The below is a summary of economic indicators for 2004 and projections up to 2009 by governmental and independent bodies released between early January 2004 and mid February 2005. Includes GDP, trade statistics, machinery orders, CPI, consumer sentiment, consumer spending, retail sales, corporate performance, and government spending. Issues such as the new peak in single-mother families and the withering of the aged-based salary scheme are also covered.

Economy

GDP

4Q 2004

The Cabinet Office announced that Japan's GDP sequentially dropped 0.1% in price-adjusted real terms in the fourth quarter of 2004. The drop was caused in large part to a 0.3% decline in private consumption, caused by unusually warm weather that took the wind out of winter sales. Private consumption comprises over half of Japan's GDP.

Total domestic demand had contributed 0.1% to GDP during the quarter, and areas such as capital spending rose 0.7% due to semiconductor equipment investment. However, a paucity of external demand brought downward pressure of 0.2% for the second consecutive quarter, due in part from the downtrend in digital electronics shipments to the US evident since the summer of 2004.

The GDP contraction hit far below the mean forecast of a 0.6% rise by 38 major economic research organizations earlier surveyed by the Economic Planning Association under the Cabinet Office. Yet the Cabinet Office maintained that Japan remains on the recovery track.

The Bank of Japan's survey covering public assessment of the economy painted a different picture, however. The economic assessment diffusion index tumbled 9.3 points from September 2004 to -19.7 in December, the first decline from a previous survey since March 2003. Released in mid-January, the index is determined by subtracting the percentage of respondents saying the economy has worsened from those saying it has improved. Respondents cited individual and household income, as well as business conditions at their workplace as factors informing their assessment. The outlook index component of the survey, which looks at the coming year, shot down by 10.7 points to -9.5, the first sub-zero fall in nine months. Individuals spending less than a year earlier increased 0.8 points due to concerns over tax and social-welfare burdens.

Fiscal 2004

The mean estimate of the Bank of Japan's nine-member policy board was 2.5% for fiscal 2004 (April 2004 - March 2005). The growth rate was a downward adjustment from the 3.6% forecast produced in October, but was attributed to new calculation methods said to better track changes in economic structures. For the 2004 calendar year, GDP was said to stand at 2.6 in real terms, its second consecutive rise, and 1.4% in nominal terms, its first increase in four years.

Fiscal 2005

The Bank of Japan's nine-member policy board predicted that GDP would rise by 1.5% in fiscal 2005 (April 2005 - March 2006), a downward revision from October's 2.5% projection after taking into account the new calculation methods. In general, the Bank of Japan's outlook was upbeat, asserting that Japan is moving toward sustainable growth, and is unlikely to repeat a recession on the level of that seen in between 2000 and 2001.

The Bank expects that production and inventory adjustments in the IT industry could be completed as soon as spring, and that strong corporate profitability and heavy capital spending are buoying the economy. However, the body pointed to risks such as sluggish consumer spending, a slowdown in exports, and the strengthening yen.

The Cabinet Office approved a forecast for fiscal 2005 of 1.3% growth in nominal terms and 1.6% in real terms to 511.5 trillion yen (US$4.85 trillion; US$1 = 105.5 yen). The mean assessment by 38 economic organizations came to 1.16%, lower than the 1.21% of a previous survey.

At an economic forum held at the Japan Center for Economic Research, chief economists at major investment banks presented divergent qualitative assessments of Japan's economy in the near future. Yukari Sato, Chief Economist at CSFB Japan, expects that the economy will bounce back in the second half of the year. Sato noted that wages might stagnate, but that consumption will be buttressed by heavier recruitment by employers as baby boomers head for retirement. Robust non-IT spending was also attributed as a factor. Kazuo Mizuno, Chief Economist at Mitsubishi Securities, asserted that the economy is currently in a recession that will continue throughout the 2005 fiscal year. Mizuno cited weak consumer spending in part due to stagnating wages, and further highlighted the ongoing IT inventory adjustments, which he expected would continue as late as the fall 2005.

A quarterly survey of CEOs at 139 major companies, carried out by Nihon Keizai Shimbun in January, revealed a fairly pessimistic assessment of Japan's economy in fiscal 2005. 48.5% of respondents foresaw GDP growth of at least 1% but less than 1.5%, while 31.8% projected between at least 1.5% but less than 2%. The forecasts were a sharp decline from the results of the October survey, when 43% said growth would be in the 1.5% to 2% range, while nearly 40% expected a rise of over 2%.

However, the CEO outlook for the Japanese economy beyond fiscal 2005 was quite positive: 46.2% of respondents projected improvement, compared to 29.7% in October 2004.

2006 and Beyond

The 38 domestic economic bodies surveyed by the Cabinet Office put GDP growth for fiscal 2006 (April 2006 - March 2007) at 1.83%, a touch lower than the 1.86% of the previous survey. For the 2006 calendar year, the OECD (Organization for Economic Cooperation and Development) predicted 1.5%, pointing out that such a figure would mark the longest run of economic expansion in Japan since the 1980s.

For fiscal 2005 to 2009 (April 2006 - March 2009), the Bank of Japan expects GDP growth of over 2%. Factors cited are greater corporate productivity, streamlining of government processes, the opening of new markets, and higher private consumption due to an improving labor market.

Trade

In January the Ministry of Finance announced that exports for 2004 had grown by 12.2% to 61.18 trillion yen, (US$579.9 billion) a record high and the third consecutive year of increase. Shipments of optical and semiconductor equipment bolstered the increase, while steel exports jumped in excess of 20%.

Imports recorded a 10.8% rise to 49.17 trillion yen (US$466.1 billion), pushed mainly by 50% climb in coal imports due to soaring oil prices. Memory cards and commodity electronics from other parts of Asia also contributed to the rise. Trade with the rest of Asia hit a new peak, with exports jumping 17.1% to 29.64 trillion yen (US$280.9 billion), and imports growing 12.6% to 22.21 trillion yen (US$210.5 billion).

In 2004 China eclipsed the US to become Japan's largest trading partner, with China now accounting for 20.1% of Japan's international trade, according to the ministry. This change was in part due to lower imports from the US due to the ban on US beef. China' WTO accession has also opened up the country to more foreign investment, leading Japanese chip and electronics manufacturers to set up operations there.

Machinery Orders

The Japan Society of Industrial Machinery Manufacturers reported that machinery orders declined by 2.7% to 5,047.9 billion yen (US$47.8 billion), following a gain of 27.4% in 2003. Domestic orders fell 3.4 % to 3,144.5 billion yen (US$29.8 billion); despite a 13% rise in orders from manufacturing sector, non-manufacturing orders tumbled by 20.7%. The public sector also saw a slight decline in orders. Orders from overseas fell 1.5% to 1,903.3 billion yen (US$18 billion) due to weakening demand from Russia, Eastern Europe, and other Asian countries.

Consumer Price Index

Ministry of Internal Affairs and Communications stated that in 2004 Japan's CPI (Consumer Price Index) fell by 0.1% to 94.9 against a base of 100 for the year 2000, excluding perishables. The downward movement marked the fifth consecutive year of decline. For 2005, the OECD predicted a rise of 0.1%.

For fiscal 2005, the mean forecast of the Bank of Japan's nine-member policy board stood at a positive 0.1% in October 2004. Predictions lay in the range of minus 0.1% to a positive 0.3%. In January 2005 the board stated that CPI may deviate slightly below the mean projection depending on reductions in phone charges. For 2006, the OECD predicts a rise of 0.6%.

Consumer Sentiment

According to the Cabinet Office, consumer sentiment dropped to 45.6 from 45.8 in the third quarter of 2004, the first decline since March 2003. The quality of life index fell 0.6% to 44.1, while durable goods dropped 0.8 to 48.2. The downturn moved the government to downgrade its assessment of consumer spending from "improving" to "moving sideways." However, the CPI survey revealed some positive figures such as a 1.5-point sequential rise in the employment index to 47.9, the highest since March 1991. The salary index also increased 0.5 points to 43.4.

Consumer Spending

The Ministry of Internal Affairs and Communications announced that consumer spending in 2004 grew 0.5% to 304,203 yen (US$2,883) per month on average. Transportation, particularly for new cars, and communications spending contributed to the boost with growth of 4.9%. Cultural and entertainment spending, including purchases of consumer electronics products, also grew 4.9%. Educational spending saw a slight gain, while expenditures for clothing and footgear tumbled for the fourteenth straight year. Housing-related expenditures, including outlays for renovations and maintenance, fell 3.3 percent, the first drop in three years.

A January report stated that spending by salaried households in 2004 grew by a real 1.5% to 330,836 (US$3,136) yen per month, the first rise in seven years. Car purchases increased by 13.8%, telecommunications spending, 5.4%, and PC purchases, 32.3%, while expenditures for educational or entertainment goods soared by 49.9% due to the Olympics.

Retail Sales

Retail sales fell 2.8% to 7.878 trillion yen (US$74.7 billion) in 2004, according to Japan Department Stores Association's survey of 98 companies and 285 stores. The fall was the eighth consecutive annual decline. December in fact marked the tenth month of decline, however, some hope for retailers was delivered in January, with a rise of 0.7% to 164.4 billion yen (US$1.6 billion).

Corporate Performance

Compared with previous quarters, CEOs from the 139 major companies surveyed in January have given a much grimmer outlook on company performance for the first quarter of 2005. A minority of 19.7% described current quarter performance as "good". 32.8% described performance as "good" in October 2004, while a majority, 54.5% described performance as good in July.

134 out of 797 companies listed on the Tokyo Stock Exchange lowered their fiscal 2004 earnings projections, according to a Jiji Press survey. 92 raised their projections. Seven out of 10 major Japanese electronics companies have cut operating profit forecasts, including Sony, Fujitsu, Pioneer, Kyocera, and Murata. Maritime transport firms, such as Nippon Yusen K.K, have raised estimates owing to China-bound shipments. However, most companies are still better off than fiscal 2003 given a strong first half.

Government Spending

The government projected that for fiscal 2005 government expenditures would increase 0.3% in nominal terms and 0.4% in real terms, the first rise in five years. The increase is expected to result from spending on natural disaster relief, which is putting the brakes on the recent rapid fall in public investment. After recording a double-digit tumble in fiscal 2004, public investment is expected to only fall by a nominal 3.0% and 3.5% in real terms. Government consumption is anticipated to increase by a nominal 1.2% and a real 1.5%, owing to the mounting burden of social security.

Society

New Peak in Single-Mother Families

According to the Ministry of Health, Labor, and Welfare, 2003 saw a new high of 1.22 million single-mother families, 80% of which resulted from divorce. The new figure is a 28% rise from the previous peak in 1998. The last time single-mother families numbered over one million was during the 1960s, when most were widows.

In 2002, average income for single-mother families fell by 170,000 yen (US$1,611) to 2.12 million yen (US$20,095), the first decline since 1978, when the ministry first began collecting such data. The decline was due primarily to an increase in mothers working part time -- 42% compared to 38% in the previous year -- and a decrease in women working full time -- 39% compared to 51% in 2001. Single-mother family income is on average one-third that of two-parent households.

Age-Based Salary Schemes Dwindling

Having already enacted a similar move at the managerial level, NTT is to abolish a wage scheme based on age and family allowances beginning fiscal 2006. The change will affect 180,000 employees at 400 affiliated domestic companies. Other companies enacting similar measures include Toyota and Matsushita. NTT's move is expected to accelerate the growing adoption of performance-based wages in Japan.