Official Economic Data in Japan "Unreliable"

John de Boer (University of Tokyo & GLOCOM Platform)

Plenty of controversy surrounded Japan's state of the economy this week as the government released first quarter GDP figures indicating a 1.4% growth rate a few days after Moody's Investors Service downgraded Japan's credit rating by two notches to a new rating of A2. While Japanese politicians bitterly contested Moody's decision claiming that it ignored Japan's financial strengths, most foreign columnists supported the downgrading predicting that Japan's economic recovery will be short lived. Judging from a variety of influential news sources, the international consensus seems to be that the positive first quarter GDP figures have all to do with a growth in overseas demand for Japanese products and little to do with internal factors. Meanwhile they continue to lament about government inaction with some going so far as to call official data inherently unreliable and politically motivated.

It all started when Moody's downgraded Japan's credit rating on 31 May. The reasons cited were unprecedented levels of national debt (139% of GDP) and dramatic banking problems aggravated by deflation. The Foreign Ministry fought back stating that the decision neglected Japan's foreign reserves and the fact that 95% of its national debt was held by domestic investors. Prime Minister Koizumi was quoted as questioning the rationale behind giving the worlds second largest economy the same credit rating as certain recipients of Japanese ODA such as Cyprus, Latvia, Poland, Mauritius, Botswana and Kuwait. In response, Ken Belson of the New York Times characterized the Japanese lawmakers as, "more concerned with national prestige than with finances" (June 1).

On June 4, the latest figures on Japan's economic index were released indicating a rise in consumer spending and industrial production. The response from Bayan Rahman of the Financial Times was that this recovery was export driven and came amid a rebound in global demand. Therefore, long term growth was out of the question. Bloomberg news gave a similar analysis indicating that not all signs pointed to recovery and claiming that the GDP was "already shrinking again this quarter" (June 4). Bloomberg went on to remind its readers that the Japanese government had not said that the recession was over but only that the economy had bottomed out. In concluding, it pointed to the IMF statistic predicting a 1% contraction in the Japanese economy this year.

After first quarter GDP figures indicating a 1.4% growth were released on June 6, the reaction was to play down the hype. The Singapore Strait Times (SST) indicated that "in fact, the return to economic growth was slightly less robust than analysts had forecast" because corporate capital spending dropped by 3.2% as compared to 2001. SST insisted that there was no evidence that growth was sustainable due to Japan's heavy dependence on consumer spending in the US ("Japan emerges from recession", June 6).

A separate SST article reinforced this argument by stating that these GDP figures will give "floppy-haired PM Koizumi a rare chance to gloat", allowing him to "stride into meetings of the G-8 later this month and hold up proof that Japan is no longer an economic laggard". However, it warned that, "he might be wise to restrain himself". The argument was that Japanese figures are, "notoriously prone to big revisions" and essentially unreliable. The Sydney Morning Herald (SMH) labeled first quarter figures as a "purely cyclical phenomenon" and also questioned the validity of Japanese data. James Brooke of the NYT commented that the figures were deceptive as corporate profits had dropped by 14.6% during this first quarter as compared to a year ago (June 7).

The final analysis was that these "unreliable" figures were politically motivated to protect Japanese politicians in advance of the G-8 summit to be held later this month and at a time when 4 critical bills were being debated in the Diet. The worry was that politicians would back pedal on structural reforms. As the SMH stated, "so long as Japan's multitude of structural woes - deflation, a crippled banking system and a shrinking manufacturing sector - are unresolved, the export led economic recovery underway could fizzle and die out just as Japan's ill-fated recoveries have for the past decade" (June 7). And so, the view from abroad remains fatally skeptical.

Articles:

• Ken Belson, "Despite Protest, Moody's Cuts Japan Credit Rating", The New York Times, 1 June 2002
• Ken Belson, "Debt load in Japan brings a downgrade", The International Herald Tribune, 1 June 2002
• Bayan Rahman, "Japan's economic index indicates growth", The Financial Times, 4 June 2002
• "Japan's economy grows for second straight month", Bloomberg, 5 June 2002
• "Japan emerges from recession", Singapore Straits Times, 6 June 2002
• "Skeptics scoff at reports of Japan's recovery from recession", Singapore Straits Times, 6 June 2002
• James Brook, "Japan reports 1.4% growth, signaling end of recession", The New York Times, 7 June 2002
• "Japan Emerges from Recession", Sydney Morning Herald, 7 June 2002