Appendix - Foreign Press Center Japan · Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved. 2 Before inauguration of Abe Administration Current indicators Note

AppendixEnglish Only（英語のみ）

Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.1

Political Schedule

Japan US Europe/China and Others

2016 May G7 summit

June "Brexit" referendum

Jul Upper house election

Nov Presidential election

Dec Congress to ratify TPP?

2017 DecXi Jinping administration

established for second term?

2018 FebEnd of term for FRB Chair Janet

Yellen

AprEnd of term for BOJ governor

Haruhiko Kuroda

SepElection of LDP president

(Shinzo Abe steps down)

Nov Mid-term elections

DecEnd of term for upper house

representatives

2019 Oct Sales tax to be hiked again?End of term for ECB president

Mario Draghi

Key political events

Source: Various materials; compiled by DIR.

Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved. 2

Before inauguration

of Abe

Administration

Current indicators Note

Corporate earnings

(Ordinary profit)12.4 trillion yen(Oct.-Dec. 2012)

17.9 trillion yen(Jul.-Sep. 2015)

Record high

Wage hike(announced by Rengo, Japanese

Trade Union Confederation)

0.82% (2012)

2.2% (2015)

Highest level in 17

years

Employment

Situation

Number of

employees

62.8 million(Oct.- Dec. 2012)

64.0 million(Oct.-Dec. 2015)

Increased by

more than 1.1 million

Unemployment

Rate

4.1%(Nov. 2012)

3.3%(Dec. 2015)

Lower 3% range,

lowest in 18 years

Active Job

Openings-to-

Application Ratio

0.82(Nov. 2012)

1.27 (Dec. 2015)

Highest level in 24

years

Nominal GDP472.7 trillion yen(Oct.-Dec. 2012)

499.4 trillion yen (Oct.-Dec. 2015)

Recovering to the level

before the global

financial crisis in 2008.

Nikkei Stock Average8,665 yen

(Nov. 14, 2012)

16,052 yen (Feb. 23, 2016)

Highest level in 19

years(Average between Jan.- Dec.

2015: 19,213 yen)

Trends in major economic indicators


The new three arrows of Abenomics

Growth strategy

Redistribution policy

(1) A robust economy that gives rise to hope

(2) Dream-weaving childcare support

(3) Social security that provides reassurance


y = -778.14x + 48239R² = 0.5232

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

05101520253035

(2012 Real GDP Per Person, Purchasing Power Parity Basis)

(In Order of Gender Equality Index, 2014 Survey)

US

Women's Empowerment →

Japan

Czech Republic

Turkey

UK

Netherlands

Sweden

Switzerland

Denmark

Norway

Finland

France

Hungary

Italy

Iceland

Korea

Germany

Source: World Economic Forum and OECD; compiled by DIR.

Gender Equality and Real GDP Per Person in OECD Member Nations (Purchasing Power Parity Basis)

“Active involvement of women” is the key

to reviving Japan’s economy


Japan: Effects of Negative Interest

Source: Compiled by DIR.

Financial Markets

Turmoil in globalfinancial markets

Real Economy

Negative Interest Rate Introduced

Economicstagnation

Yen appreciation

Yield on govt. bonds declines

Downward pressureon prices

Corporations Households

Interest on bank deposits declines

Interest income declinesConfidence worsens

＋Housing investment & consumption stagnate

Interest on loans declines

capex stagnates

Cost of procuring funds

decreases

Interest on housing loans

declinesNegative wealth effect

International interestspread increases

Sluggish growth in wages

Import pricesfall

＜

Stock prices fall

＜

Possible Negative Effects on Economy & Prices due to Negative Interest Rate

Price of Crude Oil Rises

Upwardpressureon prices

decreases

Cost of procuringfunds decreases

Demand for capital declines

①

②

③

Corporate business performance:

Expections of improvementsubside

Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.

Domar’s condition: Nominal GDP growth rate>long-term interest rate

Is fiscal adjustment possible if there is economic

growth?

0

1

2

3

4

5

6

7

8

-15

-10

-5

0

5

10

15

20

25

66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

(%)(%; % pt)

(a - b; left)

General government interest payments (% of GDP; right)

(b) Long-term interest rate (left)

(a) Nominal GDP growth (left) 1971-2010 1981-2010 1991-2010 2001-2010

Avg. of

(a - b)0.20　 -1.15　 -1.58　 -1.50　

Probability

of (a > b)38.6　 23.5　 16.7　 21.4　

Japan:Nominal GDP, Long-term Interest Rate, Interest Payments

Source:Cabinet Office, IMF; compiled by DIR.

Note:General government interest payments:FY basis; other:CY basis.

0

10

20

30

40

50

60

70

80

90

100

71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

(%)

(CY)

Financial deregulation(higher inflation)

US IT bubble

US housing bubble

Note: OECD, IMF; compiled by DIR.Note: Major OECD nations are 16 nations for which interest rate (in terms of 10-yr sovereign bond yields) and nominal GDP growth rate since 1971 are available, namely, Australia, Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Japan, Luxemburg, Netherlands, Norway, Sweden, UK, and US.

Ratio of Major OECD Nations That Meet Domar's Condition

Growing global

excess liquidity

6


Growing Social Security Costs Main Cause of deteriorating

Fiscal Balance

7

11.6

(17.5％)

Social security

6.2Local allocation

tax grants 34.1

Other

14.3

Debt servicing

Tax58.0

Other 2.6

Construction bonds 5.6

Social security

30.5(29.2％)

Local allocationtax grants

6.0

Other

36.1

Debt servicing

23.3

Tax50.0

Other 4.6 Construction bonds 6.0

Deficit-financing bonds35.2

Revenue

Revenue

Expenditure

Expenditure

FY90

FY14

+18.9 +2.0 +8.9＋29.6

(Y tril)

▲0.2

Comparison of FY90 and FY14 General Government Revenue and Expenditure (Central government)

Source: Ministry of Finance; compiled by DIR.Note: FY90: original budget; FY14: government draft.


The Shift From Mid-Range Benefits for Low Burden to High

Benefits for Low Burden

8

OECD Nations: National Burden and Social Security (2010)

y = 0.47 x + 1.06 R² = 0.57

0

5

10

15

20

25

30

15 20 25 30 35 40 45 50 55

National burden (% of GDP)

Social security expenditure (General government; % of GDP)

Japan

Greece Sweden

Larger burden

Larger benefit

2010 2010

2010

1980

1995

1993

Source: OECD; compiled by DIR.


Simulation of Long-Term Interest Rate

5.0

0

1

2

3

4

5

6

7

8

9

10

1980 82 84 86 88 90 92 94 96 98 2000 02 04 06 08 10 12 14

Actual interest rate

Theoretical interest rate

(CY)

Japan’s Theoretical Long-term Interest Rate Implied by Other Nations’ Interest Rate (%)

Source: OECD; compiled by DIR.

Estimating equation for theoretical interest rate:

Long-term interest rate = 1.07 + 0.76 x short-term interest rate + 0.02 x outstanding balance of general government debt (% of nominal GDP) + 0.06 x GDP deflator (y/y).

Estimation period 1981-2013; Significance of coefficients: 5%; Adjusted R2: 0.87; Coefficients derived from estimation results of long-term interest rates of OECD 21

nations (excl. Japan).


Central/local Government Primary Balance

-7-6-5-4-3-2-10123

19

91-9

5

96

-00

20

01-0

5

06

-10

11

-15

16

-20

21

-25

26

-30

31

-35

36

-40

Radical reform scenario

Structural reform scenario

Base scenario

（FY）

DIR estimate

(% of GDP)

50

100

150

200

250

300

19

95

20

00

20

05

20

10

20

15

20

20

20

25

20

30

20

35

20

40

Radical reform scenario

Structural reform scenario

Base scenario

(% of GDP)

（end-FY）

DIR estimate

Outstanding Balance of Central/local Government Debt

Source: Compiled by DIR based on various statistics.

Consumption Tax(1)


Consumption Tax(2)

Tax Revenue Simulation

-4

-2

0

2

4

6

8

10

12

12 13 14 15 16 17

(Y Tril)

(FY)Consumption Tax Revenue Corporate Tax Revenue

Income Tax Revenue

Amount of divergence from hypothetical case where 2014and 2017 consumption tax hikes do not take place.

Decline in tax revenue due to recession caused by tax increase

Source: Produced by DIRNotes: 1) Simulation results using DIR short-term macro model.

2) FY2017 revenue from consumption tax takes into consideration the amount of decline in tax revenue due to the reduced tax rate.

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

15 16 17

(Y Tril)

(FY)Consumption Tax Revenue Corporate Tax Revenue

Income Tax Revenue

Amount of increase in tax revenue if recession caused by tax increase is avoided.

Amount of divergence from case where 2017 consumption tax increase takes place.

Source: Produced by DIRNotes: 1) Simulation results using DIR short-term macro model.

2) FY2017 revenue from consumption tax takes into consideration the amount of decline in tax revenue due to the reduced tax rate.


Consumption Tax(3)

-4

-3

-2

-1

0

-28

-25

-22

-19

-16

2017 2018 2019 2020 2021 2022 2023 2024 2025

(Y Tril)

(CY)Amount of Difference (Right Axis)

Tax Increased

Postponed Indefinitely

(Y Tril)

0

6

12

18

24

30

1,250

1,300

1,350

1,400

1,450

1,500

2017 2018 2019 2020 2021 2022 2023 2024 2025

(Y Tril)

(CY)Amount of Difference (Right Axis)

Tax Increased

Postponed Indefinitely

(Y Tril)

S imulation of F iscal Balance (Left: General G overnment F iscal Ba lance, R ight: G eneral Government Debt)

Source: Estimates using DIR Midterm Macro Model. Source: Estimates using DIR Midterm Macro Model.


Capex(1)

2

4

6

8

10

12

14

16

18

20

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Depreciation Expenses

Cash Flow

Capital Expenditure

Y Tril

(CY)Source: Ministry of Finance; compiled by DIRNotes: 1) Seasonally adjusted f igures for depreciation expenses calculated by DIR.

2) Cash flow = recurring profits / 2 + depreciation expenses.

Capital Investment and Cash F low

0

10

20

30

40

50

60

70

80

90

-6

-4

-2

0

2

4

6

8

10

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Nominal capex (right)

Revision rate to capex projection* (one year previous; left)

(% change from previous survey ) (Y tril)

(CY)

Capex: Actual and Projection

Source: Bank of Japan (BOJ), Cabinet Office; compiled by DIR.*BOJ Tankan survey of corporate sentiment; bold line=4Q MA.


Capex(2)

-20

-15

-10

-5

0

5

10

15

20

91 93 95 97 99 01 03 05 07 09 11 13 15

(y/y,%)

(CY)

Capacity Increase New products & Product Upgrade

Rationalization & Labor-Saving Research & Development

Maintenance & repair Others

Capex

Source: Development Bank of Japan, compiled by DIR.

Capex Breakdown by Motive of Investment (All Industry)


Factor Analysis of Corporate Earnings

Capex(3)

85

90

95

100

105

110

115

120

125

130

-3

-2

-1

0

1

2

3

4

5

6

Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ

02 03 04 05

Domestic Output Price Domestic Sales Volume

Export Output Price Export Sales Volume

Variable Expenses Fixed Expenses

Recurring Profits Real Capital Expenditure in Manufacturing Industry (Right Axis)

(Deviation Amount from Reference Point, Y Tril)

(Quarter)

(Year)

(Reference Point=100)(Deviation Amount from Reference Point, Y Tril)

85

90

95

100

105

110

115

120

125

130

-3

-2

-1

0

1

2

3

4

5

6

Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ Ⅱ Ⅲ Ⅳ Ⅰ

12 13 14 15 16

(Quarter)

(Year)

(Reference Point=100)

Source: Ministry of Finance, Bank of Japan; compiled by DIR.


Correlation Coefficient of Capital Investment and Corporate Earnings Components

Capex(4)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Domestic SalesVolume

Export SalesVolume

Domestic OutputPrice

Export OutputPrice

VariableExpenses

(Reversed Sign)

Fixed Expenses(Reversed Sign)

Volume Price Expenses

Driving Force Until Global Financial Crisis of 2008

Driving Force in Current Economic Recovery Phase

Source: Ministry of Finance, Ministry of Economy, Trade and Industry; compiled by DIR.

Note: Coefficient with the greatest absolute value out of 4-quarter time-difference correlation is displayed.


Capex(5)

40

50

60

70

80

90

100

110

120

130

140

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

Real Anticipated Growth Rate of Demand (Leads by 3 Qtrs)

Amount of Capital Expenditure/Cash Flow Ratio(Right Axis)

（％）

(CY)

（％）

Source: Ministry of Finance, Cabinet Office; com piled by DIR .

Note: Rea l anticipated g rowth rate of dem and is an a ll-industry figure.

Indicates outlook five-years into the future.

R ea l Anticipated Growth Rate of Demand, and Amount of Capital Expenditure/Cash Flow Ratio


20

22

24

26

28

30

32

34

36

38

40

40 45 50 55 60 65 70

1990

2000

2015

1984

Percentage of persons stating that the purpose of holding financial assets is to cover living expenses in old age (%)

Savings Rate with Age Factor Removed

Savings Rate

(Sa

ving

s Rate

, %)

2010

19902000

20102015

Source: Ministry of Internal Affairs and Communications, and Bank of Japan; compiled by DIR.Note: Savings rate from household survey “Rate of Surplus”. Aging factor found by estimating savings rate. The forecast formula is as follows: Savings rate = 18.01 – 0.75 x aging rate + 0.16 x anxiety regarding the future +0.01 x household assets (-2). Aging rate and household asset factors have a significance of 1%. Anxiety regarding the future has a significance of 5%. Anxiety regarding the future is the percentage of persons stating that the purpose of holding financial assets is to cover living expenses in old age in reply to surveys regarding the purpose of holding financial assets.

Financial Planning for Old Age and Savings Rate

Consumption(１)


Consumption(2)

Employee Compensation Growing, while Personal Consumption

Stagnates

19

245

250

255

260

265

270

275

280

285

290

295

300

305

310

315

320

325

330

05 06 07 08 09 10 11 12 13 14 15 16 (CY)

Real Personal Consumption Real Employee Compensation (Right Axis)

(Y Tril) (Y Tril)

Source: Cabinet Office; Compiled by DIR.

Real Personal Consumption and Real Employee Compensation


＋4,832

＋6,853

＋1,193

▲ 3,861

▲ 2,021

▲ 3,267

▲ 688

＋2,021＋336

＋2,442

＋1,399

0

2,000

4,000

6,000

8,000

10,000

12,000

Wages& Salaries

Employer's Contribution

to SocialSecurity

Employee Compensation

OperatingSurplus

PropertyIncome (Net)

IncomeTax (Paid)

Employer'sContribution

to SocialSecurity

Employee'sContribution

to SocialSecurity

SocialSecurity

Benefits(Received)

Others DisposableIncome

Source: Cabinet Office; Compiled by DIR.

Factor Analysis of Change in Wages & Salaries, Employee Compensation, and Disposable Income

（FY2012→FY2014）

(Change Between FY2012 and FY2014, Yen Bil)

Consumption(3)

Increase in Social Security Contributions Puts Squeeze on Growth in

Disposable Income

20


Consumption(4)

10

20

30

40

50

60

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

(Y Tril)

(CY)

Period When Eco-Car Subsidy and Consumer Electronics Eco-Point System Policies were inEffect

Period During which Last-Minute Demand was Generated beofore Sales Tax Hikes

Trend seen prior to introduction of the eco-car subsidy and the consumer electronics eco-point system.

Real Durables Consumption and its Trend

Source: Cabinet Office; com piled by DIR .

96

98

100

102

104

106

108

13/1 13/5 13/9 14/1 14/5 14/9 15/1 15/5 15/9 16/1(Yr/Mo)

Broad-Ranging Personal Services Essential Personal Services

Non-Essential Personal Services

(2013=100)

Trends in Personal Services

Source: Ministry of Economy, Trade and Industry; compiled by DIR.Note: Less retailing.


Consumption(5)

94

95

96

97

98

99

100

101

Ⅰ Ⅱ Ⅲ Ⅳ Ⅴ

(2012=100)

(Five Annual Income Quantiles)

Source: Ministry of General Affairs and Communications; compiled by DIRNote: Seasonal Adjustment by DIR. Thick bold line indicates average of all households.

Personal Consumption by Annua l Income

75

80

85

90

95

100

105

29 a

nd B

elo

w

30-3

9

40-4

9

50-5

9

60-6

9

70 a

nd O

ver

(2012=100)

Source: Ministry of General Affairs and Communications; compiled by DIRNote: Seasonal Adjustment by DIR. Thick bold line indicates average of all households.

Personal Consumption by Age G roup


Consumption(6)

Consumption Function Estimation Results by Age Group and Income Bracket

Disposable Income

Financial Assets

Anxiety Regarding

the Future

Trend Term

Disposable Income

Financial Assets

Anxiety Regarding

the Future

Source: Produced by DIR.

Notes: 1) The asterisks *, **, *** indicate that the coefficients are statistically different from zero at the 1%, 5%, and 10% levels.

2) The factor of anxiety regarding the future is Japan’s outstanding obligations as a percentage of GDP.

0.46***

Estimation of Consumption Functions by Age Group

Age 29 and

Below 30-39 40-49 50-59 60-69 Age 70 and Over

0.91*** 0.97*** 0.67*** 0.79*** 0.49***

0.11

0.08 -0.04 -0.05 0.16*** 0.11 0.54***

-0.32*** -0.11*** -0.15*** -0.06* 0.00

0.85*** 0.84*** 0.75***

0.00 0.00** 0.00 0.00* 0.00*** 0.00**

Estimation of Consumption Functions by Income Bracket

Low Income Middle Income High Income

0.15*** 0.17*** 0.26***

-0.01 -0.02** -0.07***


Consumption(7)

0

5

10

15

20

25

30

15-24 25-34 35-44 45-54 55-64 65

(％)

Invo luntary Irregu lar Emp loyee Ratio (2015)

Source: Ministry of Internal Affairs and Communication; compiled by DIRNotes: 1) Number of irregular employees accounted for by individuals w ho became an irregular

employee because there w ere no regular employee positions open.2) Number of irregular employees in the 15-24 age group does not include individuals still going to school.

0

1

2

3

4

5

6

7

8

9

90 92 94 96 98 00 02 04 06 08 10 12 14 16

(％)

(CY)

15～24 25～34 35～44 45～54 55～64 65 and over

Source: Ministry of Interna l Affa irs and Com m unication, Ministry of Health, Labour and

W elfare; com piled by DIR

S tructural a nd F rictional Unemp loyment Ra tes by Ag e G roup


Consumption(8)

0

10

20

30

40

50

60

70

1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

①-② Interest is too low（ ①） Interest is too high（ ②）

（％, ％pt）

(FY)

QQE1 QQE2

Negative Interest Rate

Usecured Call Rate Overnight Reduction

（ 0.3％→0.1％）

Note: Ratio of responses to survey regarding level of interest rate (too low : too high).Source: Bank of Japan; compiled by DIR.

Individual Opinions Regarding Level of Interest Rate

-100

0

100

200

300

400

500

0 200 400 600 800 1,000 1,200 1,400 1,600

Deposits and Securities Holdings by Age of Head of Household （ Households

holding financial assets、2015）

(Amounts Held in Deposits, Y10,000)

(Securities Holdings, Y10,000)

20s

70s and older

60s

50s

40s

30sOverall

Effect of Fluctuation in Interest Rates on Deposits (Greater in Direction of Arrow)

Effe

ct o

f Flu

ctu

atio

n in

Sto

ck

Pric

es

(Gre

ate

r in D

irectio

n o

f Arro

w)

Source: Central Council for Financial Services Information, Ministry of General Affairs and Communication; compiled by DIR.

Note: Size of circles represents number of households as of 2015. Overall category is a simple average of number of households.


Impacts on Consumption Vary

by Types of Labor Market Improvement

26

5.3

0.7

1.9

-2

-1

0

1

2

3

4

5

6

7

Contractual cash earnings Bonuses No. of employees

Durables Semi-durables

Non-durables Services

Personal consumption

Increase in consumption spending (Y tril)

Impact of 2% Rise in Employee Compensation on Personal Consumption

Source: Cabinet Office, Ministry of Health, Labour and Welfare, Ministry of Internal Affairs and Communications; compiled by DIR.

Note: Employee compensation expressed as "total cash payments multiplied by no. of employees". If employee compensation

rises 2%, contractual cash earnings would be up 2.4%, bonuses up 12.0%, and no. of employees up 2.0%. If this is the

case, personal consumption would increase as shown in the chart. Estimation period: Jan-Mar 1994 to Apr-Jun 2013.


Unit Purchase Price of Foodstuffs in

Downward Trend

98

100

102

104

106

108

110

123456789101112123456789101112123456789101112123456789101112123456789101112123456789101112123456789101112

2010 2011 2012 2013 2014 2015 2016

(2013=100)

(Mo)(Yr)

Unit Purchase Price Consumer Price

Changes in Unit Purchase Price Index and Consumer Price Index (Foodsuffs)

Source: Ministry of Internal Affairs and Communications; Compiled by DIR.Note: Figures are seasonally adjusted and use the 3-month moving average.


US Consumer Confidence Is Favorable

28

40

50

60

70

80

90

100

110

120

130

0

20

40

60

80

100

120

140

160

180

200

220

240

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

(CY2005=100)

Japan's Coincidence Index (right)

US Consumer Confidence Index (left)4

14

3

2

1

(CY)

US Consumer Confidence and Japan's Economy

Source: Cabinet office, Conference Board; compiled by DIR. Notes: 1) Shaded areas denote economic downturns in Japan.

2) Figures in boxes: Months preceding Japan's economic trough.


G lobal M oney Flow s 2015

-224

-124

-334

Bonds Stocks DI

Japan to Oceania

Oceania

La tin

Am ericaAsia

Eurozone UK

US Japan

-727

-819

-4427

-1902

-590

291

-567

-681

881 115

92

2525

1328

509

1837

10784

11004

220

-1103 -24878 23774

7871 -1792 9663

-1072

41801

42872

-1798

686

2484

601

-1003

1604

1194

-998

10808

Bonds Stocks DI

Eurozone to US

3605

191

6988

Bonds Stocks DI

US to Eurozone

8543

-1095

422

Bonds Stocks DI

UK to US

-4598

1566 1240

Bonds Stocks DI

US to UK

-2639

379

1441

Bonds Stocks DI

Japan to US

-854

-94

221

Bonds Stocks DI

US to Japan

471

-1711

236

Bonds Stocks DI

Asia to US

-2285

1615 1271

Bonds Stocks DI

US to Asia

228

5 59

Bonds Stocks DI

Oceania to US

-971 183 198

Bonds Stocks DI

US to Oceania

1933

-1316

711

Bonds Stocks DI

Latin America to US

-1600

680

2757

Bonds Stocks DI

US to Latin America

-24409 -186 -282

Bonds Stocks DI

Eurozone to Japan

255

-615 -743

Bonds Stocks DI

Japan to Eurozone

41123

736

-58

Bonds Stocks DI

UK to Japan

-277 -169

-625

Bonds Stocks DI

Japan to UK

577

-91

200

Bonds Stocks DI

Asia to Japan

-243 -277

-1278

Bonds Stocks DI

Japan to Asia

-578

2 9

Bonds Stocks DI

Oceania to Japan

-1793 -23 -86

Bonds Stocks DI

Latin America to Japan

-119

-3940

-369

Bonds Stocks DI

Japan to Latin America

Source: US Dept. of Treasury, US Dept. of Commerce, Ministry of Finance; compiled by DIR.

Note: Unit: 100 mil dlrs, annualized rate. Data for Eurozone to Japan includes EU (25 countries) and UK. Asia does not include Japan. Latin America includes the Caribbean. Data for US-Oceania includes only Australia.

US Role as World’s Banker

29


Influence of US and European Monetary

Policy on World Economy

30

US Interest Rate

Hikes

EU Quantitative

Easing

2015 0.01% 0.00% 0.02% 0.00%

2016 -0.09% -0.14% 0.09% 0.00%

2017 -0.27% -0.34% 0.13% 0.00%

2015 0.02% 0.00% 0.04% 0.01%

2016 -0.06% -0.15% 0.14% 0.02%

2017 -0.25% -0.39% 0.20% -0.01%

2015 0.01% 0.00% 0.02% 0.00%

2016 -0.08% -0.12% 0.09% -0.01%

2017 -0.24% -0.31% 0.12% -0.05%

2015 0.01% 0.00% 0.03% 0.00%

2016 -0.08% -0.13% 0.10% 0.00%

2017 -0.25% -0.34% 0.14% -0.02%

World

US Interest Rate Hikes + EU Quantitative EasingUS Interest Rate Hikes

at Neutral Pace + EU

Quantitative Easing

US

EU

Emerging

Nations

① ②

Source: Compiled by DIRNotes: 1) Cumulative rate of deviation from baseline.

2) Figures for the w orld are a total of the values of the US, EU, and the emerging nations (covers about 82% of w orld GDP).3) The US interest rate hike case starts in the Oct-Dec period of 2015, and assumes increases in the 10-yr bond yield of 25bp at a time for 8 consecutive quarters.4) The EU quantitative easing case starts in the Jan-Mar period of 2015 and assumes an expansion of the ECB balance sheet of 180bil Euros at a

time for 8 consecutive quarters.5) Simulation run using the DIR w orld economic model.


Fundamentals of Emerging Nations Improve

31

Source: Haver Analytics; compiled by DIR.

Notes: 1) Arrows denote shift of positions at critical moments to 2012.

2) Year of crises defined as 1994 for Mexico, 1997 for Thailand and Indonesia, 1998 for Russia, 1999 for Brazil,

2001 for Turkey, and 2002 for Argentina.

3) Size of circles shows ratio of foreign reserves to foreign debt with less than one-year maturity. The larger the

circle, the greater the resilience.

Risk Resilience of Emerging Market Economies

0

2

4

6

8

10

12

14

16

01020304050

Debt service ratio (%)

Mexico

Thailand

Argentina

Indonesia

Risk resilience

to strengthen

Risk resilience

to weaken

Public finance to

strengthenPublic finance to weaken

Russia

Turkey

Brazil

120

Ratio o

f fo

reig

n r

eserv

es t

o im

port

valu

e p

er

month

(tim

es)


How Far will Yuan Depreciate?

80

90

100

110

120

130

140

2000 2002 2004 2006 2008 2010 2012 2014 2016

Source: Haver Anlytics; compiled by DIR.

The yuans' real effective exchange rate

(2010=100)

20%

30%


Capital Flight from China

-150

-100

-50

0

50

100

150

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

05 06 07 08 09 10 11 12 13 14 15 16

(Bil.USD)

(CY)

Changes in Reserves

Foreign Reserves

Source: PBOC

China's Foreign Reserves

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

2000 2002 2004 2006 2008 2010 2012 2014 2016

(MIl.$)

Financial/capital account balanceCurrent account balanceChg. in foreign reserves

Source: Haver Ana lytics; com piled by DIR .

China’s ba lance o f international payments

(CY)


0

1

2

3

4

5

6

7

8

9

10

84

86

88

90

92

94

96

98

100

12 13 14 15 16

Boosting effect (right axis)

Estimate

If foreign exchange rates had remained flat from October 2012

Estimated export-boosting effect of weak yen

Source: Ministry of Finance, Bank of Japan, and Netherlands Bureau for Econom icPolicy Analysis statistics; Com piled by DIR

(2010=100)

(CY)

Boosting effect

(pt)

-10

-8

-6

-4

-2

0

2

4

6

8

10

12/11 13/3 13/7 13/11 14/3 14/7 14/11 15/3 15/7 15/11 16/3

Residual + approximation error Nominal effective exchange

Relative export price Japan export share trend-cycle component

Global production ex Japan Export volume index cumulative change (3MA)

Export volume index cumulative change factor analysis

(Year/Month)

Note: Relative export price=Japan export price/world export price ex Japan (in US dollars).

Source: Ministry of Finance, Bank of Japan, and Netherlands Bureau for Econom ic Policy Analysis statistics; Com piled by DIR

(Cum ulative change since November 2012, pt)

Export-boosting effect of weak yen


How should we think about immigration?

Emmanuel Todd Family Types

Parent-child relationship

Equal

(separate

residences)

Unequal (same

residence)

Filia

l rela

tionsh

ip

Equal

FranceChina

Russia

Unequ

al

UK Japan

US Germany

Source: Compiled by DIR.


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Documents

Appendix - Foreign Press Center Japan · Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved. 2 Before inauguration of Abe Administration Current indicators Note