Front Matter

Front Matter Page

IMF Country Report No. 16/268

JAPAN

SELECTED ISSUES

August 2016

This Selected Issues paper on Japan was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on July 13, 2016.

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Front Matter Page

JAPAN

SELECTED ISSUES

July 13, 2016

Approved By

Asia and Pacific Department

Prepared By Elif Arbatli, Dennis Botman, Yihan Liu, Ikuo Saito, and Niklas Westelius (all APD), George Kopits (APD/FAD Visiting Scholar), Vitor Gaspar and Constant Lonkeng Ngouana (both FAD), Chie Aoyagi, Giovanni Ganelli, Naoko Miake, and Nour Tawk (all OAP), Pietro Cova, Xavier Debrun, Zoltan Jakab, Douglas Laxton, Joannes Mongardini, Hui Tong, and Hou Wang (all RES), and Fei Han (MCM)

Contents

  • EXECUTIVE SUMMARY

  • SUMMARY OF STAFF RESEACH SINCE 2010

  • A. Potential Growth

  • B. Labor Market Dynamics

  • C. Drivers of Private Investment

  • D. Monetary Policy

  • E. Fiscal Policy

  • F. The Financial Sector

  • G. Spillovers

  • REFERENCES

  • LABOR MARKET AND WAGE DEVELOPMENTS

  • A. Introduction

  • B. The Rise of Non-Regular Employment

  • C. Sluggish Wage Growth

  • D. Conclusions

  • BOX

  • 1. Wage Setting in Japan

  • FIGURES

  • 1. Labor Market Indicators

  • 2. Beveridge Curve and Structural Unemployment

  • 3. Wage Developments

  • 4. Sectoral Composition of Growth and Employment

  • 5. Part-time Employment

  • 6. Labor Force Participation

  • REFERENCES

  • MININUM WAGES AS A POLICY TOOL

  • A. Introduction

  • B. Empirical Strategy and Results

  • C. Policy Implications

  • TABLE

  • 1. Wage Determinants in Japan (Prefectural Panel), Regression Results Using Instrumental Variables (hourly) in Logs

  • IMPACT OF DEMOGRAPHICS ON GROWTH AND INFLATION IN JAPAN

  • A. Introduction

  • B. Data and Empirical Methodology

  • C. Results

  • D. Conclusions and Policy Implications

  • FIGURES

  • 1. Demographic and Macroeconomic Comparison of G7 Countries

  • 2. Impact of Aging and Population Growth on Japan’s Labor Force

  • TABLES

  • 1. Panel Regression on Labor Productivity, Aging and Population Size

  • 2. Panel Regression on Inflation, Aging and Population Growth

  • REFERENCES

  • QQES IMPACT ON FINANCING CONDITIONS OF LISTED FIRMS

  • A. Background

  • B. Methodology and Results

  • C. Conclusion

  • FIGURES

  • 1. Change of Total Debt from 2013 to 2015 (%)(by pre-QQE Financial Constraints)

  • 2. Change of Total Debt from 2013 to 2015 (%)(by Domestic and multinational firms)

  • REFERENCES

  • NEGATIVE INTEREST RATE POLICY AND BANK DEPOSIT RATE

  • A. Background

  • B. Results

  • C. Conclusions

  • FIGURES

  • 1. Deposit Rates by Type

  • 2: Relative Standard Deviation of Bank Rates for 5-year Large Deposits

  • TABLE

  • 1. Change of 5-year Rate for Large Feposits (12/5/15–5/21/16)

  • IS HOME BIAS WEAKENING?

  • A. Introduction

  • B. Empirical Analysis and Results

  • C. Conclusions and Policy Implications

  • FIGURES

  • 1a. Residents’ Holdings of Domestic Sovereign Debt

  • 1b. 10-Year Local-Currency Government Bond Yields

  • 2a. Financial Institutions’ Holdings of JGBs

  • 2b. Financial Institutions’ Holdings of Foreign Securities

  • 3a. Home Bias in Debt Securities

  • 3b. Home Bias and Holdings of Domestic Sovereign Debt

  • 4. Decomposition of Home Bias

  • 5. Year Effects and Global Risk Aversion

  • TABLE

  • 1. Panel Estimates of Determinants of Home Bias

  • REFERENCES

  • FADING RICARDIAN EQUIVALENCE IN AGEING JAPAN

  • A. Background

  • B. Myopia and Liquidity Constraints

  • C. Policy Implications

  • D. Conclusions

  • REFERENCES

  • ECONOMIC POLICY UNCERTAINTY

  • A. Background

  • B. Measuring Economic Policy Uncertainty

  • C. Economic Impact of Policy Uncertainty

  • D. Conclusions and Policy Implications

  • FIGURES

  • 1. Economic Policy Uncertainty Index

  • 2. VAR Results: Impulse Responses to EPU Shock

  • TABLES

  • 1. Economic Policy Uncertainty Keywords

  • 2. Correlation of Japan EPU Index with Other Measures of Economic Uncertainty

  • 3. Aggregate Investment Equation Estimates

  • REFERENCES

  • AN INDEPENDENT FISCAL INSTITUTION FOR JAPAN

  • A. Background

  • B. International Experience

  • C. The Case for an IFI in Japan

  • D. Design Options for Japan

  • E. Conclusions

  • TABLES

  • 1. Advanced Economies: Statutes and Structure of Independent Fiscal Institutions

  • 2. Advanced Economies: Functions of Independent Fiscal Institutions

  • REFERENCES

  • REFLATING JAPAN: TIME TO GET UNCONVENTIONAL?

  • A. Introduction

  • B. Methodology

  • C. Assumptions for Simulating the Three Arrows Plus Policy Package

  • D. Assumptions for Simulating Krugman’s Irresponsible Fiscal and Monetary Policy

  • E. Assumptions for Simulating Svensson’s Foolproof Way

  • F. Assumptions for Simulating Turner’s Monetization of the Deficit

  • G. Three Arrows Plus Package

  • H. Krugman’s Irresponsible Fiscal and Monetary Policy

  • I. Svensson’s Foolproof Way

  • J. Turner’s Monetization of the Deficit Scenario

  • K. Conclusions and Policy Implications

  • FIGURES

  • 1. Simulations of the Three Arrows Plus Package

  • 2. Simulations of Krugman’s Irresponsible Fiscal and Monetary Policy

  • 3. Simulations of Svensson’s Foolproof Way

  • 4. Simulations of Turner’s Monetization of the Deficit

  • TABLES

  • 1. Assumptions for Simulating the Three Arrows Plus Policy Package

  • 2. Assumptions for Simulating Krugman’s Irresponsible Fiscal and Monetary Policy

  • 3. Assumptions for Simulating Svensson's Foolproof Way

  • 4. Assumptions for Simulating Turner's Monetization of the Deficit

  • REFERENCES