2001, “Price Developments in Japan: A Review Focusing on the 1990s,Bank of Japan Quarterly Bulletin, May 2001.

  • Bayoumi, T., 1999, “Where Are We Going? The Output Gap and Potential Growth,” in T. Bayoumi, and C. Bayoumi, and Post-Bubble Blues: How Japan Responded to Asset Price Collapse.

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  • Callen, T. and W. McKibbin, 2001, “Japan and Asia: Policies and Prospects,” in the accompanying Selected Issues volume.

  • Callen, T. and T. Nagaoka, 2001, “Structural Reforms, Information Technology, and Medium-Term Growth Prospects,” in the accompanying Selected Issues volume.

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  • Morsink, J., R. Ramaswamy, M. Mühleisen, and T. Nagaoka, 2000, Japan: Economic and Policy Developments, IMF Staff Country Report No.00/143, November.

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  • Nagaoka, T., 2000, “Japan: The Unemployment Deflation Puzzle,Japan: Selected Issues, IMF Staff Country Report No. 00/144.

  • Shiratsuka, S., 1999, “Measurement Errors in Japanese Consumer Price Index,IMES Discussion Paper, Institute for Monetary and Economic Studies, Bank of Japan, No.99–E–23.

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1

Prepared by Tim Callen (ext. 38873).

2

See Bayoumi, 1999, for a detailed discussion on estimating potential growth and the output gap in Japan.

3

Measurement biases in the CPI are estimated to lead to an overstatement of inflation by around 1 percent (see Shiratsuka, 1999).

4

See Callen and Nagaoka, 2001, in the accompanying Selected Issues volume.

5

See Callen and McKibbin, 2001, for a discussion of the trade and financial links between Japan and Asia, and the implications of these links for the transmission of shocks within the region.

6

See Japan: Economic and Policy Developments, IMF Staff Country Report No. 00/143, November 2000.

Japan: Economic and Policy Developments
Author: International Monetary Fund