Arranged for GIC (Global Interdependence Center) Tokyo Conference
December 3rd, 2012
Bird’s Eye View of Japanese Lost Two Decades
Kozo Koide Chief Economist DIAM Co.,Ltd
The Process of the Birth of Bubble and the Burst of Bubble
Sun, Not Rising
Japan become No3 economy in the world – Nominal GDP became No3 by the calculation of IMF in 2010. – Negative GDP deflator since 1994, except 1997 with consumption tax hike.
Billion $
％
< GDP(Current Prices) >
20,000 18,000 16,000 14,000
< GDP Deflator (YoY) >
3.0
China Japan
2.5
US
1.5
2.0
Estimates Start After 2011
1.0
12,000
0.5
10,000
0.0
8,000
▲0.5
6,000
▲1.0
4,000
▲1.5
2,000
▲2.0
1
Source : CAO
DIAM Economic Research
Kozo Koide, Chief Economist DIAM
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source：IMF
1982
▲2.5
0
DIAM Economic Research
The Process of the Birth of Bubble and the Burst of Bubble
Aging Society w/ Mounting Government Debt
Aging has accelerated from mid-1990’s with growing government debt – Getting harder to pay down the debt in the future.
＜ Aging Population Ratio ＞
%
< Government Financial Liabilities (Net, % of Nominal GDP ） >
％
60
120
Japan
US
Japan
110
US
100
50
Aging Population Ratio: Age 65 and over / Age 15-64 population
90 80
40
70 60
30
50 40
20
30 20
10 UN estimate from CY2010
10
DIAM Economic Research
2
Source : OECD
Kozo Koide, Chief Economist DIAM
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
Source: UN
1992
0
0
DIAM Economic Research
The Process of the Birth of Bubble and the Burst of Bubble
Extreme & Sudden Appreciation of the Yen Plaza Accord (’85/9) : \/$ was appreciated almost 30% in a year – Effective Exchange Rate rose by 39% \／$
< \/$ Exchange Rate >
300 250
Plaza Accord
200 150 100 50
12.01
10.01
08.01
06.01
DIAM Economic Research
Source:BOJ
3
04.01
02.01
00.01
98.01
96.01
94.01
92.01
90.01
88.01
86.01
84.01
82.01
0 80.01
Kozo Koide, Chief Economist DIAM
The background of prolonged stagnation
Mistake in Macro Prudential Policy Monetary policy : Too late tightening in ’80’s & Too late easing in ’90’s – Delayed tightening : ∵ Black Monday, Accommodative stance vis-à-vis demand of cash, less independent BOJ (“Study of Life Boat Operation” (’89)) – Delayed easing : ∵ Public opinion (mood) to bash real estate bubble, lack of understanding about the impact caused by asset deflation < Monetary Policy >
YOY ％ 25
％ 20
Monetary Base (YoY) - BOJ Note Outstanding (YoY) ODR (RHS) O/N Call Rate (RHS)
20
18
15
16
Credit Control over Three Industries ('90/3 - '91/12)
10 5
14 12
D
B 0
10
▲5
8
▲10
6
A
▲15
4
Got into deflation ▲20
Black Monday
2
E
Failure of LTCB
C
F
G
4
Source:BOJ
(Monetary Base)nsa, before adjusting reserve requirement
Kozo Koide, Chief Economist DIAM
12.10
11.10
10.10
09.10
08.10
07.10
06.10
05.10
04.10
03.10
02.10
01.10
00.10
99.10
98.10
97.10
96.10
95.10
94.10
93.10
92.10
91.10
90.10
89.10
88.10
87.10
86.10
85.10
84.10
0
83.10
▲25
82.10
DIAM Economic Research
The background of prolonged stagnation
Mistake in Macro Prudential Policy
Let the asset bubble go not much care about excess liquidity – Marshallian k was elevated after Plaza Accord, when general inflation was tamed. – After the bubble burst, stock & real estate price became inelastic vis-à-vis excess liquidity, due to the balance sheet adjustment. – Impossible to push down real interest rate to be negative under deflation
100 50
▲1 ▲2.0 ▲2 ▲3.0
0
▲3 ▲4.0
5
99.06
98.09
97.12
97.03
96.06
95.09
94.12
94.03
93.06
92.09
91.12
91.03
90.06
89.09
88.12
88.03
87.06
86.09
85.12
85.03
Source : RI of Real Estate Economy, Nikkei, BOJ, CAO
DIAM Economic Research
Source：MIC,BOJ,BLS,FED,Eurostat,ECB
Kozo Koide, Chief Economist DIAM
12.01
▲1.0
11.01
0
10.01
150
Europe
09.01
0.0
08.01
1
US
06.01
200
05.01
1.0
03.01
2
02.01
250
01.01
2.0
00.01
3
99.01
300
98.01
3.0
97.01
4
Got into deflation
96.01
350
400
Japan
90.01
5
4.0
07.01
5.0
95.01
6
94.01
7
04.01
％
93.01
450
*Japan：Unsecured O/N call rate-CPI YoY US：FED Funds Target Rate-CPI YoY Europe：Short Term Repo Rate-CPI YoY Gray Shadow ：US Recession,Pink Shadow ：Japan Recession
92.01
Marshallian k : M2/Nomional GDP (YoY, RHS) Real Estate Price Index (commercial zone, 6 major metropolitan areas) Nikkei225
500
< Japan,US,Europe : Real Policy Rate >
％
<Stock & Real Estate Price, Marshallian k (YoY)>
91.01
85/3=100
DIAM Economic Research
The background of prolonged stagnation
Liquidity Trap
The size of QE by BOJ has been very large – Assets of BOJ / Nominal GDP has been higher than those of FED & ECB. – Credit multiplier has been staying at very low level.
US
EU
Japan
*Heavy line:4Q average
30 25 20 15 10 5
6
12.09
11.09
10.09
09.09
08.09
07.09
06.09
05.09
04.09
03.09
02.09
01.09
00.09
99.09
98.09
97.09
96.09
0
Source：FED、U.S. Department of Commerce、ECB、Eurostaｔ、BoJ、Cabinet Office
< Credit Multipiler>
YoY (%)
< Asset size of Central Bank in relation to nominal GDP>
35
DIAM Economic Research
45 40 35 30 25 20 15 10 5 0 ▲5 ▲10 ▲15 ▲20 ▲25 ▲30
13.5 13.0 12.5 12.0 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0
Monetary Base M2 Credit Multilier(RHS) (Note)M2 : Connected the former data set using MoM change after S.A.
82.04 83.04 84.04 85.04 86.04 87.04 88.04 89.04 90.04 91.04 92.04 93.04 94.04 95.04 96.04 97.04 98.04 99.04 00.04 01.04 02.04 03.04 04.04 05.04 06.04 07.04 08.04 09.04 10.04 11.04 12.04
％
Source:BOJ
Kozo Koide, Chief Economist DIAM
DIAM Economic Research
The juncture with other panelist : Past
“Hated since the Merchant of Venice??” Injection of public money has been delayed by harsh public opinion – First measurable capital injection was in 1998, when two large banks failed, 4 years after Japan got into deflation. – Bad debt estimation in ’94 : 12 trillion (largest one) vs. 116 trillion (mine) ＜ Non-performing Loan・Financial Assistance by Government > Others(Lending to Nationalized Banks etc) Purchasing Assets Grants for Deposit Protection Capital Injection NPL based upon Financial Resolution Act:right scale Risk Management Loan (New Guideline by FSA): right scale Risk Management Loan (Old JBA Guideline):right scale
100Myen 240,000
100Myen 600,000
220,000 200,000
500,000
180,000 160,000
400,000
140,000 120,000
300,000
100,000 80,000
200,000
60,000 40,000
100,000
20,000
7
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0 1993
0 1992
DIAM Economic Research
Source : FSA, DIC
Kozo Koide, Chief Economist DIAM
The juncture with other panelist : Past
Dr. Porter was Wrong?
The system to harness long-term corporate strategy has changed. – – – –
Life-time employment & cross-share-holding has faded away Temp staff rate : ’93/1 12% → ’2012/8 24% The share of stock held by domestic banks : ’98/3 15% → ’2012/6 4% Sony vs. Toray, Banks : let zombie arrive or lower agency cost ?
< Regular Worker Employment Index (YoY, contribution) ＞
％
％
3MMA
3.5
＜ Share of Stock-holding : Domestic Banks & Foreigners ＞
30
3.0
Ordinal
Temporary
26.1%
Total
2.5
25
2.0 1.5 20
1.0 0.5
15
0.0 ▲0.5 ▲1.0
10
▲1.5
4.0%
▲2.0
5
Domestic Banks
Office w/more than 5 employees
▲3.0
Source : BOJ
8
Kozo Koide, Chief Economist DIAM
12.09
12.03
11.09
11.03
10.09
10.03
09.09
09.03
08.09
08.03
07.09
07.03
06.09
06.03
05.09
05.03
04.09
04.03
03.09
03.03
02.09
02.03
01.09
01.03
00.09
00.03
99.03
98.09
12.03
11.03
10.03
08.03
07.03
06.03
05.03
04.03
03.03
02.03
01.03
00.03
99.03
98.03
97.03
09.03
DIAM Economic Research
98.03
Source : MoL
96.03
95.03
94.03
Foreigners (Overseas Investors + Foreign Banks in Japan) 0 99.09
▲2.5
© DIAM Economic Research
The juncture with other panelist : Past
Where is Japanese? Export competitiveness in electronics has eroded – High yen boosted hollow-out to Asia, lower the competitive advantage vis-à-vis Asian rivals. But that is not all. 12M.Ma
< The Relative Export Competitiveness Ratio > Visual & Audio
Automobile
1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 ▲0.1 ▲0.2
The coefficient of extent of favor in exports: ▲0.3 （ exports-imports） /（ exports+imports）
Source:MOF
9
11.12
09.12
07.12
05.12
03.12
01.12
99.12
97.12
95.12
93.12
91.12
89.12
87.12
▲0.4
85.12
DIAM Economic Research
Kozo Koide, Chief Economist DIAM
The juncture with other panelist : Future
Japanese Women Want More Babies The neck is day-care system & spending for education – OECD estimate the fertility rate would be risen to 2.0 provided that public support for day-care and spending for education 【 Potential Impact of Various Policy Reforms on Total Fertility Rates 】
%
3.0
Expectate Progress in Fertility Rate by Policy Enhancement Current Level of Birthrate
2.5
0.4
2.0 0.2 0.3
1.5
0.0
0.2
0.5 0.6 0.7 0.8
0.3 0.3 0.4 1.0
0.4 0.6
0.9 1.1
0.7
0.2
1.0 0.5
2.0 1.9 1.7 1.6 1.7 1.7 1.8 1.7 1.5 1.5 1.4 1.4 1.5 1.3 1.2 1.3 1.3 1.2 1.1
Korea
Portugal
US
Netherland
Ireland
DIAM Economic Research
Source: OECD
10
Greece
France
UK
Finland
Japan
Canada
Czech
Italy
Austria
Belgium
Denmark
Sweden
Germany
0.0 Spain
Kozo Koide, Chief Economist DIAM
The juncture with other panelist : Future
Higher Value-added by Small Business Gross value-added ratio is higher in small business w/ upward trend – It is higher than that of large corporations, which has been declining recently. ％
< Gross Value-added Ratio >
23
Large Corporations Small Corporations
22 21 20 19 18 17 16
(Note）Gross Value-added Ratio : Gross value-added / Sales, Gross Value-added : recurrent profit + depreciation + financial cost + labor cost + tax payed
出所：財務省
11
12.06
10.06
08.06
06.06
04.06
02.06
00.06
98.06
96.06
94.06
92.06
90.06
88.06
86.06
84.06
82.06
80.06
78.06
76.06
74.06
72.06
70.06
68.06
66.06
64.06
62.06
15
60.06
DIAM Economic Research Kozo Koide, Chief Economist DIAM
The juncture with other panelist : Future
Country to Welcome Leverage
Harbinger that Japanese companies has been started to be levered – Financial leverage ratio (large corporations) has turned to be positive for the first time since late 1970’s. – Bank lending has been growing, although the pace is slow.
％
< Fianacial Leverage Ratio(Large Corporations) YoY >
＜ Bank Lending (YoY) ＞
％
5.0
12
4Q average
３MMA
4.0
10
3.0
8
2.0 6
1.0
4
0.0
2
▲1.0
0
▲2.0 ▲3.0
▲2
▲4.0 ▲4
▲5.0
▲6
▲6.0
(Note): Total Assets / Capital ▲8
Source: MOF
12
DIAM Economic Research
Source : BOJ
Kozo Koide, Chief Economist DIAM
12.01
11.01
10.01
09.01
08.01
07.01
06.01
05.01
04.01
03.01
02.01
01.01
00.01
99.01
98.01
97.01
96.01
95.01
94.01
93.01
12.06
10.06
08.06
06.06
04.06
02.06
00.06
98.06
96.06
94.06
92.06
90.06
88.06
86.06
84.06
82.06
80.06
78.06
76.06
74.06
72.06
70.06
68.06
66.06
64.06
62.06
60.06
▲7.0
DIAM Economic Research
Disclaimer
This documentation was prepared independently by DIAM Co., Ltd. and is not required pursuant to the Financial Instruments and Exchange Law. This documentation is required to be used only by the investor to whom it is distributed. This documentation is only for the purpose of providing information and is not intended to be used to solicit investments. This documentation was prepared using data that DIAM Co., Ltd. has judged to be reliable. However, DIAM Co., Ltd. does not guarantee its completeness or accuracy. Additionally, the published data are only indicative of past performance and do not provide a guarantee of future performance. The contents included in this documentation are only current as of the date this documentation was prepared (November 23th ,2012) and are subject to change without notice. The intellectual property and all other rights pertaining to the data published in this documentation including benchmark indices shall remain the property of the publisher and licensor.
13
Kozo Koide, Chief Economist DIAM