Financing Growth in Japan

Financing Growth in Japan
Koichi Ishikura
Director & Chief Officer for International Affairs & Research
Japan Securities Dealers Association
May 23, 2016
* This presentation represents the presenter’s own views, and not necessarily those of JSDA
Japan’s growth trend
Real GDP(right scale)
Output gap(left scale)
Potential growth rate(left scale)
(trillion yen)
(%)
8
600
6
550
4
500
2
450
0
400
-2
350
-4
300
-6
250
-8
200
1980
1985
1990
1995
2000
2005
2010
2015
(CY, Quarterly)
Note: Real GDP is seasonally adjusted.
Sources: Japan Cabinet Office, Bank of Japan
1
Changes in economic and social environments
 Demographic change
High economic growth like in the past cannot be expected any more
due to the increasingly aging population.
 Changes in financial surplus and deficit by sector
- Corporate sector: deficit in 1990 to surplus (US$167 bil.) in 2015
- Government sector: surplus in 1990 to deficit (US$140 bil.) in 2015
- Household sector: continued surplus but flow of surplus is declining.
2
Financial surplus or deficit by sector
(trillion yen)
Nonfinancial corporations
General government
Households
60
40
20
0
-20
-40
-60
-80
(FY)
Source: Bank of Japan
Note: 1. Data up to FY2004 are based on the 1993 SNA. Data from FY2005 onward are based on the 2008 SNA. There is a discontinuity in the
data series between FY2004 and FY2005.
2. Figures for CY2015 are on a preliminary report basis.
3
Changes in financing sources and conduits
Assuming that the term “financing growth” covers both:
- Financing for infrastructure which underpins economic growth, and
- Financing to growth companies
 Era of postwar reconstruction and high economic growth
- Financing for infrastructure
(e.g. Shinkansen (bullet train), express highway, power generation projects) :
supported by finance from World Bank and government-affiliated financial institutions
- Financing to growth companies:
support through indirect financing where banks provided corporations with funds using money
deposited in savings accounts
 Non-performing loans after the bubble economy collapse
Indirect financing through banks underpinned Japan’s economic growth in the past but
over-concentrated risks in the banking sector. Its shortcoming became obvious in the form of
nonperforming loans, which triggered the Japanese economy’s post-bubble crisis of the 1990s.
⇒The need to expand and enhance market-based financing was recognized
4
Three factors for growth
 Labor
 Capital
 Productivity (Total factor productivity)
• Until 1980s: Rapid economic growth had been underpinned
and driven by the increase in capital input and enhanced
productivity (technology innovation)
• In and after 1990s: Population aging ⇒ growth in working
population cannot be expected
5
Factors contributing to economic growth in Japan
Labor
Capital
Total Factor Productivity
GDP Growth Rate
5.05%
4.58%
4.09%
1.73%
4.07%
0.86%
0.71%
1.18%
1.87%
1.98%
1.51%
1.96%
1.19%
0.12%
1.51%
1.81%
1.74%
0.92%
1.41%
0.82%
-0.35%
0.29%
-0.19%
1990-95
1995-2000
0.93%
1970-75
1975-80
1980-85
1985-90
1.54%
0.11%
0.42%
1.01%
2000-2005
0.15%
0.03%
0.13%
-0.01%
2005-2012
Source: Research Institute of Economy, Trade and Industry
6
Strategies for future growth
 To increase or maintain labor input:
- further promotion of activities by women and
seniors
- acceptance of foreign human resources
 To increase capital input and productivity:
- mobilizing financial assets held by individuals and
corporates as risk money to growth areas
7
“Reform 2020” Projects：strategic growth areas
8
Provision of risk money to growth areas
 Portfolio rebalancing:
More than 50 % of individuals’ financial assets stays in cash and bank deposits
⇒ Encourage proper risk-taking and investments in growth opportunities
NISA (Japanese version of Individual Savings Account) is expected to propel
this policy direction
 Mobilizing internal reserves in corporates for capital investment:
More emphasis on ROE, enhanced corporate governance and investor
engagement may underpin this trend
 BOJ’s negative interest policy: Will it work to this end?
 New tools for providing risk money to VBs and growth opportunities:
e.g. Equity-based crowdfunding, shareholders community system for
trading unlisted stocks, future schemes utilizing FinTech, etc.
9

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