OECD Economic Survey of Japan 2021: Presentation

2021 OECD ECONOMIC SURVEY OF JAPAN Getting beyond the pandemic and securing sustainable growth 3 December 2021

https://www.oecd.org/economy/japan-economic-snapshot/

Key messages Continue policy support to get beyond the pandemic Prepare plans to ensure long-run fiscal sustainability Boost productivity and labour supply Strengthen efforts to reduce greenhouse gas emissions Make the most of the digital transformation 2

Reforms have boosted employment DEU % 90

FRA

JPN

A. Participation rate 25-64

% 80

88

78

86

76

84

74

82

72

80

70

78

68

76

66

74

64

72

62

70

2000

2005

2010

2015

Source: OECD, Labour Force Statistics.

2020

60

2000

USA

B. Employment to population ratio 15-64 olds

2005

2010

2015

2020

3

The pandemic hit economic activity hard Index, 2019 =100

102

Japan

OECD

100 98 96 94 92 90 88 86 2020Q1

2020Q2

2020Q3

Source: OECD Economic Outlook database.

2020Q4

2021Q1

2021Q2

2021Q3

4

Vaccination has made rapid progress A. Fully vaccinated per 100 population 90 80 70

Japan France USA

Canada UK

18 16 14

60

12

50

10

40

8

30

6

20

4

10

2

0

0

Source: ourworldindata.org

B. New deaths per million 7-day moving average Japan France USA

Canada UK

5

The impact on the labour market was muted A. Employment

Million, s.a. monthly data

38

30,5

B. Unemployment rate

% of labour force, s.a.

7

All

15-24 year olds

6 5 4 37

29,5

3 2 ← Male 36

Apr-19

Oct-19

Female →

Apr-20

Oct-20

1 Apr-21 Sep-21

28,5

0

Source: Statistics Bureau of Japan, Labour Force Survey.

Apr-19

Oct-19

Apr-20

Oct-20

Apr-21 Sep-21 6

Fiscal support has been substantial A. Government deficit

Trillion yen

% of GDP

B. Loan guarantees

45

0

40 -2

35

-4

30 25

-6

20 15

-8

10

-10 -12

5 2008

2010

2012

2014

2016

2018

2020

2022

0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: OECD Economic Outlook database, Japan Federation of Credit Guarantee Corporations.

7

Consumer price inflation remains subdued Y-o-y % change

2,0 Headline

Core

1,5 1,0 0,5 0,0 -0,5 -1,0 -1,5

2016

2017

2018

Source: Statistics Bureau, Bank of Japan.

2019

2020

2021 8

The recovery is gaining strength 2020percentage change 2021 unless noted 2022 Annual otherwise Gross domestic product

2023

-4.6

1.8

3.4

1.1

2.8

2.8

2.6

4

0

-0.2

0.8

0.8

General government budget balance (% of GDP)

-9.5

-6.4

-6.9

-3.1

General government gross debt (% of GDP)

237

242

243

244

Unemployment rate Inflation (CPI)

Source: December 2021 OECD Economic Outlook.

9

Key recommendations to overcome the pandemic • Continue to roll out vaccinations and support the health sector’s ability to react to infections.

• Continue to restructure support towards demand-supporting structural reforms that will benefit the economy in the longerrun.

• While inflation remains below target, maintain the current accommodative monetary policy stance to support economic recovery.

• Financial supervisors need to remain vigilant with regard to liquidity and funding risks.

10

Ensuring long-run fiscal sustainability

11

Public debt rose further with the crisis Projected level of debt in 2023 % of GDP

300

Net debt

Gross debt

250 200 150 100 50 0

CAN

DEU

FRA

Source: OECD Economic Outlook database.

USA

GBR

JPN

ITA 12

Fiscal sustainability will require action to increase revenue and boost productivity growth Gross debt

% of GDP

260 240

220 200 180 160

Baseline Digital transformation Fiscal reform Combined reforms

140 120

100 80

2015

2020

Source: OECD calculations.

2025

2030

2035

2040

2045

2050 13

Key recommendations for securing long-term fiscal sustainability • Elaborate a roadmap to realise a primary surplus in a comprehensive plan to achieve longer-term sustainability.

• Once the economy has recovered, gradually raise revenues, including by increasing the consumption tax rate further by small increments on a more regular basis.

14

Boosting productivity and labour supply

15

Female labour force participation has risen but gender gaps remain sizeable %

78

A. Female labour force participation 15-64 year olds JPN

USA

B. Gender wage gap Full-time employees

%

25

DEU

76 20

74 72

15

70

68

10

66 64

5

62 60

2010

2012

2014

2016

2018

2020

0

ITA

FRA

DEU

Source: OECD LFS by sex and age indicators and gender wage gap indicator.

GBR

CAN

USA

JPN 16

Labour productivity has been weak Labour productivity growth by main sector, 2010-2020

%

2

Manufacturing

%

Hourly productivity growth Centred 5-year moving average

1971

1978

6

Business services

5

1,5

4 1

3 2

0,5

1 0

USA

GBR

DEU

CAN

ITA

FRA

JPN

Source: OECD Productivity Statistics (database).

0

1985

1992

1999

2006

2013

2020

17

Business dynamism remains sluggish %

10 9 8 7 6 5 4 3 2 1 0

Entry rate

2000

2002

2004

2006

Exit rate

2008

Source: Ministry of Economy, Trade and Industry.

2010

2012

2014

2016

2018

18

Business regulation remains relatively complex Product Market Regulation Indicators

2,5

OECD average

Japan

2

1,5

1

0,5

0

Public ownership

Involvement in business operations

Source: OECD PMR database.

Simplification and Admin. burden on start-ups evaluation of regulations

Barriers in service & network sectors 19

Key recommendations for boosting productivity and labour supply • Act to strengthen labour supply further.

• Continue Work style reforms including equal pay for equal work and flexible working arrangements with improving child-care provision to boost female labour force participation.

• Continue to raise the compulsory retirement age or abolish it.

• Increase targeted spending on R&D, investment and education and training to boost productivity growth.

• Encourage mergers, acquisitions and divestitures of SMEs in the face of labour shortages to promote consolidation of managerial resources in viable firms.

20

Reducing greenhouse gas emissions

21

Meeting greenhouse gas emission reduction targets will be challenging Million tonnes CO2 equivalent

Total emissions

1600

Linear path to targets

1400 1200 1000

2030 target

800 600 400 200

0

1990

1995

2000

2005

2010

2015

2020

2025

Source: OECD greenhouse gas emissions dataset and calculations.

2030

2035

2040

2045

2050

22

Energy supply relies heavily on fossil fuels Million tonnes of oil equivalent

600

Total primary energy supply Coal

Oil

Natural gas

Nuclear

Other renewable

Biofuels and waste

500 400 300 200 100 0

1990

1995

2000

Source: IEA World Energy Balances database.

2005

2010

2015 23

Key recommendations for securing long-term environmental sustainability • Elaborate an emission reduction plan with a concrete and feasible timetable, including for the investments needed to adjust the energy mix and meet the zero net emission target.

• Make greater use of market-based instruments, such as the carbon tax, a trading system or carbon-credit market, while taking into account the social and economic impact, as part of the wider strategy that also includes investment and regulation.

• Invest in more interconnector capacity and ensure regional electricity grids support an increase of renewable electricity supply.

24

25

Broadband subscription is well developed Mobile broadband subscriptions Per 100 inhabitants

200

Data and voice subscriptions

180

Data-only subscriptions

160

Total

140 120 100 80 60

40 20 0

JPN

OECD

Source: OECD, Broadband database; OECD.

26

R&D in the ICT sector is weak Business R&D, 2019 or latest

% of GDP

%

3,0

6

2,5

5

2,0

4

1,5

3

1,0

2

0,5

1

0,0

0

JPN

OECD

Source: OECD, Main Science and Technology Indicators.

R&D in the ICT sector as a share of ICT sector value added, 2019 or latest

JPN

OECD 27

Digital government use is limited Individuals using the Internet for sending filled forms via public authorities' websites % 50 45 40

35 30 25

20 15 10

5 0

JPN

G7

Source: ICT Access and Usage by Households and Individuals database.

28

Schools are not always well prepared to use ICT tools 80 70

Percentage of students in schools whose principal agreed or strongly agreed with statements about the school’s capacity to enhance learning and teaching using digital devices OECD average

Japan

60 50 40

30 20 10 0

The availability of adequate software An effective online learning support is sufficient platform is available

Source: OECD calculations based on PISA 2018.

Teachers have the necessary technical and pedagogical skills to integrate digital devices in instruction 29

There are relatively few graduates in science, technology, engineering and mathematics Share of students graduating from science, technology, engineering and mathematics, 2018

Women

%

60

Men

50 40 30 20 10 0

Japan

United States

Canada

Source: OECD Education at a Glance, 2020.

France

Italy

United Kingdom

Germany 30

Firm-based training could be developed further Percentage of workers in each sector group who took firm-based training, 2012 or 2015 Highly digital-intensive sectors

%

Other sectors

90

60

30

0

USA

GBR

CAN

DEU

FRA

JPN

Source: Calculations based on OECD Survey of Adult Skills (PIAAC).

ITA 31

Recommendations for making the most of the digital transformation • Develop base registries to link government databases.

• Address regulatory and privacy issues to facilitate greater use of digitalisation.

• Raise e-government supply, service orientation and cost efficiency in the public sector, for instance by building on private sector expertise.

• Continue to develop financing methods serving firms with high shares of intangible capital.

• Expand access to entrepreneurial training and finance, in particular for women.

• Reform STEM curricula to make them more attractive to study.

• Provide training and support for teachers to integrate ICT into their lessons.

• Promote greater female participation in STEM disciplines, such as through mentor programmes.

• Continue to work with companies to reform seniority wage schemes and promote mid-career hires.

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For more information

https://www.oecd.org/economy/japan-economic-snapshot/ OECD OECD Economics

Disclaimer: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

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