Annual Report on the Japanese Economy and

Public Finance 2022

(Report by Minister of State for Economic and Fiscal Policy)

－Investment in human resources to realize a virtuous

cycle of growth and distribution－

July 2022
Cabinet Office, Government of Japan
 Key points of each chapter

 Chapter 1: Economic and Public Finance Trends and Challenges

The Japanese economy continues to grow under “living with COVID-19” initiatives. In the future, Japan should put the
economy on a path of autonomous growth led by private sector demand through pay hikes and government-private
cooperation in systematic investment, while responding appropriately to behavioral transformation and changes in the
international economic environment caused by COVID-19. The Japanese economy, though not plagued with the so-
called stagflation, must promote continuous, stable pay hikes and the steady reduction of demand-supply gaps to
become an economy with rising pay and prices and break away from deflation. As public finance is based on the
economy, Japan should reconstruct its economy robustly to realize economic growth through government-private
cooperation in systematic investment and integrally promote the development of a sustainable social security system
and fiscal consolidation.
 Chapter 2: Challenges towards Securing Labor and Improving Labor Quality
Pay per capita has stagnated in the absence of sufficient growth in the entire economy’s earning power amid prolonged
deflation and of sufficient distribution meeting labor productivity growth. Pay must be raised to meet labor productivity
growth and inflation. As labor input is expected to decrease in line with a population fall, Japan should promote labor
participation by females and elderly people and improve working people's performance through labor turnover. Japan
should also spread the principle of equal pay for equal work for the purpose of narrowing gender-based pay gaps and
enhance business people’s relearning to improve labor quality through investment in human resources.
 Chapter 3: Challenges regarding Investment to Increase Growth Potential
As business investment has generally remained cautious, Japan should promote government-private cooperation in
stimulating investment in decarbonization and digitalization. This should link the resolution of social challenges, such
as heavy dependence on energy imports, to the creation of value added. Japan should also pave the way for pay to be
raised continuously and stably for the purpose of allowing decarbonization costs to be passed on to prices of goods and
services. While the promotion of digitalization is expected to contribute to resolving social challenges, such as
decarbonization and regional revitalization, Japan should enhance investment in human resources in consideration of
the quantitative and qualitative shortages in human resources for information technology (IT) that have become a
bottleneck to digitalization.
 Contents
Chapter 1: Economic and Public Finance Trends and Challenges
・・・・・・・・・p1

Chapter 2: Challenges towards Securing Labor and Improving Labor Quality

・・・・・・・・・p6

Chapter 3: Challenges regarding Investment to Increase Growth Potential

・・・・・・・・・p11

This material has been tentatively prepared to explain the Annual Report on the Japanese Economy and Public Finance.
For quotations and other purposes, please refer to the text of the Annual Report on the Japanese Economy and Public Finance.
Chapter 1 Section 1: Trends and Challenges of the Real Economy Affected by COVID-19, etc. (Macroeconomic Trends)
 Real GDP almost restored the level before the COVID-19 outbreak. As the government has tried to allow economic and social activities to be
sustained as much as possible under the living with COVID-19 concept, the impacts of the COVID-19 infection spread on the economy, including
consumer spending, have declined since early 2022 (Figure 1). Capital investment, though rebounding amid earnings improvements, still slips below
the level before the COVID-19 outbreak, leaving the expansion of investment as a challenge.
 As consumer spending in the immediate future is supported by excess household savings, which increased substantially in 2020, a consumer spending
recovery is expected to grow more robust under pay hikes (Figure 2). The business sector, which has retained excess savings since the 2000s, is
required to implement more proactive investment under the new capitalism.
Figure 1 Recovery processes of GDP and its components Figure 2 Breakdown of Japan’s savings-investment balance
(1) Real GDP growth rate (2) Export
(Q4 2019 = 100) (Q4 2019 = 100) (Tri. Yen)
110 110 100
<Q1 2022>
Japan U.S. Japan: 101.5 U.S.: 92.3 Japan
U.K.: 80.1 Germany: 99.0
100 100 Household sector Savings-investment balance
Germany (broken curve)
Germany Business sector
90 90
<Q1 2022> U.S.
Japan: 99.4 50
80 U.S.: 102.8 80
Germany: 99.1
U.K. U.K.: 100.7
U.K.
70 70
Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ (Quarter) Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ (Quarter)
2019 20 21 22 (Year) 2019 20 21 22 (Year)
0
(3) Consumer spending (4) Capital investment
(Q4 2019 = 100) (Q4 2019 = 100)
110 110
U.S U.S.
Japan . Japan
100 100
-50
90 Germany 90
Germany Government sector
<Q1 2022>
80 Japan: 99.9 80
U.S.: 105.1 <Q1 2022>
U.K. Germany: 96.7 Japan: 95.7 U.S.: 104.8
U.K. Germany: 96.2 U.K.: 90.9
U.K.: 99.3
70 70 -100
Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ (Quarter) Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ (Quarter) 1995 2000 05 10 15 20 (Year)
2019 20 21 22 (Year) 2019 20 21 22 (Year)

(Source) Figure 1: Compiled based on System of National Accounts, Cabinet Office; U.S. Department of Commerce; Office for National Statistics; and Federal Statistical Office. Figure 2: Compiled based on System of National Accounts, Cabinet Office. 1
 Chapter 1 Section 1: Trends and Challenges of the Real Economy Affected by COVID-19, etc.
(Household and business sector trends after the COVID-19 outbreak)
 Consumer spending has been rebounding since March 2022, centering on eating-out and travel (Figure 3). However, middle-aged and older people
(aged between 40 and 59 and between 60 and 74) are more cautious of spending money on services than younger people aged between 25 and 39.
Group travel spending indicates a weak rebound. Business travel spending is generally weak (Figure 4).
 Under progress in vaccination, the link between an increase in human traffic at night and the spread of the COVID-19 infection has declined (Figure 5).
 Transportation, electrical, information and communication machinery manufacturers among others face supply constraints, such as global
semiconductor shortages, leaving the enhancement of supply chains as a challenge (Figure 6). The external trade balance has been affected by a decline
in export competitiveness of electrical machinery and industrial materials manufacturers and an increase in mineral fuel imports after the Great East
Japan Earthquake (Figure 7).
Figure 3 Consumer spending trend Figure 4 Travel spending trend after Figure 6 Year-on-year production growth
after the COVID-19 outbreak (From 2019, %) the COVID-19 outbreak (%) in the second half of 2021
(1) Consumption expenditure trend 0 40
-10
(From FY2016-2018, %) -20 Business travel 30
20 Domestic travel
-30 Group travel 20
10 -40
Total Goods -50 10
0 -60 0
-70
-10 -80 -10
-20 -90 -20

機Production

化Chemicals

電information

輸送機械
鉄Iron,

そOther
デand

汎General-purpose

鉱manufacturing
金
-100

電
生産用

Electronic parts

machinery
business oriented

non-ferrous

Mining

equipment
communication
Electrical

Transport equipment
機械工業
械工業 machinery

学工業

気・情machinery,
工業
鋼・

の他manufacturing
バdevices

用・業務用and

工業 and
Services

機械工業electronics
属工業metals
子部品・
-30 Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ (Quarter)

イス工業

steel and
非鉄

工業
2020 21 22 (Year)
-40

報and
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 (Month)

通信 and
2020 21 22 (Year) Figure 5 Rate of increase in the number of new
COVID-19 infections after growth in night
(2) Consumer spending trends by age group (services) human traffic in entertainment zones Figure 7 External trade balance trends
Vaccination rate at 0 Vaccination rate at about 70% (Tri. Yen)
(From FY2016-2018, %) (Rate of change in the number of (Rate of change in the number of 50
10 Manufactured goods Electrical machinery
Aged between 40 and 59 2.0 new infections from Week 0, %) 2.0
new infections from Week 0, %)
Machinery
5
0 30 Motor vehicles
-5 Aged between 1.5 1.5
-10 25 and 39 10
-15 1.0 1.0
-20
-25 0.5 0.5 -10
-30
-35 Aged 60 and 74 0.0 0.0 -30 Others
-40 Mineral fuels Medical products
-45 -0.5 -0.5 Trade balance (broken curve)
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 (Month) 1 2 3 4 5 1 2 3 4 5 -50
(Weeks after a 1% rise in night (Weeks after a 1% rise in night 1 2 3 4 5 (Month)
2020 2021 2022 (Year) human traffic in Week 0) human traffic in Week 0) (Year)
2000 05 10 15 2021 22

(Source) Figure 3: Compiled based on Nowcast Inc.; and JCB Consumption NOW, JCB Co., Ltd. (2) indicates rates of changes from the FY2016-2018 average by age group. Figure 4: Compiled based on Travel and Tourism Consumption Trend Survey, Japan
Tourism Agency. January-March 2022 data are preliminary. Figure 5: Compiled based on Anti-COVID-19 Measures, Office for COVID-19 and Other Emerging Infectious Disease Control, Cabinet Secretariat; COVID-19 Vaccination Status, Digital
Agency; COVID-19 Information Learned from Data, MHLW; etc. Rates of changes in the number of new COVID-19 infections after Weeks 1 to 5 after a 1% increase in night human traffic (difference in human traffic gap between 9 p.m. and 4 a.m.) in 63
entertainment zones in Japan in Week 0. The vaccination rate indicates the second vaccination status. The broken lines indicate the upper and lower bounds of the 90% confidential interval. Figure 6: Compiled based on Indices of Industrial Production,
Ministry of Economy, Trade and Industry (METI). Figure 7: Compiled based on Trade Statistics of Japan, Ministry of Finance (MOF). Monthly data in 2022 are annualized. 2
Chapter 1 Section 2: Raw Material Price Hikes and Prospects for Breaking Away from Deflation
(Raw material price hikes and their impacts on the Japanese economy)
 Crude oil price hikes since 2021 are equivalent to those during the second oil crisis (Figure 8). On the other hand, price hikes in Japan are slower than in
Europe and North America (Figure 9). The first oil crisis led to spiraling hikes in prices and pay, triggering stagflation (Figure 10). Given that the
economy is currently rebounding in the absence of remarkably high price hikes, the economy is not in a situation called stagflation.
 Japan’s GDP gap still remains negative (Figure 11), indicating that upside pressure on prices in the Japanese macroeconomic environment is weaker
than in Europe and North America. In order to prevent stagflation, Japan should continuously and stably raise pay and steadily reduce the supply-
demand gap to break away from deflation.
Figure 10 Macroeconomic indicator trends compared with
Figure 8 Crude oil price trend those during past oil price hikes
Current crude oil
150
(US dollar / barrel) price spikes Real GDP Real capital investment
Crude oil price spikes (from December (100 for standard period) (100 for standard period)
Arabian Light spot price in the mid-2000s Up by 2020 onward) 2nd oil crisis
(from April 2007 to July 2008) 108% 120
2nd oil crisis 120
Current crude oil (Q4 1978) Current crude oil
100 price spikes price spikes
1st oil crisis (Q4 2020) 110
110 1st oil crisis
(from December 1972 to March 1974) Up by
2nd oil crisis 154%
50 Up by 100 100
(from December 1978 to July 1980)
370%
Up by WTI crude oil 90
120% 90 Crude oil price spikes 1st oil crisis
futures price (Q4 1972) Crude oil price spikes
0 in the mid-2000s
1971 75 80 85 90 95 2000 05 10 15 20 22 (Year) (Q1 2007) in the mid-2000s
80 80
-4 -2 0 2 4 6 8 10 12 14 16 -4 -2 0 2 4 6 8 10 12 14 16
(Quarter) (Quarter)
Figure 9 International comparison of consumer price indexes (overall)
(Y/Y, %)
10 Figure 11 International comparison of GDP gap
(%)
U.S. 2
8
Germany U.S.
EU
1
6
0
4 Japan -1
2 -2
-3
0 U.K.
-4
France
-2 -5 Japan
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 5 (Month)
-6
2015 16 17 18 19 20 21 22 (Year)
2015 16 17 18 19 20 21 (Year)

(Source) Figure 8: Compiled based on Bloomberg. Arabian Light is a Saudi Arabian light crude oil brand that had been adopted as a benchmark for prices of crude oil produced by the Organization of the Petroleum Exporting Countries (OPEC). It had been a
global benchmark crude oil in the 1970s and 1980s. Crude oil price spike periods for the first and second oil crises and the hikes in the mid-2000s are each defined as between the oil price upturn and the end of hikes by reference to the Annual World
Economic Report for 1980. The latest crude oil spike period is between December 2020 and June 2022. Figure 9: Compiled based on Consumer Price Index, Ministry of Internal Affairs and Communications (MIC); and the statistics of each country. Figure
10: Compiled based on System of National Accounts, Cabinet Office. Figure 11: Compiled based on System of National Accounts, Cabinet Office; World Economic Outlook 2021, IMF; etc. GDP gap = (actual GDP － potential GDP) / potential GDP.
3
 Chapter 1 Section 2: Raw Material Price Hikes and Prospects for Breaking Away from Deflation
(Price trends and challenges towards breaking away from deflation)
 Although it is important for nominal pay to increase in tandem with price hikes and labor productivity growth to break away from deflation, nominal
pay hikes are insufficient in comparison with price hikes (Figure 12). Growth in real hourly pay has remained below labor productivity growth. Japan
should not only promote pay hikes to raise workers’ share of national income but also stem the deterioration of terms of trade.
 Although pay-scale and bonus increases are important for raising pay per capita, pay-scale hikes were limited to less than 0.2% in 2020 and 2021
(Figure 13). Given the prolonged deflation, enterprises have failed to see labor productivity and price trends as important for determining pay levels.
The government and private sectors should share how adequate pay hikes should be, based on data and evidence.
 On the occasion of the second oil crisis, robust growth in capital investment, including energy conservation investment, limited the crisis’s impacts on
the economy and improved energy consumption efficiency (Figure 14). By reference to experiences with the second oil crisis, the government and
private sectors should cooperate in promoting systematic investment in priority areas under the new capitalism to stimulate private sector investment,
which has stagnated over the long term.
Figure 12 Relationship between pay hikes Figure 14 Energy conservation investment and
and labor productivity Figure 13 Enterprises’ pay-increasing actions
energy efficiency improvements
(1) Relationship between consumer prices and nominal pay (%) (1) Breakdown of monthly pay hike
2.5 (Share, %) Share for energy conservation investment
(Y/Y, %) 6.0
12
Nominal pay growth Nominal pay growth tends 2.0 Manufacturing
5.0
tends to surpass to rival or slip below
consumer price growth consumer price growth 1.5
7 Seniority-based pay hike 4.0
All industries
Consumer price growth (overall) 1.0 Pay-scale hike 3.0
2 0.5
2.0
0.0
-3 1.0
2014 15 16 17 18 19 20 21 (Year) Non-manufacturing
Nominal pay growth
(%) (2) Factors considered for determining pay 0.0
90 1978 80 82 84 (FY)
-8 80 2009 2015
(Year)
70 Energy consumption efficiency trend
60 2019 2021 (FY1973 = 100)
50 300
(2) Breakdown of cumulative contributions to real pay Manufacturing (processing)
40
(Contribution compared from 2000, %) 30 250
30 Total Tertiary sector
Labor productivity 20
Real pay per hour 10 200
20 0
(broken curve)
企Enterprise

世Average

労Stabilization
経Economic

雇Maintenance

昨Amount/rate

物Price
人Securement

生Improvement

税Rising
そOthers
retention向rates
and improvement of

stabilization of employment

last year

management relations

premium
業業績 performance

間相場pay levels

使関係の安
済・景気trends

用の維持・

年の妥協額

価のtrends
材確保・定

産性の向上of productivity

・社会
の他
10 150

の増
動向

tax and social security

0 100

保険料負担
burdens
上
の動向

大
of 着

as・

of定
and

Transportation
安定

Household
personnel

-10 Workers’ Terms of trade, etc. 50

agreed

labor-
率
率の

share of
national income Manufacturing (industrial materials)
-20 0
2000 03 06 09 12 15 18 21(Year) 1973 78 83 88 93 98 03 08 13 18 (FY)

(Source) Figure 12: Compiled based on Consumer Price Index & Labor Force Survey (Basic Tabulation), MIC; Monthly Labour Survey, Ministry of Health, Labour and Welfare (MHLW); and System of National Accounts, Cabinet Office. Real pay and labor
productivity are on a man-hour basis. Real pay = Nominal employment compensation / Household final consumption expenditure deflator (excluding imputed rent) / Employment / Work hours. Figure 13: Compiled based on Seniority-based Pay and Pay-
scale Hike Survey, Keidanren. The survey period is between January and June each year. Each enterprise was asked to specify both. Figure 14: Compiled based on Survey on Planned Capital Spending, Japan Development Bank (Development Bank of Japan
Inc.); and Comprehensive Energy Statistics, Agency for Natural Resources and Energy (ANRE). Energy consumption efficiency = Real GDP / Final energy consumption (households: Household final consumption expenditure / Final energy consumption). 4
 Chapter 1 Section 3: Fiscal Status and Challenges
(Fiscal policy under COVID-19 and challenges towards medium to long-term economic and fiscal management)
 As large-scale economic packages have been formulated during the current COVID-19 crisis, the primary budget balance deficit and government debt
as a percentage of GDP have increased sharply (Figure 15). While the economy has posted a substantial nominal contraction, tax revenue has
increased due to a consumption tax increase, the maintenance of household income under government economic support and corporate profit growth
(Figure 16).
 Before the COVID-19 crisis, nominal GDP growth was contributing to pushing down government debt as a percentage of GDP after the end of the
deflationary situation in 2013 (Figure 17). Due to expenditure reform and revenue growth, contributions to the primary budget deficit were almost
halved from the 2000-2012 period. While expenditure growth accompanying population aging, supplementary budgets and a consumption tax increase
deteriorated the primary budget balance, nominal GDP growth through a natural revenue increase and other factors contributed much to improving the
primary budget balance as a percentage of GDP (Figure 18). After reconstructing its economy robustly, Japan should integrally promote economic
growth, the development of sustainable social security systems and fiscal consolidation as medium to long-term challenges.
Figure 15 National and local government finance Figure 17 Changes in general government debt
as a percentage of GDP in major countries
(1) Changes in the national and local primary (2) National and local government (1) 2000 to 2012
budget balance as a percentage of GDP debt as a percentage of GDP (2) 2013 to 2019
(Y/Y, %pt) (%) (Average annual growth, %pt) (Average annual growth, %pt)
4 270 15 15
Estimates Government debt as a percentage of GDP Government debt as a percentage of GDP
Nominal GDP Estimates 260 250.5 (broken curve) (broken curve)
10 Debt service 10 Debt service
Primary budget Primary budget factors
2 Revenue 250 balance factors
factors balance factors
1.7 245.8 5 5
0 240
226.1 0 0
230 249.1
1.4
-2 Expenditure -0.8 220
-5 -5
GDP deflator factors Real GDP factors Other factors
210 -10 -10
-4 Y/Y changes Real GDP factors Other factors GDP deflator factors
in the national and local 200
217.9 -15 -15

アU.S.

フFrance

イItaly
日Japan

英U.K.
ドGermany

カCanada
ドGermany

カCanada
アU.S.

フFrance

イItaly
日Japan

英U.K.
primary budget balance as a

メリカ

ランス

タリア
本

国
イツ

ナダ
-6

イツ

ナダ
メリカ

ランス

タリア
本

国
percentage of nominal GDP -6.6 190
(broken curve)
-8 180
2012 15 19 20 21 22 (FY)
2012 15 19 20 21 22 (FY) Figure 18 Changes in the national and local government primary
budget balance as a percentage of GDP since FY2013
(Tri. Yen)
Figure 16 Nominal GDP and national tax revenue trends (Tri. Yen) (Changes from FY2012 in the balance as a percentage of nominal GDP, %pt)
570 7
59.9 Primary budget balance as a Nominal GDP factors
557.2 6 percentage of GDP 0.7
60 0.7 Revenue factors accompanying nominal
5 (changes from FY2012) GDP changes
52.9 550 (broken curve) 2.7 Revenue factors due to tax reform, etc.
538.5 4 2.7 (consumption tax factors)
National tax revenue 57.4 3
50 Revenue factors due to tax reform, etc.
530 2 1.5 1.6 (Factors due to tax reform, etc.)
535.5
49.8 37.7 1 Expenditure factors
1.3 1.0 (social security expenditure factors)
40 523.4 0
510 -0.8 -1.0 Expenditure factors (Public investment factors
-1 -0.6 among non-social security expenditure)
-0.8
497.4 Nominal GDP (right scale) -2 -0.4 -0.9 Expenditure factors (Non-public investment
30 490 -3 factors among non-social security expenditure)
2005 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 (FY) 2012 13 14 15 16 17 18 19 (FY)
(Source) Compiled based on System of National Accounts & Economic and Fiscal Projections for Medium to Long Term Analysis (released on January 14, 2022), Cabinet Office; Survey of the Amount settled of Tax and Stamp Revenue, MOF; OECD.Stat;
and World Economic Outlook, IMF. Figure 15: (1) FY 2021-22 data are from estimates in Economic and Fiscal Projections for Medium to Long Term Analysis. (2) FY2021-22 data represent FY2020 data plus later accumulated budget balance data in
Economic and Fiscal Projections for Medium to Long Term Analysis. 5
 Chapter 2 Section 1: Challenges regarding Investment in Human Resources as Seen from Growth and Distribution
 Japan’s real GDP growth has been limited to moderate levels for about 30 years. Labor input factors behind the limited growth include declining
population and a decrease in work hours per capita through the diffusion of the complete five-day work week system and an increase in the number of
non-regular employees. Real GDP per work hour in Japan has grown as much as in other major developed countries (Figure 1). While total factor
productivity and labor contributions have grown in Japan since 2013, capital contributions have decreased substantially, widening their gaps with those
in other major developed countries (Figure 2).
 Nominal pay per capita has stagnated (Figure 3). Factors that have been pushing down nominal pay capita have been a decline in work hours per capita
and an increase in the number of females and elderly workers with relatively lower pay levels. Meanwhile, positive contributions by growing hourly
pay have expanded since 2013.
 Hourly pay has moderately increased for females among ordinary workers (full-time) (Figure 4). For males, hourly pay has turned up since 2013. For
those in their 40s, however, hourly pay has followed a downtrend. Hourly pay for male workers in their 50s has increased moderately since the mid-
2010s due to the postponement of retirement.
Figure 1 Real GDP trends in major developed countries Figure 3 Nominal pay per capita breakdown by factor
(1) Real GDP (2) Real GDP per work hour
(1990 = 100) 207.3 (1990 = 100) 161.0 157.0 (Change from 1993, %)
220 170 20
15 Hourly pay
200 U.S. 160 Japan U.S. Share
U.K 10
180 172.7 150 U.K.
France . 5
160 155.3 140 0
-5
140 150.9 130 153.3 -10
146.7
120 120 -15
Germany -20 Nominal pay per capita (broken curve)
100 Germany Japan 126.3 110 France 142.1
-25 Work hours per capita
80 100 -30
1990 93 96 99 02 05 08 11 14 17 20 1990 93 96 99 02 05 08 11 14 17 20 1993 95 97 99 01 03 05 07 09 11 13 15 17 19 21
(Year) (Year) (Year)
Figure 2 Real GDP growth breakdown by factor Figure 4 Hourly pay for ordinary workers
(total factor productivity, labor and capital)
(Average of each period, %) (1) All age groups (2) Hourly pay for male workers
3 (Yen) (Yen) by age group
Total factor productivity (TFP) 3,000 3,000
Non-ICT capital 50s
Average growth rate 40s
2 2,500 Male 2,500
ICT capital 30s
2,000 2,000
1
1,500 1,500
0
1,000 1,000
Labor input (man-hour) Female 20s
-1 500 500
2000-12 2013-18 2000-12 2013-18 2000-12 2013-18 2000-12 2013-18 2000-12 2013-18 (Year) 1990 95 00 05 10 15 20 1990 95 00 05 10 15 20
(Year) (Year)
Japan
日本 U.S.
アメリカ U.K.
英国 France
フランス Germany
ドイツ
(Source) Figures 1 & 2: Compiled based on OECD.Stat. Figure 3: Compiled based on Monthly Labour Survey & Basic Survey on Wage Structure, MHLW. Figure 4: Compiled based on Basic Survey on Wage Structure, MHLW; and the website of an online
search system for labor statistical data developed by the Japan Institute for Labour Policy and Training (JILPT). Broken line data are based on the estimation method in or before 2010 and solid line data on the method in 2020. 6
 Chapter 2 Section 2: Challenges towards utilization of human resources (declining population and employment trends, diversification
of employment and promotion of labor force participation)
 Employment has increased even under falling population thanks to progress in females’ labor participation since the mid-2010s (Figure 5). As
population decline and aging accelerate in the future, man-hour labor input (work hours per capita × employment) may decrease at an annual rate of
0.6-1.1% even amid progress in labor force participation (Figure 6).
 To ease a decline in labor quantity, females’ and elderly people’s labor participation must be promoted further. In addition to unwilling non-regular
employees, jobless people and job seekers, who account for nearly 10% of Japan’s population (Figure 7), short-term workers hoping to increase work
hours (Figure 8), and people adjusting work hours (Figure 9) should be encouraged through institutional reform and job assistance to promote their
labor participation.
Figure 5 Breakdown of employment by factor Figure 6 Future scenario of labor input Figure 8 Short-time workers hoping to increase work hours
Female employment rate (1) Number (2) Share by age group
(Compared with 1990, 10,000 people) (2019 = 100) (10,000 people) Aged 65
1,000 110 250 100% or more
Females aged 15 Employment Arbitrary estimation period
or more (broken curve) Female Aged between
100 80% 55 and 64
500 Medium-level 200
90
scenario Aged between
60% 45 and 54
80 150 Aged between
0 40% 35 and 44
Male
70 Aged between
20% 25 and 34
Males aged 15 100
-500 Aged between
or more 60 Low-level scenario 0% 15 and 24
Male employment rate 50 50 2012 21 2012 21 (Year)
-1,000 (Year) 2012 14 16 18 20 (Year) Male Female
男性 女性
1990 95 2000 05 10 15 21 (Year)

Figure 7 Job seekers (unemployed at present) Figure 9 Female workers’ work hour adjustment
(2017, non-regular employees)
(10,000 people) (1) Male (10,000 people) (2) Female Others (10,000 people)
500 900 500
Without work hour adjustment (without spouse)
800 400
400 Hoping to maintain health Without work hour adjustment (with spouse)
700
Having time to work 300 With work hour adjustment (without spouse)
600
300 With work hour adjustment (with spouse)
500 Hope to participate 200
400 in society
200 100
300 Hoping to take advantage
of knowledge or skills 0
100 200

0.5 million yen

Less than

0.99 million yen

0.5 million to

1.49 million yen

1.0 million to

1.99 million yen

1.5 million to

2.49 million yen

2.0 million to

2.99 million yen

2.5 million to

3.99 million yen

3.0 million to

4.99 million yen

4.0 million to

or more
5.0 million yen
Required to obtain an income

50万円未満

50～99万円

100～149万円

150～199万円

200～249万円

250～299万円

300～399万円

400～499万円

500万円以上
100 Graduating from school
0 0 Left unemployed
1992 97 2002 07 12 17 (Year) 1992 97 2002 07 12 17 (Year)

(Source) Figure 5: Compiled based on Labor Force Survey (Basic Tabulation), MIC. Figure 6: Compiled based on Labor Force Survey (Basic Tabulation), MIC; Population & Household Projection for Japan: 2015-2040, National Institute of Population and
Social Security Research; and Labor Supply and Demand Projection – Projection with Labor Supply and Demand Model (FY2018 edition), JILPT. The medium-level scenario refers to data for medium birthrate/mortality and economic growth
realization/labor participation scenarios, and the low-level scenario to data for low birthrate/medium mortality and zero growth/present labor participation scenarios. Figures 7 & 9: Compiled based on Employment Status Survey, MIC. Jobless people
include fully unemployed people. Figure 8: Compiled based on Labor Force Survey (Detail Tabulation), MIC. 7
 Chapter 2 Section2: Challenges towards utilization of human resources (Promotion of diverse work styles and labor mobility)
 Regarding labor mobility, the share for employees hired after their job changes has been rising for males in their 30s and for females in their 40s and
50s (Figure 10). Pay has increased after job changes remarkably for males under 40s and for females in their 30s and 40s (Figure 11). Annual income
for regular employees one year after their job changes has increased for those aged below 50. Annual income growth one year after job changes has
been higher for changes within the same industry than for cross-industrial changes (Figure 12). Under the COVID-19 crisis, the number of regular
employees hoping to change jobs has increased (Figure 13). A future challenge is to encourage employed workers in various age groups to perform
better through changing jobs.
 Workers with side or multiple jobs are mainly among young people at present (Figure 14). It is hoped that the number of people with side jobs and
multiple jobs will increase through workers’ sharing of success stories and challenges and the diffusion of relevant guidelines.
Figure 10 Changes in the share for employees hired after job changes Figure 12 Annual income changes for regular employees
before and after their job changes (2016-2020)
(1) Male (%) (2) Female (1) Job changes within the same industry (2) Cross-industrial job changes
(%)
20 20 (10,000 yen) (10,000 yen)
Under 30s 600 600
Under 30s One year after a job change Year before One year after
a job change a job change
Year for a job change 500
15 15 30s 500
Year for
Year before a job change
Total 30s 400 a job change 400
10 10
300 300

5 5 200
200 Aged 34 Aged between Aged 50
Total 40s 50s Aged 34 Aged between Aged 50 34歳以下
or less 34～49歳
34 and 49 50歳以上
or more
40s 50s 34歳以下
or less 34～49歳
34 and 49 50歳以上
or more
0 0 Figure 13 Changes in workers Figure 14 Share for people with
2000 05 10 15 20 2000 05 10 15 20 hoping to change jobs side jobs or multiple jobs
(Year) (Year)
(10,000 people) 20
(%) (1) Male
350 Under 30s 30s
Figure 11 Pay changes for general workers hired after job changes
300 15
(2019)
(2) Female Unknown
(%) (1) Male (%) 250 Female non-regular worker 10
100 100
40s 50s
25.7 Decreased 200
80 28.2 29.1 80 37.4 34.1 35.7 Male regular worker 5
42.4 41.2 2017 18 19 20 (Year)
150
60 31.6 60 No change (%) (2) Female
28.3 35.9 24.8 26.0 100 20
26.6 Under 30s
40 31.3 40 28.7
Male non-regular worker 15 40s
50
41.5 42.0 Increased Female regular worker
20 33.9 20 34.6 40.3 37.8
26.1 28.4 0 10 50s
2013 14 15 16 17 18 19 20 21 30s
0 0 (Year)
Under 30s 30s 40s 50s Under 30s 30s 40s 50s 5
29歳以下 30代 40代 50代 29歳以下 30代 40代 50代 (Year)
2017 18 19 20

(Source) Figures 10 & 11: Compiled based on Survey on Employment Trends, MHLW. Share for employees hired after job changes = Number of employees hired after job changes / Total number of ordinary employees. Employees hired after job changes refer to
employees hired after job changes within the past one year. Figures 12 &14: Compiled based on Japanese Panel Study of Employment Dynamics, Recruit Works Institute. Microdata were specially tabulated with a weighted tabulation method. Figure 12
tabulates annual income data for people who changed jobs between 2016 and 2020. Figure 13: Compiled based on Labor Force Survey (Detail Tabulation), MIC. 8
 Chapter 2 Section 3: Towards Improving Labor Quality
(Gender-based pay gap/non-regular employment and labor quality, promotion of recurrent education)
 Factors behind the gender-based pay gap include: (1) females’ lower shares of regular employees and higher job positions, and a shorter average
duration of services for females; (2) Lower pay hikes for regular female employees and lower seniority-based pay hikes for females (Figure 15).
 The share for non-regular employees has followed an uptrend for males over the medium to long term and a downtrend for females since the mid-2010s
(Figure 16). The share for female employees who found non-regular jobs just after school graduation and currently have non-regular jobs is larger
(Figure 17), indicating that non-regular employment is fixed for females.
 Indicating the effects of recurrent education, some 20% of people assumed jobs they wanted or achieved annual income growth after recurrent
education at universities, etc. (Figure 18). In particular, workers who implement both off-the-job training and personal development earn higher annual
income than those who implement either (Figure 19). It is hoped that enterprises will encourage their employees’ to engage in recurrent education by
specifying skills or capabilities required for their jobs, leading to the improvement of treatment and annual income growth for their employees.
Figure 17 Employees who found non-regular jobs just after
Figure 15 Breakdown of gender-based pay gap Factors that school graduation and currently have non-regular jobs
(2) Pay gap between males and make it easier
(1) Gap between shares for males and females for pay to rise
females with same attributes for females than (%) (1) Male (%) (2) Female
(Contribution, %) (Contribution, %) for males 100 100
4 4
2 2
0 0 80 80
-2 -2
-4 -4
-6 60 60
-6 Factors that
-8
-8 -10 make it more
-10 -12 difficult for 40 40
-12 -14 pay to rise for
年Ages

６Non-regular
企Enterprise

勤Duration
学Educational

職Job

正Regular

年Ages

６Regular

勤Duration

企Enterprise

勤Duration
学Educational

職Job

正Regular

年Ages

６Regular

勤Duration
年Ages

６Non-regular
females than
employees

for regular employees

employees

non-regular employees
aged 60 or more

aged 60 or more

employees

for regular employees

employees

non-regular employees
aged 60 or more

aged 60 or more
齢・for

０歳以上・
業規模 size

続年数of
歴

位 positions

齢・for

０歳以employees

続年数of

20 20
業規模 size

続年数of
歴

位 positions

齢・for

０歳以employees

続年数of
齢・for

０歳以上・
for males
非non-regular
正regular

正regular

非non-regular
employees

employees

0 0
正規
・services
規

上・正規

・services

・services
規

上・正規

・services
正規
Under 25 Aged Aged Aged Under 25 Aged Aged Aged
正規

非正規for

25歳未満 25～34歳
between 35～44歳
between 45～54歳
background

25歳未満 25～34歳
between 35～44歳
between 45～54歳
正規

非正規for
background
employees

between

employees
between
非正規

25 and 34 35 and 44 45 and 54

非正規
25 and 34 35 and 44 45 and 54

Figure 16 Non-regular employee share Figure 18 Effects of recurrent education Figure 19 Secular changes in effects
(%) of recurrent education on pay
(%) (1) Male trend (%) (2) Female ((1) n=284, (2) n=815, 0
multiple answers allowed)
10 20 30
8
(%)
100 100
Aged between 55 and 64 Implementing both
Finding hoped-for jobs
希望の仕事に転職 6
80 80 Aged between 45 and 54
Aged 65 or more Aged 65 or more 4
Annual 年収が増加
income growth
60 Aged between 60
55 and 64 Improving business (1) Learning at 2
Aged between universities, Off-the job training alone
40 25 and 34
40 quality/achievements
在籍企業での業務… at etc.
Aged between 45 and 54 employer enterprises 0
All age groups Aged between 35 and 44
20 Promotion (2) Learning at private
20 All age groups 昇進 organizations, employer -2
Aged between 25 and 34
enterprises, etc. Personal development alone
0
Aged between 35 and 44 Winning hoped-for
0 positions or jobs at
在籍企業で希望の… -4
1990 95 2000 05 10 15 20 (Year) 1990 95 2000 05 10 15 20 (Year) employer enterprises Year 1 Year 2 Year 3 Year 4
１年目 ２年目 ３年目 ４年目
(Source) Figures 15, 17 & 19: Compiled based on Japanese Panel Study of Employment Dynamics, Recruit Works Institute. Microdata were specially tabulated with a weighted tabulation method. Ages in Figure 17 are for 2020. “Others” include board members
and self-employed workers. Figure 19 classifies regular employees staying at the same enterprises since 2017 by whether they have continued to implement off-the-job training and/or personal development since 2017. Figure 19 compares regular
employees implementing off-the-job training and/or personal training with those implementing neither. Figure 16: Compiled based on Labor Force Survey (Special Survey and Detailed Tabulation), MIC. Figure 18: Compiled based on a fact-finding survey
on recurrent education of business people in FY2019, Ministry of Education, Culture, Sports, Science and Technology (MEXT). 9
 Chapter 2 Section 3: Towards Improving Labor Quality (Current status and challenges of redistribution through tax and social security)
 Household income gaps before redistribution expanded against the backdrop of increased shares for single-person and elderly households (Figure 20).
The share for annual income of up to 3 million yen increased at single-parent households among household categories, indicating severer conditions
(Figure 21).
 The improvement of the Gini coefficient through redistribution expanded from 25 years earlier, indicating the growing effect of redistribution. Among
elderly households, low-income households receive more healthcare and nursing care benefits, while high-income households serve to support social
security systems against the backdrop of growing employment (Figure 22). Couple-and-child households receive more education and nursing benefits
while paying more social security premiums. Single-parent households receive more childcare-related benefits but less pension benefits, indicating
severe conditions.
Figure 20 Income distribution among all households Figure 21 Income distribution by household category (before redistribution)
(1) 1994 Couple-only households Couple-and-child households Single-parent households
(Share of total, %) (%) (%) (%)
30 25 25 30
<Gini coefficient>
25 20 25 2019
- Before redistribution: 0.42 20 2019
- After redistribution: 0.33 2019
20 After redistribution 1994 20
(median: 5.05 million yen) 15 15
1994
15 15
10 10
10 10 1994
5 5
5 5
Before redistribution (median: 5.45 million yen)
0 0 0 0
0～ 200～ 400～ 600～ 800～ 1000～ 0～ 200～ 400～ 600～ 800～ 1000～ 0～ 200～ 400～ 600～ 800～ 1000～ 0～ 200～ 400～ 600～ 800～ 1000～
(10,000 yen) (10,000 yen)
Figure 22 Effects of income redistribution by household category (changes from 1994 to 2019)
(2) 2019 Couple-and-child households Single-parent households Elderly households (Aged 60 or more)
(Share of total, %) (10,000 yen) (10,000 yen) (10,000 yen)
30 80 80 60
(More benefits and less paying)
After redistribution 60 (More benefits and less paying) 60 (More benefits and less paying) 40
25
(median: 3.74 million yen) 40 40 20
20 <Gini coefficient> 20 20
0
- Before redistribution: 0.51 0 0
15 - After redistribution: 0.36 -20
-20 -20
10 -40 -40
-40
-60 -60 -60
5 (Less benefits and more paying) (Less benefits and
-80 (Less benefits and more paying) -80 -80 more paying)
Before redistribution (median: 3.75 million yen)
0 -100 -100 -100
0～ 200～ 400～ 600～ 800～ 1000～ 0～200 200～400 400～600
(10,000 yen)
Consumption tax
消費税 Nursery
保育
Education
教育 Nursing
介護 care (Household income before
(Source) Figures 22 to 22: Compiled based on National Survey of Family Income, Consumption and Wealth & National Survey of Family Income and Medical care
医療 Social
社会保険料 insurance premiums redistribution, 10,000 yen)
Expenditure, MIC. Microdata from each survey were tabulated and compiled by the Cabinet Office. Tabulation covers couple-and-child and single- Earned income taxes / residence taxes
所得税・住民税 Non-pension
年金以外の現金給付等 cash benefits, etc.
parent households in which the youngest children are aged below 18. Households other than elderly ones have householders aged under 60. Gini
coefficients in Figure 20 are simple estimates. Income distribution by household category in Figure 21 indicates shares within each category.
Pension
年金 10
Chapter 3 Section 1: Background behind Stagnant Investment and Recent Environmental Changes
(Investment and digitalization/decarbonization)
 Investment by Japanese enterprises, though indicating a rising overseas investment share, has generally remained cautious against the backdrop of a
fall in anticipated growth and conservative business administration represented by a net debt-free status (Figures 1 & 2).
 Industry-by-industry anticipated growth has a correlation with anticipated capital investment (Figure 3). Digitalization and decarbonization have the
potential to structurally change demand in a wide range of industries. In fact, enterprises with more progress in digitalization have achieved better
earnings than those with less progress in each industry since the COVID-19 outbreak (Figure 4). It is hoped that systematic investment will be
promoted under government-private cooperation to exert favorable impacts on anticipated private-sector demand and stimulate private-sector
investment, with predictability improved.
Figure 2 Trend of shares for net Figure 4 Relationship between digitalization
Figure 1 Investment-profit ratios
(%)
debt-free enterprises progress and sales
(%)
65 Manufacturing Information and
150 communication
Overseas capital investment 60
(Compared to the same quarter of 2019, %) (Compared to the same quarter of 2019, %)
Overseas M&A 5 15
120 55 Non-manufacturing More digitalized
enterprises 10
50 0
90 45 5
40 -5
0
60 Manufacturing
35 Less digitalized enterprises
-10 -5
30 2019 20 21(FY) 2019 20 21
30
25
Domestic capital investment Services Retail
0 20
(Compared to the same quarter of 2019, %) (Compared to the same quarter of 2019, %)
2000 05 10 15 20 (FY) 2002 04 06 08 10 12 14 16 18 2021 (FY) 8 0
6
4 -5
Figure 3 Relationship between anticipated growth
2
(%)
and capital investment by industry 0 -10
16
Projected capital investment changes

-2
12 -4 -15
2019 20 21 2019 20 21
8
(next three years)

Wholesale Transportation and storage

4 (Compared to the same quarter of 2019, %) (Compared to the same quarter of 2019, %)
0 10
0
-2 5
-4 -4
0
-8 -6
-8 -5
-12
-4 -3 -2 -1 0 1 2 3 4 5 6 7 (%) -10 -10
Projected nominal demand growth (next three years) 2019 20 21 2019 20 21

(Source) Figure 1: Compiled based on Basic Survey on Overseas Business Activities, METI; Financial Statements Statistics of Corporations, Annually, MOF; and Bloomberg. Figure 2: Compiled based on NIKKEI NEEDS. Net debt-free enterprises’ share
of all listed enterprises closing annual books in March (net debt-free enterprises have more cash and deposits than debt). Figure 3: Compiled based on Questionnaire Survey on Business Behavior, Cabinet Office. Relationship from FY2003 to
FY2021. Figure 4: Compiled based on NIKKEI NEEDS. Tabulation covers enterprises disclosing software assets among those closing annual books in March. More digitalized enterprises are defined as enterprises where the value of software assets
per employee in FY2019 was at or more than the median level in the same industry, and less digitalized enterprises as those where the value was less than the median level. The median changes in sales from FY2019 in the two groups are compared. 11
 Chapter 3 Section 2: Challenges towards Decarbonization Policy Promotion (Environmental policy and economic growth)
 International data estimation using the OECD Environmental Policy Stringency Index (Note 1) indicates no evidence of conflict between
environmental policy and economic growth (Figure 5). The enhancement of emission standards and emissions trading systems tends to contribute to
reducing trade deficits. In Japan, tough exhaust gas regulations in the 1970s contributed to enhancing the automobile industry’s competitiveness.
 Although the enhancement of environmental regulations has been limited so far (Figure 6), Japan should integrate regulations and support to promote
relevant investment in consideration of the international community’s transition to decarbonization, the reduction of external income outflow
accompanying crude oil price spikes, and energy security.
 Foreign countries as well as Japan are required to make additional emission reduction efforts (Figure 7). As Japan’s competitiveness in the
environment area is relatively higher (Figures 8 & 9), Japan should promote government-private cooperation to further enhance its international
competitiveness and create value added.
Figure 7 Trends of greenhouse gas emissions and
Figure 5 Relationship between environmental policy and GDP/trade balance (1990-2015) national emission reduction goals
Explanatory variable Future emission reduction paces required
Trends to achieve goals for 2030
Emissions trading Feed-in tariff Emission (1 billion tons) (Deviations from the average 2010-2019 reductions, %pt)
Environment tax R&D subsidies 8 10
system system standards
7 8
Explained variable

Real GDP 1 years 6 6

- - - -
per capita later
5 EU U.S. 4
4 2
3 years 3 years 5 years
Trade balance - - 3 Japan Canada 0

オAustralia

アメリカ
英U.K.
ＥEU

イスラエル
日Japan

ノルウェー
韓South
ニNew
スイス

カCanada

アIceland
later later later U.K

Israel
Switzerland

U.S.

Norway
ーストラリア
国
Ｕ

国 Korea
ューZealand
ナダ

イスランド
2 .

ジーランド
1
Figure 6 Enhancement of the Environmental Policy Stringency Index 0
2000 10 20 30 40 50(Year)
(Enhancement of the Environmental Policy Stringency Index since 1990)
4.5
4
Figure 9 Number of environment-related
Figure 8 Energy-GDP intensity (2019) patent applications (2019)
3.5 (US dollar/1 million J)
OECD average 5 (1,000 applications)
3 5
2.5 4 Energy efficiency is higher 4
2 Japan 3 3
1.5 2 2
1 1 1
0.5 0 0
ドGermany

カCanada
フFrance

アU.S.
英U.K.

日Japan

韓South

中China

アU.S.

フFrance
日Japan

中China

韓South

英U.K.
ドGermany

カChina
イツ

ナダ
ランス

メリカ
国

国 Korea

メリカ

ランス
本

国 Korea

国
イツ

ナダ
0
Environmental Emission Emissions Environment Feed-in R&D
環境政策指数
Policy Stringency standards
排出量 trading
排出量 system 環境税
tax tariff
固定価格 system subsidies
Ｒ＆Ｄ
Index (overall)
（総合） 基準 取引制度 買取制度 補助金

(Note 1) The Environmental Policy Stringency Index was developed by the OECD to compare countries’ environmental policy stringency levels in chronological order.
(Source) Figures 5 & 6: Estimated by the Cabinet Office from OECD.Stat and World Bank data. An up arrow for real GDP per capita indicates significance for pushing up GDP. Up arrows for trade balance indicate significance for expanding a trade surplus or
reducing a trade deficit. The number of years indicates the timing for a variable to become significant. “－” indicates “not significant.” Figure 7: Compiled based on Nationally determined contributions & Greenhouse Gas Inventory Data, UNFCCC.
Greenhouse gas emissions are CO2 equivalents. Dotted lines in the figure at left represent the linear interpolation of goals and results. The figure at right compares gaps between annual emission cuts required to achieve goals for 2030 and average
annual cuts from 2010 to 2019 for OECD countries that have submitted emission reduction goals for 2030 to the United Nations. Figure 8: Compiled based on FY2021 Annual Report on Energy, METI. Energy-GDP intensity = Primary energy
consumption / Real GDP. Figure 9: Compiled based on OECD.Stat. Patent applications filed under the Patent Cooperation Treaty are broken down by country of inventor residence. 12
 Chapter 3 Section 2: Challenges towards Decarbonization Policy Promotion (Challenges for promoting decarbonization in Japan)
 The restart of nuclear power plants after the Great East Japan Earthquake has been delayed, with coal-fired power plants’ share of power generation
remaining high (Figure 10). As it is pointed out that geographical constraints make it difficult for Japan to promote renewable energy power sources,
such as onshore and offshore wind farms, Japan must consider utilizing nuclear power generation on the premise of secure safety.
 The weight of the industrial materials sector plagued with higher costs for transition to decarbonization in Japan is higher than in other developed
countries, indicating that appropriate support for the sector should be considered (Figure 11).
 Japan’s R&D efficiency is low (Figure 12). Japan should enhance its R&D capabilities through open innovations by supporting start-up enterprises,
increasing doctorate holders and cross-border exchanges among research human resources (Figure 13) and enhancing industry-academia-government
cooperation further (Figure 14).

Figure 13 Doctorate holders and cross-border exchanges

Figure 10 Power mix changes among research human resources
(%) Japan (%) U.S. (%) EU (%)
20

changes in the nationality of their

100 100 100

Share for researchers who saw

France Germany

research organizations
80 80 80 16
U.K.
60 60 60 12

40 40 40 8 U.S.
20 20 20 4
Japan China
0 0 0 0
1990 95 2000 05 10 15 20(Year)1990 95 2000 05 10 15 20 (Year) 1990 95 2000 05 10 15 20 (Year) 0 2 4 6 8 10 (%)
Renewable energy
再生可能エネルギー Coal
石炭 Other fossil fuel
その他の化石燃料 Nuclear energy
原子力 Doctorate holders’ share of researchers

Figure 14 Industry, academia and government

Figure 12 R&D efficiency trend shares of research spending
Figure 11 Manufacturing sector breakdown (%)
(%) (R&D efficiency, times)

Enterprises’ share of R&D spending

100 14
120
Other Canada 12 Germany
80 manufacturing 100 U.K. Germany 10
OECD average

(at universities)
Production machinery
OECD average 8 U.S.
60 80 France
Electrical 6 Japan
machinery France
40 Manufactures of metals 60
Transport equipment 4
2 U.K.
20 Iron, steel and non-ferrous metals Food and Tobacco 40
Japan 0
U.S.
Chemicals 20 0 2 4 6 8 10 12 14(%)
0 Government sector’s share of R&D spending
Japan
日本 Canada U.S.
カナダ アメリカ フランスFrance Germany
ドイツ U.K.
英国 Italy
イタリア 1996 99 02 05 08 11 14 17 20 (Year) (in the industry sector)

(Source) Figure 10: Compiled based on Our World in Data. Figure 11: Compiled based on OECD.Stat. Each sector’s share of value-added output. Figure 12: Compiled based on OECD.Stat. The R&D efficiency represents a five-year increase in the five-year
backward moving average of the industry sector’s value added to production and R&D spending on a dollar PPP basis in each country. Figure 13: Compiled based on OECD Science, Technology and Industry Scoreboard 2017, OECD; and Japanese Science
and Technology Indicators 2021, MEXT. Doctorate holder share = Number of doctorate holders (2018) / Number of researchers (2019, 2018 for the U.S. alone). The share for researchers who saw changes in the nationality of their research organizations was
computed by dividing the number of outflowing and inflowing researchers by the total number of researchers. As of 2016. Figure 14: Compiled based on OECD Main Science and Technology Indicators, OECD. As of 2019. 13
 Chapter 3 Section 2: Challenges towards Decarbonization Policy Promotion (Enterprise initiatives and recognized challenges)
 Listed enterprises have taken leadership in decarbonization initiatives (Figure 15). Some 70% of enterprises have launched some decarbonization
initiatives (choosing Nos. 1 to 6). However, the share for enterprises that have begun to implement emission reduction plans (choosing No. 6) is
limited to some 40%. More than 70% of unlisted enterprises have yet to launch any decarbonization initiatives (choosing No. 7), indicating that
unlisted enterprises have lagged behind listed ones in launching such initiatives. Challenges toward their promotion of decarbonization initiatives
include knowhow and labor shortages (Figure 16).
 Of enterprises that have launched decarbonization initiatives (choosing Nos. 1 to 6 in Figure 15), some 70% plan to invest in their own energy-saving
or renewable energy equipment (Figure 17). Some 30% have implemented or plan to implement aggressive green investment, including capital and
R&D investment in decarbonization or energy savings for other enterprises and consumers. The government and private sectors should cooperate in
promoting systematic investment in priority areas to increase enterprises’ business predictability and stimulate their investment.
 More than 60% of enterprises feel the need for addressing cost increases towards decarbonization, indicating that it is important to develop an
economic environment where cost increases can be passed on to product prices throughout supply chains (Figure 18).

Figure 15 Japanese enterprises’ decarbonization initiatives Figure 16 Challenges towards promoting decarbonization initiatives

1. Ascertaining climate change risks and opportunities

1：気候変動リスク・機会の把握 51.1 Relevant knowhow and labor shortages
必要なノウハウ、人員の不足 38.2
12.0
2. Implementing analyses and information disclosure
2：ＴＣＦＤ提言に沿った分析・情報開示の実施 Listed enterprises Difficulties inコスト増への対応が困難
responding to cost increases 30.4
in line with recommendations by the TCFD 36.1
1.3
3. Computing
3：排出量の算定 emissions 68.2 Relevant 必要な技術の不足
technology shortages 14.0
15.9
4. Setting emission reduction goals
4：排出削減目標の設定 56.8 Difficulties in reforming supply chains
13.0
サプライチェーンの見直しが困難 6.2
5. Formulating emission reduction plans
41.1 Unlisted enterprises
5：排出削減計画の策定 Others
その他 4.7
7.1
6. Implementing emission reduction plans
6：排出削減計画の実行 43.2 Unknown
9.7 不明 4.0
7. No decarbonization initiatives 27.5
7：未着手 75.1 No need for decarbonization initiatives
取組を進める必要なし 2.5
0 20 40 60 80 100 (%)
0 10 20 30 40 50 (%)

Figure 17 Capital investment plans through 2050 Figure 18 Need for addressing cost increases towards decarbonization
Planned to be Not planned to
Implemented implemented be implemented Unknown
Seeing the need and considering
必要があり検討しているrelevant measures 17.1
a) Capital investment in own energy saving and
a)自社の省エネ・再エネ設備への設備投資
renewable energy equipment 41 30 11 18
Seeing the need and planning to
必要があり今後検討する
consider relevant measures 44.3
b) Capital investment in other enterprises’
b)他社・消費者の脱炭素化や省エネに関する製
and consumers’ decarbonization and 15 19 28 38
energy saving products and services
品・サービス等への設備投資 Seeing no need for considering
検討する必要はない
relevant measures 10.1

C) Decarbonization R&D investment

c)脱炭素化に向けた研究開発への投資 16 14 34 Unknown 28.6
37 不明
(%)
0 20 40 60 80 100 0 10 20 30 40 50 (%)
(Source) Figures 15 to 18: Compiled based on “Impacts of carbon neutrality initiatives on business activities,” Cabinet Office. Multiple responses were allowed for Figure 15. Respondents were 280 listed and 1,412 unlisted enterprises. Figures 16 to 18 cover
questions for enterprises that implemented some decarbonization initiatives as given in Figure 15 (chose Nos. 1 to 6). The number of respondent enterprises for Figure 16 is 550. The number of respondent enterprises in Figure 17 is 571 for a) and 565
each for b) and c). The number of respondent enterprises for Figure 18 is 574. 14
Chapter 3 Section 3: Challenges towards Promoting Digitalization (Background of delayed IT investment)
 In Japan, there is a shortage of human resources for promoting IT investment (Figure 19) and IT human resources are less competitive than in foreign
countries (Figure 20). Education and training investment tends to push up software investment quantitatively and qualitatively (Figure 21). Human
capital accumulation shortages might have become a bottleneck to promoting digitalization.
 As IT human resources concentrate in the IT industry, non-IT enterprises are required to develop pay and treatment systems to secure IT specialists
(Figure 22). It is important to upgrade digital skills throughout society by improving the recurrent education of business people qualitatively (Figure
23), utilizing outside personnel proactively and promoting IT in elementary and secondary education (Figure 24).

Figure 19 IT human resources’ share Figure 21 Effects of human resource investment Figure 23 Recognition of effects of recurrent education
of employees on quantity and quality of software investment
(%)
5 (Share for respondents answering “very useful,” %)
(Software investment growth for a 1% (Labor productivity growth for a 1% 100
increase in education/training stock, %) increase in software investment, %)
4 0.07 0.025
80
*** ***
0.06 60
3 0.020
0.05 40
2 0.015
0.04 20
1 0.03 0.010 0

デDenmark

ノNorway
スSlovakia

ポPoland

リLithuania

イIsrael
スSlovenia
エEstonia
アIreland

オAustria

シSingapore
フFinland

スSweden
ニNew
チChile

英U.K.

韓South
日Japan
カCanada

チChez

ドGermany

ロRussia
トTurkey
アU.S.

キプロス
ベBelgium

ギGreece

オNetherlands

フFrance
スSpain

イItaly
Cyprus
ンマーク

ルウェー
ロバキア

ーランド

トアニア

スラエル
ロベニア
ストニア
イルランド

ーストリア

ンガポール
ィンランド

ウェーデン
ュージ
リ

国
本
ナダ

ェコ

イツ

シア
ルコ
メリカ

ルギー

リシャ

ランダ

ランス
ペイン

タリア
0 0.02
アU.S.

フFrance

イItaly
デDenmark

英U.K.

日Japan
スSweden

ドGermany

0.005

Zealand
メリカ

ランス

タリア
ンマーク

本
ウェーデン

イツ

0.01

Korea
ーランド
0.00 0.000 High Middle Low
Education/training
教育訓練ストック stock education
教育訓練 education
教育訓練 education
教育訓練
/training /training /training
level group 中位ｸﾞﾙｰﾌ
上位ｸﾞﾙｰﾌ level group 下位ｸﾞﾙｰﾌ
level group
ﾟ Software investment
ﾟ ﾟ

Figure 20 Ratings for Japanese IT human resources Figure 22 Industries for IT human resources Figure 24 Share for junior high school teachers
in digital competitiveness ranking using IT for class
(%)
IT industries Non-IT industries 100
2017 2021 80
(Among 63 (Among 64
countries) countries) Japan
日本 72.0 28.0 60
17.9
Overall (human resources) 41st 47th U.S.
アメリカ 34.6 65.4 40
Educational assessment (PISA－Math) 4th 5th Canada 20
カナダ 44.0 56.0
International experience 63rd 64th 0

オAustralia

アU.S.

イItaly

フFrance
デDenmark

韓South

日Japan
スSweden
U.K.
英国 46.1 53.9

ーストラリア

メリカ

タリア

ランス
ンマーク

国 Korea

本
ウェーデン
Foreign highly skilled personnel 51st 49th
Germany
ドイツ 38.6 61.4
Management of cities 9th 15th
Digital/technological skills 59th 62nd France
フランス 46.6 53.4
Net flow of international students 23rd 26th 0% 20% 40% 60% 80% 100%

(Source) Figure 19: Compiled based on statistics by ILO; and Employment Status Survey, MIC. IT human resources cover “25 Information and Communications Technology Professionals” and “35 Information and Communications Technicians” in the
International Standard Classification of Occupations. The data is for 2017. Figure 20: Compiled based on IMD World Digital Competitiveness Ranking, IMD World Competitiveness Center. Figure 21: Compiled based on Basic Survey of Japanese
Business Structure and Activities, METI. *** indicates “significant at 1%.” The figure at left shows the estimated effects of education/training stock (skill development costs transformed into stock under some premises) on software investment. The
figure at right compares software investment’s elasticity to labor productivity by dividing enterprises by the education and training level into three groups. Figure 22: Quoted from IT human resources white paper 2017, Information-technology
Promotion Agency. Figure 23: Compiled based on Programme for the International Assessment of Adult Competencies, OECD. The survey covered 250,000 people in 33 countries. People who used correspondent education, practical training, training
by supervisors or colleagues, and other seminars were asked “How useful was this training for the job or business you had at that time or still have?” Figure 24: Compiled based on Teaching and Learning International Survey 2018, OECD. 15
 Chapter 3 Section 3: Challenges towards Promoting Digitalization (Effects on decarbonization and regional revitalization)
 Hopes are placed on digital technology’s contributions not only to improving value added by enterprises but also to social problem solutions,
including the promotion of decarbonization using digital technology (so-called green by digital). The promotion of digitalization tends to allow
enterprises to estimate greenhouse gas emissions and set emission reduction goals more easily (Figure 25). In Japan, IT technology has contributed to
cutting energy consumption mainly in the manufacturing sector (Figure 26).
 In Japan, population has concentrated in the Tokyo metropolitan region, leaving challenges regarding rural industrial development and environmental
conservation (Figure 27). Digitalization to improve rural business environments and life infrastructure can contribute to vitalizing rural economies.
For instance, comparison of urban and rural households with the same attributes (including annual income and ages) shows that rural households are
less likely to use e-commerce (Figure 28), indicating communications infrastructure gaps.

Figure 25 Effects of digitalization on estimating emissions Figure 26 Impacts of IT capital on energy consumption Figure 27 International comparison
and setting emission reduction goals of capital area population shares
(Energy consumption change accompanying a 1% increase in IT capital, %)
0.1 (Capital area population / total population, %)
Probability to Probability to set 35
estimate enterprises’ emission reduction 0.0
Japan (Tokyo)
own emissions goals -0.1
30
Digitalization -0.2
**
progress
-0.3
(as measured by ○ ○ *** 25
-0.4 South Korea (Seoul)
software assets per Non-manufacturing
Entire country Manufacturing
employee) 一国全体 製造業平均
sector average 非製造業平均
sector average
20
Education/training France (Paris)
- - Figure 28 Probability to use e-commerce
cost
by prefecture 15
Operating income (Gap with marginal effect in Tokyo, %pt) U.K. (London)
- - 0
margin
-2
Enterprise size 10 Italy (Rome)
- ○ -4 U.S. (New York)
dummy -6
-8
Listed enterprise 5
- - -10
dummy
-12 China (Beijing) Germany (Berlin)
Industrial category -14
○ ○ -16
0
dummy 1950 60 70 80 90 2000 10 20 (Year)
-18
-20
神Kanagawa

和Wakayama

鹿Kagoshima
北Hokkaido
青Aomori
岩Iwate
宮Miyagi
秋Akita
山Yamagata
福Fukushima
茨Ibaraki
栃Tochigi
群Gunma
埼Saitama
千Chiba

新Niigata
富Toyama
石Ishikawa
福Fukui
山Yamanashi
長野県
岐Gifu
静Shizuoka
愛Aichi
三Mie
滋賀県
京Kyoto
大Osaka
兵Hyogo
奈Nara

鳥Tottori
島Shimane
岡Okayama
広Hiroshima
山Yamaguchi
徳Tokushima
香川県
愛Ehime
高Kochi
福Fukuoka
佐Saga
長崎県
熊Kumamoto
大Oita
宮Miyazaki

沖Okinawa
Nagano

Shiga

Kagawa

Nagasaki
奈川県

歌山県

児島県
海道
森県
手県
城県
田県
形県
島県
城県
木県
馬県
玉県
葉県

潟県
山県
川県
井県
梨県

阜県
岡県
知県
重県

都府
阪府
庫県
良県

取県
根県
山県
島県
口県
島県

媛県
知県
岡県
賀県

本県
分県
崎県

縄県
(Source) Figure 25: Compiled based on “Impacts of carbon neutrality initiatives on business activities,” Cabinet Office. Logistic regression analysis covering 360 enterprises. Variables significant at 10% are circled (〇). Figure 26: Compiled based on System
of National Accounts, Cabinet Office; Comprehensive Energy Statistics, ANRE; and Corporate Goods Price Index, Bank of Japan. A regression analysis that uses energy consumption as an explained variable and the IT capital amount as an explanatory
variable was implemented, with GDP and energy prices controlled. Sector-wise panel analysis results for manufacturing and non-manufacturing sectors. ***indicates “significant at 1%” and ** “significant at 5%.” Figure 27: World Urbanization
Prospects: The 2018 Revision, UN; Census & Population Estimates, MIC; and U.S. Department of Commerce. Figure 28: Compiled based on Survey of Household Economy, MIC. A marginal effect for each prefecture dummy was measured in a probit
analysis that uses the presence or absence of e-commerce utilization as an explained variable and controls annual income and ages. 16