Annual Report on the Japanese

Economy and Public Finance

2011
―Enhance the Essential Power of
the Japanese Economy―

Summary

July 2011

Cabinet Office
Government of Japan
 Contents

Chapter 1 Post-Earthquake Japanese Economy

To analyze the trends in the real economy, prices, and the financial and capital markets, with a
focus on the impact of the Great East Japan Earthquake, and to point out challenges for public
finance and social security.

Section 1 Post Earthquake Japanese Economy

Section 2 Price Trends and Financial and Capital Markets
Section 3 Current Conditions and Future Challenges for Public Finance and Social Security

Chapter 2 New “Opening” of Japan and Innovation

To study problems pertaining to ensuring Japan’s economic growth by improving productivity
through innovation amid advanced globalization

Section 1 Globalization of the Japanese Economy: Review

Section 2 Impact of Globalization on the Domestic Economy
Section 3 Response to Global Shift to Knowledge-Based Economy

Chapter 3 Human Capital and Innovation

To analyze relationships between entrepreneurs and self-employed individuals, and the management
of high-quality human resources, as well as the labor market function and the innovation system

Section 1 Entrepreneurship Activity and Diverse Working Arrangements

Section 2 Corporate Management and High-Quality Human Resources
Section 3 Effective Utilization of Personnel and Economic Systems

Conclusion

This material has been tentatively prepared to explain the “Annual Report on the Japanese
Economy and Public Finance.” For quotation and other purposes, please refer to the text of the
“Annual Report on the Japanese Economy and Public Finance.”

１
 Chapter 1 Post-Earthquake Japanese Economy
Section 1 Earthquake Impact on Real Economy
 Japan was struck by the Great East Japan Earthquake (hereinafter referred to as the
“Earthquake”) just as the economy was in a transition from the state of “stagnation” to
“recovery.”
 The negative economic impact of the Earthquake has been greater than the impact of past
major disasters in Japan and abroad.

Figure 1-1-1 Real GDP Growth Rate Figure 1-1-5 (3) GDP before and after disasters
The Earthquake occurred while the economy was still weak. After the Great East Japan Earthquake, the economic conditions
(Year-on-year change; quarter-on-quarter change; %) changed more than after other recent major disasters.
4
Public demand
3 (Quarter preceding the disaster=100)
2 108
Great Hanshin-Awaji
1 106
Earthquake
0 104
-1 102
Residential Imports
-2 investment 100
-3 Consumption Non-resi. investment
98
-4 Inventory
Real GDP 96
-5 growth rate Great East Japan
94 Hurricane Katrina Earthquake
-6
Exports Aug. 29, 2005
-7 92 Damage to stocks:
$70 billion to 130
-8 90 billion
-9 88
01 02 03 04 05 06 07 08 09 10 I II III IV I II III IV I -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7
(Number of quarters since the disaster)
(FY) 09 10 11

 Unlike after past major disasters, personal consumption has declined on a nationwide basis.
 Consumer sentiment deteriorated sharply after the Earthquake.

Figure 1-1-5 (2) Personal consumption before and Figure 1-1-6 (1) Consumer sentiment before and
after disasters after disasters
After the Great East Japan Earthquake, personal Consumer sentiment deteriorated sharply after the Great East
consumption also declined. Japan Earthquake.
(Quarter preceding the disaster=100)
(Quarter preceding the disaster=100)
120
108
Grea t Ha nshin-Awaji
106 Great East Japan Hurricane Katrina 110 Earthqua ke
104 Earthquake
102 100

100
90
98 Great Hanshin-Awaji
Earthquake
96 80
Hurrica ne Katrina
94
70
92 Great Ea st Japa n
Earthqua ke
90 60
88 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7
-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 (Number of quarters since the disa ster)
(Number of quarters since the disaster) (Note) The figure for the first quarter after the
Great East Japan Earthquake is the average
for April and May)

２
 After the Earthquake, production in Japan suffered a strong negative impact not only from the
shutdown of damaged factories but also from the disruptions of supply chains and power
supply constraints.
 The auto industry depends on the Tohoku region for the supply of key parts including
semiconductors and other electronic components.

Figure 1-1-5 (1) Industrial production before and Figure 1-1-8 (3) Automobile-related industries'
after disasters dependence on the Tohoku region
The auto industry depends heavily on Tohoku for the supply of
Industrial production plunged after the Earthquake. key components.

(Month preceding the disaster=100) (Tohoku's share in intermediate input, %)

104 18
16 Passenger car
102 Hurricane Katrina
production
14
100 12 Auto parts production
98 10
8
96 Great Hanshin-Awaji
6 All-industry average
Earthquake
94 4
92 Great East Japan 2
Earthquake 0
90

Precision m achinery

Printing/platemaking/bookbinding
Clothes and other ready-m ade textile products

Metal products

Plastic products
Communications machinery and related equipment

Steel
Ceramics products
Pulp/paper/cardboard/coated paper
Basic chemical products

Auto parts and auto accessories

Lumbering/wood products/furniture
Tire and rubber products, etc.

Oil and coal products

Other electrical machinery
Electronic parts

Finished chemical products

Industrial electrical machinery

General machinery

Nonferrous metals

Fabricated textile products

March 2011 compared
88 with the previous month:
-15.5%
86 Contribution of transport
equipment: -7.9%
84
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10
(Number of months since the disaster)

 There is strong correlation between power demand and production activity.

 Power supply constraints have a negative impact on economic activity, mainly production.
Figure 1-1-9 (1) Power demand and industrial Figure 1-1-9 (2) Correlation between power
production demand and various indexes
Power supply constraints have a negative impact on There is strong correlation between production activity and
production activity. power demand.
(Correlation coefficient)
(GWh) (Production index)
1
35,000 130
Total power demand 0.9
33,000 (Mining and manufacturing 120
industries) 0.8
31,000 110
0.7
29,000 100
0.6
27,000 90
0.5
25,000 80 0.4
23,000 70 0.3
21,000 Industrial production index (right scale; the 60 0.2
19,000 bold line indicates seasonally adjusted figures) 50 0.1
17,000 40 0
15,000 30 Production Capital Personal Residential
2 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 45 investment consumption investment
(Note) Regarding production and capital investment,
2006 2007 2008 2009 2010 2011
correlation with power demand from large-lot users
(mining and manufacturing industries) is indicated
above. Regarding personal consumption and
residential investment, correlation with overall
power demand is indicated above.
３
  Supply constraints also reduced capital investment temporarily.
 Although corporate earnings have not constrained capital investment until now, attention
must be paid to the negative impact of the Earthquake on earnings.
Figure 1-1-12 (2) Capital investment after earthquakes
The recovery in capital investment faces downward pressure
from the disaster.
(Quarter preceding the disaster=100)
130
120
Figure 1-1-11 (1) Correlation between capital
investment and cash flow
The increase in capital investment in recent years has been
small compared with the strong growth in cash flow.
(Year-on-year change in capital investment, %)
15
10

110 5 2011 QI

0
100
-5
90 Great Hanshin-Awaji
-10
Earthquake 2010 QIV
80 -15
Great East Japan -20 2010 QIII
70 Earthquake
-25 y=1.0x-2.4
60 (t=9.3)
-30
-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7
(Number of quarters since the disaster) -30 -20 -10 0 10 20
(Year-on-year change in cash flow, year-on-year change,(two quarters before),%)
(Note) The numbers for January-March 2011 are preliminary ones that
exclude the numbers for companies in some regions including Iwate, (Note) The above figure indicates year-on-year changes
Miyagi and Fukushima Prefectures. The same applies to the right-hand in cash flow and capital investment (quarterly average).
figure.

 After the Earthquake, growth in corporate earnings slowed.

 Although the ratio of overseas investment is increasing as a trend, attention must be paid to the
post-Earthquake trend.
Figure 1-1-12 (1) Corporate earnings after earthquakes Figure 1-1-12 (3) Ratio of overseas investment
after earthquakes
Attention must be paid to the risk that a slump in corporate After the Great Hanshin-Awaji Earthquake, overseas
earnings will negatively impact capital investment. investment increased partly due to a strong yen.
(Quarter preceding the disaster=100) (Ratio to domestic investment, %)
140 70

120 60

100 50

80 40
Great Hanshin-Awaji
60 Earthquake 30
Great East Japan
40 Earthquake 20

20 10

0 0
90 92 94 96 98 00 02 04 06 08 10
-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7
(Number of quarters since the disaster) (FY)
(Note) The numbers for January-March 2011 are preliminary (Note) The above is the ratio for manufacturing
ones that exclude the numbers for companies in some regions companies (capitalized at \1 billion or higher).
including Iwate, Miyagi and Fukushima Prefectures. However, the ratio for FY1994 is for the materials
industry. The ratio for FY2010 is based on planned
investment.

４
  Behind the low growth of capital investment in recent years is a decline in the expected growth
rate.
Figure 1-1-11 (3) Expected growth rate and capital investment
In years when the expected growth rate is high, capital investment tends to grow.

(Expected growth rate, %) (Growth in capital investment, %)

6 25
Expected growth rate (over the next five years)
5 20

Expected growth rate (over the next three years) 15

4
10
3
5
2
0
1
-5
0
-10
-1 Growth in capital investment (right scale) -15
Expected growth rate (over the next year)
-2 -20
1981 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
(FY)

 In light of studies on the relationship between disasters and productivity, investment in human
capital (e.g., workers’ skills) and intangible assets such as intellectual properties are important
for medium-and long-term growth.

Table 1-1-14 Major studies on the impact of natural

disasters on productivity
Although the findings vary, the studies suggest the importance of
human capital and other intangible assets.
<Empirical studies> <Keys to sustainable growth after the Earthquake>

Findings
Suggested by 1 Introducing new technologies and
Countries where meteorological disasters precedent
Study A frequently occur are inclined toward investment studies new schemes (including regulatory
(Developed/developing in human capital and enjoy high growth. Adoption
reforms) at the time of the renewal of
countries) of new technology at the time of capital stock
renewal enhances productivity. capital stocks.
Although flood damage lowers corporate
Study B 2 Investing in human capital (workers’
productivity, the negative impact is smaller at
(Europe (companies)) skills) and other intangible assets
companies with more intangible assets.
(know-how, patents, software, etc.).
Countries prone to natural disasters enjoy the
Study C
fruits of R&D activity by developed countries via
(Developing countries)
imports.
3 Establishing safe, secure highly
Study D (Particular efficient and environment-friendly
Disasters do not have any impact on economic
(Developed/developing to the latest
countries)
growth.
disaster)
energy supply systems.

５
  What is particularly notable about the Earthquake is that it has been accompanied by a nuclear
disaster.
 The nuclear power station accident has not only caused power supply constraints but also has
had a negative impact on economic conditions, mainly in the tourism and leisure sectors.
Figure 1-1-18 Impact of the nuclear disaster
The impact of the nuclear disaster has become apparent mainly in the tourism and leisure sectors.
(1) Comments related to the nuclear disaster
Assessment of current conditions Assessment of future conditions
(Ratio to all comments, %) (Ratio to all comments, %)
20 10
18 9
March
16 8
April
14 7
12 6 May
March
10 5
April
8 4 June
May
6 3
June
4 2
2 1
Northern…

Southern…

Kyushu/…

Northern…

Southern…

Kyushu/…
Tokai/…

Tokai/…
Chugoku/…

Chugoku/…
0 0
Kinki

Kinki
National

National
Tohoku

Tohoku
Hokkaido

Hokkaido

(2) Breakdown of comments related to the nuclear (3) Changes in the number of visitors to Japan
disaster (assessment of current conditions) by nationality
(Number of comments) (10,000 people)
70 90 Overall
Related to other
Related to number
household
companies and
80
60 activities
employment
70
50 Related to tourism 60
and leisure
China Taiwan
40 Related to
50 South
10.6 restaurants
40 Korea
30 10.9
1.4
30
Related to 8.2 6.9
20 4.5
retail shops
1.5
20
7.8
10 3.5 10
4.9 2.7 2.4
0 0
March April May June 1 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 4 5
2009 2010 2011

(Notes) 1. The survey period of the "Economy Watchers Survey" is from the 25th day to the last day of each month.
2. "Comments related to the nuclear disaster" in Figures (1) and (2) refer to those that contain the terms "nuclear
power (nuclear power station accident)" and "radioactivity and radiation."
3. "Related to tourism and leisure" in Figure (2) represents the total number of comments related tourism,
transportation and leisure facilities among comments concerning services related to household activities. "Related
to other household activities" include comments related to services excluding tourism and leisure and those
related to housing. Numbers in the figures represent the ratios of comments related to the nuclear disaster to all
comments related to the relevant industries (assessment of current conditions) (%).

６
  After the Great Hanshin-Awaji Earthquake, the nationwide employment situation did not
deteriorate.
 While the unemployment rate in regions other than the three disaster-stricken prefectures has
been stable, there are concerns regarding a recovery in employment in the services industry.
Figure 1-1-21 Comparison with the employment situation after the Great Hanshin-Awaji Earthquake
Attention must be paid to whether or not the post-earthquake employment situation will deteriorate on a nationwide basis.

(1) Unemployment rate (2) Effective job offer ratio

(%) (times)
6 0.7

5
0.6
4
Great East Japan
Earthquake
3 0.5 Great Hanshin-Awaji
Earthquake
Great East Japan
2
Great Hanshin-Awaji Earthquake
0.4
Earthquake
1

0 0.3
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10
(Number of months since the disaster) (Number of months since the disaster)
(Note) The unemployment rates in the months after
the Great East Japan Earthquake do not reflect the
results in Iwate, Miyagi and Fukushima
 Growth in income is necessary for sustainable expansion of consumption.
 Attention should be paid to the trend in bonuses (including those at small and medium-size
enterprises) as well as the number of employed people.
Figure 1-1-22 (3) Real wage income after the Figure 1-1-22 (2)Contribution by real wage
Great Hanshin-Awaji Earthquake income
After the Great Hanshin-Awaji Earthquake, the number of Increases in the number of employed people and salary
income make relatively small contributions to growth in
employed people continued stable growth.
real wage income.
(Year-on-year changes in contributions, %) (Year-on-year changes in contributions, %)
8.0 4.0
Number of Prices
Real wage income employed people
6.0 Real wage income
2.0
Prices
4.0 0.0

2.0 -2.0 Nominal non-scheduled

cash earnings
0.0 -4.0 Nominal scheduled
cash earnings Nominal bonuses
Nominal bonus
-2.0 -6.0
Nominal scheduled Nominal non-scheduled
cash earnings Number of
cash earnings employed people
-4.0 -8.0
(Q)
Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ 4 (Qr/Mth)

1994 1995 1996 1997 (Yr) (Yr)

2008 2009 2010 2011
(Note) The 1995 summer bonuses, the first bonuses after the
earthquake, grew by 1.6% from the previous year at
companies with a workforce of 30 employees or more and by
0.5% at companies with a workforce of five or more.

７
 Section 2 Price Trends and Financial and Capital Markets
 Prices have remained stable since the Earthquake.
 Due to time lag effects, the past improvement in the supply-demand gap is now moderating
downward pressure on prices.
Figure 1-1-5 (4) Consumer prices before and after Figure 1-2-2 (1) GDP gap and consumer prices
disasters (overall prices)
A change in GDP gap tends to lead to an increase in the
Consumer prices have remained stable since the Great inflation rate with a time lag of around one year.
East Japan Earthquake.
(%) (%)
(Month preceding the disaster=100)
0.3 2
106
Great East Japan Hurricane Katrina 0.1
104 0
Earthquake -0.1
102
-0.3
100 -2
-0.5
98
-0.7 -4
96
Great Hanshin-Awaji
-0.9
94 Earthquake
-6
-1.1
92
-1.3
90 Consumer prices GDP gap -8
-1.5 (Year-on-year change） (Right scale)
88
-1.7 -10
86 (Yr)
19992000 01 02 03 04 05 06 07 08 09 10 11
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10
(Number of months since the disaster)
(Note) Consumer prices in the above figure are general
consumer prices excluding food and energy prices.

 Households’ expected inflation rate has risen due to a rise in crude oil prices and the
post-Earthquake supply constraints.
 The market’s expected inflation rate has remained relatively stable since the Earthquake.
Figure 1-1-6 (2) Expected inflation rates before Figure 1-2-14 (3) Breakeven inflation rates before
and after disasters and after disasters
Households' expected inflation rate rose after the Great East The market's expected inflation rate has remained stable
Japan Earthquake. since the Earthquake.
(%)
(%)
4.0 3.0
Hurricane Ka trina
3.5 2.5
3.0 2.0
2.5 1.5
Great Hanshin-Awaji Hurricane Katrina
2.0 Earthquake 1.0
1.5
0.5
Great East Japan Earthquake
1.0
Great East Japan 0.0
0.5 Earthquake
-0.5
0.0
-1.0
-0.5
-1.0 -1.5
-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7
(Number of months since the disaster)
(Number of quarters since the disaster)
(Note) After the Great East Japan Earthquake, the monthly
(Note) The figure for the first quarter after the Great average rate was -0.4% in March, -0.3% in April, -0.3% in
East Japan Earthquake is the average for April and May) May and -0.2% in June.

８
 Prices of oil products have been rising in line with a rise in crude oil prices since before the
Earthquake.
 One factor behind the structurally low expected inflation rate is a change in the population
mix.
Column 1-5 Figure Oil product prices before and Figure 1-2-11 (2) Relationship between the
after the Great East Japan Earthquake forecast of changes in the working-age population
and the expected inflation rate
Prices of heating oil and gasoline had already risen before The higher a country's forecasted rate of growth of
the Earthquake in line with a rise in crude oil prices. the working-age population is, the higher its
expected inflation rate.
150
(Inflation rate expected two years later
145 (annual average), %)
Dubai crude (yen terms)
140 25
135
130 Heating oil 20 y=1.4x+2.0
125 (8.7)
120 15
115
10
110
105
Regular gasoline 5
100
95
0
4 18 1 152913 5 1731142814281125 9 23 6 27
-5
10 11 12 1 2 3 4 5 6
-2 0 2 4
2010 2011 (Changes in the working-age population over
a five-year period (annual average), %)

 Interest rates have remained stable since the Earthquake due to the easy monetary policy or
monetary easing.
Figure 1-2-14(1) (2) Interest rates before and after disasters
Further monetary easing lowered short-term interests rates and stabilized long-term interest rates.
(1)Short-term interest rates (unsecured overnight call rate, (2) Long-term interest rate (10-year JGB yield)
FF rate)
(%) (%)
5 0.5 5

4 0.4 4
Hurricane Katrina

3 0.3 3
Hurricane Katrina

Great East Japan

2 Great East Japan 0.2 2 Earthquake
Great Hanshin-Awaji
Earthquake
(right scale) Great Hanshin-Awaji Earthquake
Earthquake 1
1 0.1

0 0 0

(Number of days since the disaster) (Number of months since the disaster)

(Note) After the Great East Japan Earthquake, the Bank of
Japan provided the largest-ever amount of funds through its
market operation. The FRB reduced the FF rate by 0.25 point
some 20 days after Hurricane Katrina (September 20, 2005.)
(Note) Some three months after the Great Hanshin-Awaji
Earthquake (April 14), the Bank of Japan reduced the official
discount rate by 0.75 point. After Hurricane Katrina, the FRB
reduced the FF rate by 0.25 point each seven times over a
12-month period.

９
 Section 3 Current Conditions of and Future Challenges for Public
Finance and Social Security
 The Lehman shock triggered a sharp deterioration in the fiscal balance.

Figure 1-3-1 National and Local Governments’ Cyclical and Structural Budget Balance
Since the implementation of fiscal measures after the Lehman shock, the balance has improved at a moderate pace.

(% of nominal GDP)
4
Structural primary balance Structural budget
2 balance Estimates
Interest payments (net)
0

-2

-4

-6
Cyclical budget
-8 balance
Fiscal balance
-10

-12
1990 92 94 96 98 2000 02 04 06 08 10
(FY)
(Note) The actual numbers for the years through FY 2009 are based on the System of National
Account, the Cabinet Office. The estimates for FY 2010 and 2011 are estimates made as of
May 2011 (they do not reflect the second supplementary budget for FY 2011).

 The size of outstanding debts of the Japanese government is more than double the size of GDP.
 Even if debts are netted against assets, the Japanese government still has vast excess debts.

Table 1-3-6 Government balance sheet （FY2009)

The government is in a state of net debt.
(trillion yen)
General
National Local Social security
government
government governments funds
Assets 985.8 342.9 438.7 204.2
Non-financial assets 470.1 101.6 365.3 3.2
Financial assets 515.7 241.3 73.3 201.1
Liabilities… (A) 1,231.2 830.4 203.7 197.0
National and local government bonds 795.8 731.4 64.4 0.0
　　 Retirement benefits liabilities 25.4 4.9 20.4 0.1
　　Pension reserves 181.6 0.0 0.0 181.6
Asset-liability difference -245.3 -487.4 234.9 7.2
（ Attached table)
Public contribution to pensions… (B)
(Contributions for past periods, current 273.2 257.6 15.6 0.0
value)
(A) + (B) 1,504.4 1,088.0 219.4 197.0
(Note) Regarding public pensions, the main table includes only reserves. The attached table also includes public contributions.
Regarding public contributions to pensions (contributions for past periods, current value), it is assumed that the national
government's contributions account for a third of the total contributions to basic pensions at the end of FY1999 and half of them at
the end of FY2009.

１０
  After the Great Hanshin-Awaji Earthquake, fiscal expenditures for restoration and
reconstruction grew sharply in the disaster areas.
 To achieve fiscal consolidation in the medium to long term, it is important to restrain
constant pressure for growth in other expenditures.

Figure 1-3-4 Change in fiscal conditions after Great Hanshin-Awaji Earthquake

(1) Public fixed capital formation (2) Government final consumption expenditures
After the Great Hanshin-Awaji Earthquake, public Government final consumption expenditures increased in
investment grew sharply due to restoration and the disaster areas but showed no notable change on a
reconstruction demand nation-wide basis.
(1994IV=100) (1994IV=100)
180 120
170 Hyogo Prefecture
115 Hyogo Prefecture
160 Nationwide
150
110
140
130 105
120 Nationwide
100
110
100
95
90
80 90
1994 95 96 97 98 (Yr) 1994 95 96 97 98 (Yr)

(4) Budget deficit and total revenues (general

(3) Total expenditures (general government)
government)
How to curb increases in expenditures other than
After the Great Hanshin-Awaji Earthquake, the budget
those related to restoration and reconstruction is an
deficit did not expand.
important issue.
(FY 1994＝100) (FY 1994＝100)
（％）
130 130 0
Ratio of budget deficit to GDP
125 Social benefits other than social 125 (Right scale)
transfers in kind
120 120 -5
Social contributions
Final consumption
115 expenditures 115
Total
110 110 revenues -10

105 Total expenditures 105

100 100 -15

Tax contributions
95 95
Gross fixed capital formation
90 90 -20
1994 95 96 97 98 (FY) 1994 95 96 97 98 (FY)

１１
  According to the experiences of OECD countries, many countries posted higher economic
growth rates after achieving fiscal consolidation.
 Countries that post higher growth rates after fiscal consolidation generally succeeded in
restraining public investment and social security expenditures.

Figure 1-3-8 (2) Fiscal consolidation effort and Figure 1-3-10 (3) Social security and public fixed capital
economic growth formation in countries with accelerated growth
The greater the fiscal consolidation effort is, the higher the Both public fixed capital formation and social security
economic growth rate after the consolidation period tends to be. expenditures are curbed.
(Change in GDP growth, %) (Changes in the ratio of public fixed capital formation to GDP, %)
10
0.5
y = 0.27x - 1.1 23.5% 7.8%
8
(t=2.5)
Japan (01) 0.0
6

4
-0.5
2
-1.0
0

-2 Japan (79-87) y = 0.12x - 0.14

-1.5 (2.4)
Japan (04-07)
-4
Fiscal consolidation 45.1% 21.6%
-2.0
-6 effort

-8 -2.5
0 2 4 6 8 10 12 14 16 -4 -3 -2 -1 0 1 2
(Improvement in structural primary balance, %) (Changes in the ratio of social security expenditures to GDP, %)
(Notes) 1.The fiscal consolidation period is determined as follows: it commences in the year when the structural primary balance to potential
GDP ratio improved one percentage point or more from the year before, or the second year of two years during which the ratio
improved one percentage point or more (however, a year-on-year improvement of 0.5 percentage points or more is required in the
first year); and it ends in the year when the ratio dropped from the year before or increased 0.2 percentage points or less.
2. The change in the growth rate represents the difference between the average GDP growth rate for the three years before the fiscal
consolidation period and the average for the three years after the period. "Countries with accelerated growth" are countries whose
growth rate increased after the fiscal consolidation period.

 If Japan is to limit growth in social security expenditures to a sustainable level despite the
rising ratio of elderly people, it is important to promote economic growth and improve the
efficiency of per-capita expenditures for the elderly person.
Figure 1-3-14 (1) Expenditure structure of countries Figure 1-3-15 (2) Growth factors of social security
Although the amount of Japan's expenditures is
expenditures (expenditures related to the elderly)
relatively small, the ratio of social security expenditures Expenditures grow due to an increase in per-capita expenditures
to overall expenditures is high. for the elderly in addition to a sharp rise in the population of
(%) elderly people.
(% of nominal GDP, %)
100
60 Per-capita expenditures (for people
Gross fixed capital aged 65 or older)
50 formation 70 Aging factor
Interest
40 payments 40
Other expenditures
30 10

20 -20

10 -50 Per-capita GDP factor

Social security expenditures
Expenditures related to the elderly
0 -80
Sweden
Switzerland

United Kingdom
Canada

Finland
Germany

Denmark
Australia

France
United States

Italy
Japan

Norway

Norway

Sweden

France
Canada

Finland
US

UK

Germany
Australia

Japan
Switzerland

Italy
Denmark

１２