Tải bản đầy đủ - 0 (trang)
Figure 12. Per capita income in Japan is falling relative to other OECD countries

Figure 12. Per capita income in Japan is falling relative to other OECD countries

Tải bản đầy đủ - 0trang

42



OECD Economic Surveys: Japan



the adjustment of real wages, since nominal wage cuts have proven difficult to

implement (Box 1). Although Japan is one of the few countries to record nominal

wage declines – 1.5 per cent a year on average since 1998 – real wages (deflated

by the GDP deflator) have continued to increase nearly ¾ per cent a year. Rising

real wages have tended to encourage firms to reduce the number of employees to

limit labour costs. Second, by increasing the burden of liabilities, it leads to

delayed payments and defaults, thus hurting financial institutions. Third, deflation

transfers income from debtors to creditors, who generally have lower marginal

propensities to spend, thus tending to reduce aggregate demand.

Perhaps most importantly, the current level of deflation inhibits growth by

keeping real interest rates higher than they should be at this stage of the business

cycle, thus reducing the potency of monetary policy. A negative real interest rate,

a common monetary policy response to recession, is not possible during periods

of deflation15 because nominal interest rates, in normal circumstances, cannot fall

below zero. While the short-term interest rate has remained close to zero, it was

the third highest in real terms among the G-7 countries in 2002 at 1.5 per cent,

despite the fact that Japan’s growth rate was one of the lowest at 0.2 per cent in

real terms. Given the limited effect of interest rates, the central bank has focused

on injecting liquidity through its quantitative easing policy, which has resulted in a

50 per cent rise in base money during the past two years. However, this policy has

failed to boost significantly investment in more risky assets, in part because of the

attractive return available on risk-free government bonds.

The impact of the quantitative easing policy on deflation and the real

economy has also been limited by the breakdown of the credit channel. Despite

the large increase in the monetary base and low long-term interest rates

(Figure 9), bank lending continues to decline at a 2 per cent pace. The contraction

of credit reflects sluggish demand from the corporate sector and the weakness of

banks’ capital. Because of the high level of non-performing loans, which undermines their capital base, banks are forced it to reduce risk assets in order to protect their soundness. Indeed, large loan losses have resulted in ten consecutive

years of net operating losses for the banks. Although banks have made some

progress in writing off bad loans, the stock of non-performing loans is officially

reported to be 7.2 per cent of total lending of the major banks and may be considerably higher according to some private-sector estimates. The vicious circle is

completed by the fact that deflation boosts the supply of new non-performing

loans. The deflationary environment has weakened the ability of firms to repay

loans, while raising the real value of debt. Consequently, deflation and the

problems in the banking sector are intricately linked.

While stopping deflation has proven difficult for the reasons described

above, the end of deflation will bring a new set of challenges. The re-entry problem is complicated because the quantitative easing approach has focused on the



© OECD 2004



Macroeconomic developments and key economic challenges



Box 1.



Inflation and output



Japan has been experiencing persistent deflation since 1995, except for 1997,

when the VAT rate was raised. In such an environment, the slope of the Phillips

curve – the relationship between the output gap and inflation – seems to have

become flatter (Figure 13). The non-linearity of the Phillips curve in a disinflationary or low-inflation environment is thought to reflect rigidity in prices and wages.

It is often argued that nominal rigidity becomes more important when inflation is

lower as price and wage adjustments become less frequent. According to this

view, the slope of the Phillips curve should decline continuously as the inflation

rate falls, since the frequency and size of price adjustments decrease.

Akerlof et al. (1996) provide an explanation for rigidity in nominal wages, arguing

that such rigidity arises from the difficulty in reducing nominal wages when inflation

is low. Companies and employees very seldom agree on nominal wage cuts unless

those companies face a risk of bankruptcy, reflecting managers’ view that nominal

wage cuts could significantly affect workers’ morale. Consequently, the number of

firms which reduce nominal wages may not increase in proportion to the degree of

disinflation or deflation, leading to nominal rigidity. According to this view, the

slope of the Phillips curve would have a break at an inflation rate near zero.

The Secretariat’s estimates show some evidence of a change in the Phillips

curve when the inflation rate falls below ½ per cent (quarter-on-quarter, nonannualised). Below this rate, the effect of demand pressure is found to be much

smaller and is always statistically insignificant (see Annex I). Consequently, the

slope of the Phillips curve tends to become flatter as the inflation rate falls.

Indeed, when the inflation rate dropped below the threshold of ½ per cent at the

beginning of the 1990s, there appears to have been a break in the relationship

between the output gap and inflation. However, there is less evidence of a break

in the relationship when the inflation rate, as measured by the consumer price

index, became negative in 1998. There is also evidence that the slope of the Phillips curve becomes flatter when inflation is more stable. In particular, a break in

the relationship is detected in the 1980s when the average and the variance of

inflation fell significantly. This suggests that less frequent adjustment in prices

and wages might have some impact on the inflation process. In sum, both low

inflation and the change in the inflation rate in Japan are related to nominal rigidities. The results of the Secretariat’s estimates are consistent with earlier studies,

such as Nishizaki and Watanabe (2000).

Although Japanese wages are thought to be relatively flexible compared to

other OECD countries, there is anecdotal evidence supporting the view that Japan

is experiencing nominal rigidity in wages. While nominal compensation per worker

declined by 1.5 per cent on average in the past five years, there has been an

increase in compensation in real terms. Indeed, real compensation adjusted by the

GDP deflator actually rose by 0.7 per cent over the same period, though it was more

or less constant when deflated by the core CPI. Moreover, an increase in labour’s

share over the 1990s, from 52 per cent to 54½ per cent, also suggests the existence of

nominal rigidity.* Given the reputation of the Japanese economy for wage flexibility,

such a change in the nature of wage setting under low inflation is significant.

* Hattori and Maeda (2000) suggest that most of the rise in the wage per worker in

the 1990s can be explained by higher educational attainment and ageing of workers

under the seniority wage system.



© OECD 2004



43



OECD Economic Surveys: Japan



44



Figure 13.



The Phillips curve has become flatter



Core CPI in per cent



1980 to 1989



2.0



2.0



1.5



1.5



1.0



1.0



0.5



0.5



0.0



0.0



-0.5



-0.5



-1.0



4



3



2



1



0



-1



-2



-3



-4



-1.0



Output gap in per cent



Core CPI in per cent



1990 to 2001



2.0



2.0



1.5



1.5



1.0



1.0



0.5



0.5



0.0



0.0



-0.5



-0.5



-1.0



4



3



2



1



0



-1



-2



-3



-4



-1.0



Output gap in per cent

Source: OECD.



© OECD 2004



Macroeconomic developments and key economic challenges



Figure 14.



45



Budget balance and public debt

Per cent of GDP



Per cent of GDP



Per cent of GDP



160

20

140

16

120



Gross public debt

(left scale)



12



100



8



80



4



60



Net lending

(right scale)



40



0



20



-4



0



1



1 -8



1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003



1. OECD estimates for 2002 and 2003.

Source: OECD.



purchase of Japanese Government Bonds (JGBs), attracting a high level of private

purchases in this market. Even before deflation ends, a significant rise in interest

rates and a correction in bond prices may occur quickly. Given that the Bank of

Japan holds 60 trillion yen of government bonds (12 per cent of GDP) and the

commercial banks own 169 trillion (34 per cent of GDP), a sharp rebound in bond

yields would generate huge latent capital losses. The re-entry problem also holds

challenges on the fiscal side, where exceptionally low interest rates have limited

the amount of interest payments on the large public debt. A marked rise in interest

rates may substantially boost the government budget deficit from its current level

of around 8 per cent of GDP, creating a risk of financing strains (Figure 14). Moreover,

given the size of the public debt, the scope for using fiscal measures to sustain

economic activity and bring deflation to an end is limited.

Achieving fiscal sustainability

A primary budget surplus of around 1¾ per cent of GDP would be necessary to stabilise the public debt at 180 per cent of GDP, which would be

30 percentage points higher than its present level, assuming nominal growth of

1 per cent and a 2 per cent interest rate. With the primary budget currently running a deficit of 6 per cent of GDP, a swing of nearly 8 percentage points is necessary to stop the snowballing of public debt. While the level and growth of public



© OECD 2004



Tài liệu bạn tìm kiếm đã sẵn sàng tải về

Figure 12. Per capita income in Japan is falling relative to other OECD countries

Tải bản đầy đủ ngay(0 tr)

×