Mizuho bank 1038_industry_overview

Table of Contents

1, Comprehensive Industry - Japan

2, Iron and Steel - Japan

3, Non-ferrous Metals - Japan

4, Paper and Pulp (Japanese only)

5, Cement - Japan

6, Chemicals - Japan

7, Pharmaceuticals - Japan

8, Petroleum - Japan

9, Automobiles - Japan

10, Shipbuilding (Japanese only)

11, General Machinery (Japanese only)

12, Electronics - Japan

13, IT Services - Japan

14, Telecommunications - Japan

15, Broadcasting (Japanese only)

16, Marine Shipping (Japanese only)

17, Logistics - Japan

18, Electric Power - Japan

19, City Gas (Japanese only)

20, Retail - Japan

21, Food and Beverage - Japan

22, Food Service Industry - Japan

23, Construction (Japanese only)

24, Real Estate and Housing - Japan

25, Travel and Tourism - Japan

26, Nonbank (Credit Cards & Credit) (Japanese

only)

27, HR Service Industry (Japanese only)

Japan Industry Outlook / 38

2012 No.1

Contact: Industry Research Division

Mizuho Corporate Bank, Ltd. [email protected]

http://www.mizuhocbk.com/fin_info/industry/pdf/1038_01.pdf


















mailto:[email protected]

mailto:[email protected]

FY2012 Japan Industry Outlook (Comprehensive Industry Overview)

1 Mizuho Corporate Bank, Industry Research Division

I. INDUSTRY TRENDS

1. Despite casting off the effects of the disaster, Japanese industry conditions have only made a moderate recovery due to the slowdown of the overseas economy.

Although the Japanese economy has been bouncing back at an unimaginable pace from the Great East Japan Earthquake, the floods in Thailand in October and the European financial crisis stemming from the situation in Greece have cast a damper on the momentum for economic recovery. Negative growth is expected for the real GDP in FY2011, as it fell 0.4% from the previous fiscal year. Meanwhile in FY2012, despite predictions for prolonged financial turmoil in Europe, growth of 1.9% is expected, as negative factors accompanying the disaster dissipate and as reconstruction-related demands become manifest.

The greatest risk factor for the Japanese economy in FY2012 is the overseas economic environment. Examples of such risks include: (1) the effects of the European financial crisis spilling over into the emerging countries, mainly Asia, through the reduction of the assets of European financial institutions; and (2) the rapid downturn in demand on the back of monetary tightening in China. If risks (1) and (2) were to materialize, it would not only have a

COMPREHENSIVE INDUSTRY OVERVIEW

The sluggish overseas economy is a factor for a depressed domestic economy.

Summary

■ The Japanese economy was weaker mainly in exports in FY2011 as it saw declining production activities caused by supply side restrictions that were the result of the Great East Japan Earthquake and tsunami, and the massive flooding in Thailand, followed by a global decline in demand caused mainly by the European financial crisis and monetary policy tightening in China.

■ In FY2012, the European financial crisis is expected to take a turn for the worse, fueling concerns over a global economic slowdown. While, in Japan, despite reconstruction demand and personal consumption boosting the economy to a certain extent, economic recovery is expected to be limited overall.

■ Increased sales and increased operating profit are expected in FY2012, as corporate performance swings back from the levels of FY2011. Sales comparable to FY2010 are expected, while operating profit will remain at 90% compared to the levels of FY2010.

■ Raising the Total Factor Productivity (TFP) is imperative for supporting Japan’s growth, and particular focus should be placed on the TFP of the non-manufacturing sector. In order to raise the TFP, the enhancement of the competitive environment, through deregulation and other means, is required, in addition to the implementation of strategic M&As and the expansion of IT investments



Source: Compiled by Mizuho Corporate Bank （MHCB） Industry Research Division

negative impact on the Japanese economy but also cause a downward swing in the growth rate for FY2012.

Although production activites in the manufacturing sector had been making a strong turn-around since the Great East Japan Earthquake, they are beginning to lose some of their momentum as a result of the slowdown in exports precipitated primarily by the current surge in the Japanese yen. In the future, global demand may weaken even further as a result of the declining overseas economies, and thus recovery by the manufacturing sector is predicted to be limited, at best.

The business environment surrounding the non-manufacturing sector, which had suffered the effects of negative rumors and the mood of voluntary restraint following the earthquake, began to recover around summer and managed to reach pre-earthquake levels by October; however, it is currently flattening out. In the future, steady growth is predicted for personal consumption in conjunction with improvements in the employment and income environment, which, in turn, will boost the activities of the non-manufacturing sector.

2. The European debt crisis and other phenomena are holding back production

The expansion and deepening of the European debt crisis is a cause for concern for the manufacturing sector.

Although the non-manufacturing sector continues to recover after the earthquake, current growth has flattened out.

Figure 1-1: Production and demand levels by sector (FY2005 = 100)

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Production/demand levels by sector are shown ascandlesticks

(FY2005 = 100)Left: FY2009 ⇒ FY2010 levels

Center: FY20010 ⇒ FY2011 levelsRight: FY2011 ⇒ FY2012 levels

* Sectors displayed from left to right according toFY2012 levels

FY2012 ForecastFY2010 Actual

FY2011 Estimate

FY2005=100



activities, despite systems of production having returned to normal.

The floods in Thailand occurred just as the systems of production were being restored, and thus, the “Index of Industrial Production” currently remains at approximately 95% of the levels prior to the earthquake (see Figure 1-2). While said flood primarily impacted the transport machinery and electronics industries, the indices of the “Survey of the Production Forecast” (overall) for January and February predict production to increase and the effects of the flood to slowly diminish. However, even more serious than the floods in Thailand is the decline in exports. The slowdown in demand, mainly in exports, which stems from the slowdown of the overseas economy, has put a brake on the acceleration of production.

Inventory levels after the earthquake (April through December 2011) have increased by approximately 7% compared to before the earthquake (April 2010 through March 2011). Such inventories are thought to be a mixture of both “planned inventories,” which have been stocked in preparation for contingencies such as disasters, and “unplanned inventories,” which have resulted from the decline in exports. Future inventory trends will be closely observed (see Figure 1-4 and Figure 1-5).

While reconstruction-related demand, which is expected to peak in FY2012, will boost domestic production on the supply side, there is no denying the fact that the European debt crisis will have even sharper and more broad-ranged repercussions on the demand side. Thus, the further deceleration of exports has become the greatest risk for the recovery of production activities.

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07/12 08/06 08/12 09/06 09/12 10/06 10/12 11/06 11/12

Capital goods Construction goods Consumer durablesConsumer non-durables Production goods

5060708090

100110120130140150

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11

Electronic components/devices Chemicals

Transport machinery General machinery

Mining & manufacturing Iron & steel

Although the effects of the Thai floods are temporary, exports are turning into downward pressure.

The slowdown in exports is due to the European debt crisis pressing down on production.

Inventories are on a rising trend since the Great East Japan Earthquake.

Figure 1-3: Index of industrial production by goods Figure 1-2: Index of industrial production by sector



In the non-manufacturing sector, the “Indices of Tertiary Industry Activity” for the latest three months has more or less been the same (see Figure 1-6). What is characteristic though is that personal services have recovered to a greater extent than business services. Personal services have the firm support of personal consumption performing strongly, particularly in the telecommunications, travel and medical/welfare sectors. In the business services, the temporary cessation of production activities due to the Thai floods is thought to have taken its toll.

Although personal services are expected to continue performing strongly, substantial growth is not anticipated from business services, as the recovery of production activities in the manufacturing sectors has been somewhat limited. Consequently, the “Indices of Tertiary Industry Activity” is expected to remain more or less the same overall.

Greater recovery is seen in personal services than in business services.

The “Indices of Tertiary Industry Activities” is more or less remaining the same.

Source: Figure 1-2 and Figure 1-3 were compiled by MHCB Industry Research Division based on the Ministry of Economy, Trade & Industry’s “Index of Industrial Production.” Note: Indices are seasonally adjusted three-month moving averages. FY2005 = 100

Figure 1-4: Inventory-shipment balance

Figure 1-5: Inventory cycle

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General machinery Iron & steelMining & manufacturing Transport machineryChemicals Electronic components/devices

Shipmentgrowth >Inventory

growth

Inventorygrowth >Shipmentgrowth

Source: Compiled by MHCB Industry Research Division based on the Ministry of Economy, Trade & Industry’s “Index of Industrial Production.” Note: The inventory-shipment balance is calculated as “shipment index growth rate – inventory index growth rate.”

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Shipment

InventoryIndustry

(December 2011)(December 2008)

Source: Compiled by MHCB Industry Research Division based on the Ministry of Economy, Trade & Industry’s “Index of Industrial Production.” Note: Both “Shipment” and “Inventory” in the inventory cycle are year-on-year comparisons



828486889092949698

100102104106108110112114116

Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11

Transport

Information & telecommunications

Retail

Real estate

Hotel/restaurant business

Lifestyle support services (excludingentertainment)）Professional/technical services, advertising

Health care, welfare

Overall

Figure 1-6: Tertiary industry activity indices

Source: Compiled by MHCB Industry Research Division based on the Ministry of Economy, Trade & Industry’s “Indices of Tertiary Industry Activity.” Note: Three-month moving averages

90

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Personal services

Business services

Overall



Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec FY2010 FY2011Iron & steel + + 1.8% -10.2% -2.2% -2.1% 1.0% -0.7% 2.4% -2.9% + -1.2% -0.8% 81 94

Non-ferrous metals 1.3% 1.8% 1.1% -16.5% + 1.9% + 1.2% 2.5% -2.3% + -2.5% 2.4% 84 89Metals -0.6% 1.6% + -10.7% 2.1% + + -2.4% 0.2% -4.4% + 0.7% -0.1% 80 83

Chemicals 1.3% -10.3% 1.8% -2.3% -0.1% + -0.3% -6.3% 0.6% 0.0% -0.4% -1.5% #N/A 99 100Petroleum & coal -1.3% + 0.5% -12.3% -0.4% 1.0% + 1.3% -0.5% -4.3% 1.3% -0.9% 0.2% 90 90

Paper & pulp 0.6% 2.1% 1.5% -8.3% -0.4% -1.5% 1.9% -2.2% 1.8% -1.5% + 0.5% -0.2% 88 89General machinery 0.8% 2.1% + -14.5% + + -0.8% 0.5% 1.0% -6.1% + -0.3% 0.9% 63 86

Transport machinery + 2.5% + -46.7% -1.9% + + + + -5.9% + -10.0% + 84 90Precision machinery -0.4% 0.3% 0.9% -12.9% + 1.8% + + -2.2% -1.3% 2.0% -3.7% + 89 106Electric machinery 1.6% -0.2% 2.4% -10.2% + 2.4% + -0.2% 0.8% -7.4% 0.2% 0.2% -1.1% 83 95

Information &telecommunications

machinery+ -8.9% -11.3% -8.0% -16.7% + + + -10.6% -7.8% -6.8% -23.7% + 88 87

Electronic devices + + 0.4% -6.6% -12.6% -0.6% + -3.4% 1.2% -2.3% -5.6% 0.5% + 112 1270.0% + -1.7% -3.5% -2.7% 0.2% 0.1% -0.9% -1.0% 1.1% 0.3% 0.0% 100 1030.0% -1.0% -0.5% -9.4% + -0.6% 1.5% -0.7% 0.3% -2.7% + 1.1% 106 107

Passenger transport -1.9% -2.9% -2.8% -19.4% -12.6% -6.7% -2.7% -1.1% -2.0% -2.1% + 0.7% 96 95Freight transport 1.5% -0.1% 0.6% -8.0% -4.4% -2.0% -0.7% -1.0% -0.6% -1.1% -1.1% -0.9% 96 99

0.2% -1.0% + -9.6% 1.9% 1.8% + 0.3% 0.2% -2.4% 0.1% -1.3% 84 86-5.1% 2.5% 1.5% -7.6% + + + -0.5% -2.8% -1.4% 1.8% -3.1% 102 1040.3% -0.3% 0.7% -2.1% -0.1% 1.6% -1.1% 1.0% 0.5% 0.2% -0.4% 0.6% 98 98-1.2% 1.1% -0.9% -1.4% 0.5% + -0.4% -2.5% -0.3% -2.6% 0.9% -0.4% 105 102-1.4% 1.0% + -4.1% + -2.6% + -2.4% -0.4% + -2.7% -1.6% 96 941.7% -0.8% 1.3% -12.9% + + 0.5% 1.9% 0.2% 1.4% 1.0% -0.5% 101 102

1.1% 0.9% -1.0% -9.6% + 1.6% + 1.4% 0.9% -1.6% 0.7% -0.7% 92 87

0.2% 1.3% 0.8% -0.7% 0.2% -1.7% 1.4% 0.1% 0.5% 0.4% 0.2% -0.3% 108 112-0.4% 0.5% 0.6% -6.1% + 1.4% 1.9% 0.4% -0.2% -0.2% 0.9% -1.0% 99 101-0.3% -0.1% 1.1% -5.3% + -0.3% 1.9% -0.2% -0.1% -0.7% 0.3% -0.6% 95 96

FY2011

Leasing

Broadly defined personal servicesBroadly defined business services

Key industries

Man

ufac

turin

g 20

05＝

100

Electricity, gas, heating, water

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-man

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g 20

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2005=100


Professional/technical services, advertising

Hotel/restaurant businesses

FY2010

Mat

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oces

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Lifestyle support services (excludingentertainment)

Wholesale

Real estate

Transport

Retail

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec FY2010 FY2011Iron & steel + + + -7.4% -8.0% -9.3% -6.1% -3.3% 0.1% -3.2% -0.1% -2.4% -7.5% 81 94

Non-ferrous metals + -0.1% 0.6% -16.3% -12.5% -10.5% -6.2% -3.4% -1.2% -2.3% + -2.3% -1.3% 84 89Metals + 0.8% + -7.0% -5.4% -3.0% 1.2% -1.2% -1.9% -4.5% -1.5% -1.9% -1.5% 80 83

Chemicals + -2.4% -6.7% -7.0% -8.2% + + -1.4% -2.4% -2.0% -5.4% -7.6% #N/A 99 100Petroleum & coal 0.2% -0.4% 1.5% -10.0% -12.9% -9.9% -0.8% -2.7% -4.2% -9.0% -5.5% -7.7% -6.2% 90 90

Paper & pulp 0.3% + 1.8% -6.1% -6.8% -6.9% -3.7% -6.9% -4.3% -5.7% -0.8% -0.5% -1.2% 88 89General machinery + + + + + + + + + + + + + 63 86

Transport machinery + -4.3% -0.2% -47.6% -47.9% -27.9% -11.1% -5.1% 1.5% -2.0% + 2.0% + 84 90Precision machinery + + + -10.9% 1.5% 1.8% + + + + + + + 89 106Electric machinery + + + -5.5% 0.4% 1.5% + + + -2.3% -2.4% -2.6% -5.1% 83 95

Information &telecommunications

machinery-2.3% -10.3% -19.2% -24.8% -35.0% -28.0% -16.5% -2.8% -13.9% -23.5% -27.3% -42.6% -26.1% 88 87

Electronic devices + + + -2.8% -15.5% -15.9% -10.0% -11.8% -10.5% -9.9% -13.0% -15.3% -14.0% 112 1271.2% + 1.0% -2.3% -5.7% -3.5% -4.2% -6.1% -9.5% -6.5% -3.7% -3.9% 100 1032.5% -0.2% -0.1% -2.8% -1.3% -2.1% 0.7% -1.0% -0.6% -1.8% 0.6% 1.2% 106 107

Passenger transport -1.9% -2.9% -2.8% -19.4% -12.6% -6.7% -2.7% -1.1% -2.0% -2.1% + 0.7% 96 95Freight transport 1.5% -0.1% 0.6% -8.0% -4.4% -2.0% -0.7% -1.0% -0.6% -1.1% -1.1% -0.9% 96 99

+ + + 0.7% -2.7% 0.0% 2.3% 1.6% 1.5% -0.8% -1.7% -4.6% 84 86-0.7% -0.3% 0.5% -8.0% -3.3% 1.4% + + -1.4% -0.4% 2.4% -3.3% 102 1040.9% 0.3% 1.2% -1.1% -1.5% 0.3% -1.4% -0.2% 0.2% 0.5% 0.2% 0.8% 98 98-4.7% -3.3% -4.3% -5.2% -4.6% -1.9% -1.9% -4.3% -3.8% -6.1% -4.4% -4.6% 105 1020.2% -1.4% 2.1% -0.3% + 1.3% + -2.6% 0.9% + 1.5% -1.3% 96 94

+ 2.0% + -10.8% -5.5% -0.6% 0.3% -0.3% -0.1% 1.5% 1.8% + 101 102

-3.3% -3.9% -1.4% -28.9% -16.8% -6.0% 1.1% 0.7% -1.3% -1.3% + 1.6% 91 87

+ + + + + 1.4% 2.3% 2.4% + + + 2.4% 108 1122.2% 0.9% 2.1% -5.0% -2.6% -0.2% 0.8% 1.0% 0.1% 0.5% 1.9% 0.4% 99 101

+ 0.4% 2.0% -1.6% -1.3% -1.2% 1.1% -0.1% 0.1% -0.4% -0.5% -1.7% 95 96

Wholesale


Fabr

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proc

essi

ng

Broadly defined business servicesBroadly defined personal services

Retail

Electricity, gas, heating, water

Real estate

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Leasing

Transport

Non

-man

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Professional/technical services, advertising

Lifestyle support services (excludingentertainment)

Hotel/restaurant businesses

Manufacturing 2005＝100


2005=100FY2011FY2010

Mat

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anuf

actu

reFigure 1-7: Production/activity index trends by sector (month-on-month)

Source: Compiled by MHCB Industry Research Division Note: 2.5% or more month to month, □: 0% - +2.5% month to month, ▩: -2.5% - 0% month to month, ■: -2.5% or less month to month

Figure 1-8: Production/activity index trends by sector (year-on-year)

Source: Compiled by MHCB Industry Research Division Note: 2.5% or more year-on-year, □: 0% - +2.5% year-on-year, ▩: -2.5% - 0% year-on-year, ■: -2.5% or less year-on-year

+

+



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Iron & steel Transport equipment Chemicals

Overall General machinery Electric machinery

3. Exports are expected to weaken in the wake of the European debt crisis and the floods in Thailand.

Exports, which had been showing signs of recovery in conjunction with the restoration of the systems of production since the Great East Japan Earthquake, have been gradually losing momentum in the second half under the effects of the protracted European debt crisis and monetary tightening by China, and exports in December dropped by approximately 6% from the post-earthquake peak in exports, which was reached in September (see Figure 1-9).

By destination, exports mainly to Europe and Asia have begun to decrease, which may be said to be a direct effect of the European crisis and the slowdown of growth in China. According to November trade statistics, exports to Asia, which account for over 50% of total trade, decreased by around 5% from the post-earthquake peak in September, and exports to China (which account for 35% of total exports to Asia) also decreased by approximately 4%.

By item, the export of electronics and transport machinery has decreased, and compared to the latest peak period, the former has decreased by 18.9% and the latter by 12.0% (see Figure 1-10).

In terms of the trade balance, Japan has recorded a trade deficit for nine consecutive months since April 2011, against the backdrop of increased LNG imports from the summer onward, and the cumulative deficit during this period has reached approximately 3.3 trillion yen (seasonally-adjusted figure) (see Figure 1-11 and Figure 1-12). Japan is almost certain to record a trade deficit for FY2011, which would be the first time since FY2008—the era of

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China

ASEAN

World

NIES

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Negative factors exist both on the supply and demand side due to the effects of the European debt crisis and the Thai floods.

Exports to Europe and Asia are weakening.

Japan is almost certain to record a trade deficit for the full year.

Figure 1-10: Index of export volume by item Figure 1-9: Index of export volume by region

Source: Figure 1-9 and Figure 1-10 were compiled by MHCB Industrial Research Division based on the Ministry of Finance’s “Trade Index of Trade Statistics.” Note: Indices are seasonally adjusted three-month moving averages.



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Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11

Crude oil, raw oil

LNG

Coal

the Lehman crisis.

As far as the future is concerned, while the domestic systems of production are pulling out of the effects of the series of natural disasters, exports are expected to weaken as a result of the repercussions of the European debt crisis spilling over into the Asian region via the international financial systems and as a result of sluggish demand, as well as the decelerated growth of the Chinese economy—Japan’s greatest export destination. Additionally, the rising tide of overseas expansion by the Japanese companies spurred on by the current climate of the strong yen will also become a factor that will weigh down on exports.

4. Moderate recovery for capital investments through the emergence of reconstruction-related demand in FY2012 onward

According to the Bank of Japan’s December Tankan Survey (large enterprises), capital investments for both the manufacturing and the non-manufacturing sectors are expected to grow by 7.6% and 3.5% year-on-year, respectively. However, in light of the fact that in the September Tankan Survey, capital investments had been predicted to grow by 11.8% and 4.0%, respectively for the same period, it is worth noting that a somewhat cautious stance toward domestic capital investments has begun to take hold, particularly in the manufacturing sector (see Figure 1-13).

Despite being impacted to a certain degree by the floods in Thailand, machinery orders (total private sector demand excluding power and marine sectors), a leading indicator for private sector capital investments, are showing signs of moderate improvement as a whole. The main reason for this

Figure 1-12: Balance of trade (seasonally adjusted) Figure 1-11: Growth rate of mineral fuel imports (year-on-year)

Source: Compiled by MHCB Industrial ResearchDivision based on the Ministry of Finance’s “Trade Index of Trade Statistics.”

Source: Compiled by MHCB Industry Research Division based on the Ministry of Finance’s “Trade Statistics.” Note: Indices are seasonally adjusted

Repercussions from the European debt crisis are the greatest risk factor.

The impact on the capital investment of special reconstruction-related demand will be limited.

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Export amount (left axis) Import amount (left axis) Trade balance (right axis)



Figure 1-13: Annual capital investment budget growth rates (large enterprises)

is that the manufacturing sector expects to increase on domestic production to make up for the portion of production that was cutback due to the Thai floods, and the non-manufacturing sector anticipates stepped-up production accompanying the spread of smartphones (see Figure 1-15).

In terms of reconstruction-related demand from the Great East Japan Earthquake, approximately 19 trillion yen has been recorded, if the FY2012 budget (proposal) is to be included. However, at the present time, most of it is being spent on clearing rubble, and actual reconstruction investments have yet to materialize. Capital investments are expected to gradually increase from FY2012 onward, once full-scale reconstruction demand emerges, and in the absence of any major recovery in exports, it is expected to be effective to a certain extent in propping up the domestic economy.

Full-scale reconstruction expected to begin in 2012 onward.

Non-manufacturing Manufacturing

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March survey June survey Septembersurvey

Decembersurvey

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FY2007

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7.6%

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Figure 1-14: Capital investment amount trends (large enterprises)

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07/03 07/09 08/03 08/09 09/03 09/09 10/03 10/09 11/03 11/09 12/03e

Total

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Non-manufacturingindustry

Excess

Shortage

Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12e

Source: Figure 1-13 and Figure 1-14 were compiled by MHCB Industry Research Division based on the Bank of Japan’s “Short-term Economic Survey of Principal Enterprises in Japan” (Tankan Survey).

Note 1: Figure 1-13 includes software; exclude land purchases.

Note 2: Figure 1-14 estimates for March 2012 are advance indicators based on the December FY2011 edition of the Bank of Japan’s “Short-term Economic Survey of Principal Enterprises in Japan (Tankan Survey).”



0

200

400

600

800

1,000

1,200

1,400


Manufacturing industry

Non-manufacturing industry

(External demand)

Total private-sectordemand

(JPY billions)

0

1

2

3

4

5

6

7


Total non-residential


Non-manufacturing industry

(Million m2)

Figure 1-16: Total floor area of building construction starts

Source: Compiled by MHCB Industry Research Division based on the Ministry of Land, Infrastructure, Transport and Tourism’s “Statistical Data File on Construction Starts.”

Figure 1-15: Machinery orders

Source: Compiled by MHCB Industry Research Division based on the Cabinet Office’s “Statistical Survey of Orders Received for Machinery.” Note: Three-month moving averages; private-sector demand does not include figures for the marine and power sectors.



Figure 1-17: Employment indicators

Figure 1-18: Income indicators

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11

3

3.5

4

4.5

5

5.5

Jobs-to-applicants ratio (left axis)New job offers (left axis)Total unemployment (right axis)

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%


Real wage index (y-o-y)

Real growth rate of consumer spending (y-o-y)

5. Personal consumption will improve through economic stimulus measures and improvements in the income environment.

Since FY2009, employment-related indicators have been on a moderate recovery trend, and the latest unemployment rate stands at 4.5%, with the jobs-to-applicants ratio at 0.69 (see Figure. 1-17). In terms of the income environment, the rate of decline in the real wage index has been diminishing, and the income environment is thought to be gradually improving (see Figure 1-18). Additionally, the Consumer Confidence Index, which measures consumer confidence, has also been on a plateau in response to improvements in the employment environment (see Figure 1-19).

As far as the future is concerned, current improvements in the employment and income situations and the incorporation once again of the 300 billion yen eco-car subsidy package in the 4th Supplementary Budget for FY2012 are expected to boost personal consumption. With the exception of automobiles, service expenditures toward hobbies and leisure rather than on durable goods are expected to become the main focus of increased consumption.

Personal consumption will improve with the backing of government measures.

Currently the income/labor climate is on a recovery trend.

Source: Compiled by MHCB Industry Research Division based on the Ministry of Finance’s “Financial Statements Statistics of Corporations by Industry” and the Ministry of Internal Affairs and Communication’s “Labor Force Survey.” Note: 12-month moving averages

Source: Compiled by MHCB Industry Research Division based on the Ministry of Health, Labour and Welfare’s “Monthly Labour Survey” and the Ministry of Internal Affairs and Communication’s “Household Survey.” Note: Three-month moving averages



Figure 1-19: Consumer confidence Index

15

20

25

30

35

40

45

50


Willingness to purchase durable goods

Life circumstancesConsumer confident index

Income growthEmployment

Source: Compiled by MHCB Industry Research Division based on the Cabinet Office’s “Consumer Confidence Survey.” Note: Three-month moving averages



1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 2011 2012Iron & Steel Crude steel production ### ### ＋＋ ### ### ### ### ### ### ### ＋＋＋＋ ### ### ＋＋＋ ### ### ### ### 93 93Chemicals Ethylene production ### ### ### ＋ ### ＋＋ ### ### ### ### ＋＋ ### ### ### ### ＋ ### ### ### ### ### ＋ 88 91Non-ferrous metals Copper bullion production ### ### ### ### ### ＋ ### ### ### ＋＋＋＋ ### ### ### ### ＋＋ ### ### ### ＋＋ 94 102Paper & pulp Paper/paperboard production ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ＋ ### ### ### ### ### 84 83Cement Cement production ### ### ### ### ### ### ### ### ＋＋ ### ### ### ### ### ### ### ### ### ### ＋ ### ### ### 77 78Petroleum Fuel oil production ### ### ### ＋＋ ### ### ### ＋＋ ### ### ### ＋ ### ### ### ### ### ### ### ### ### ### 86 83Automobiles Domestic passenger car production ### ### ＋＋ ### ### ＋ ### ### ＋＋＋ ### ＋＋ ### ### ＋＋ ### ### ＋＋ ### 82 85Shipbuilding Steel ship production ＋ ### ### ### ＋ ### ＋＋＋＋＋ ### ### ＋ ### ### ＋＋＋ ### ### ### ### ### 112 101

Consumer electronics Domestic production ### ### ### ＋＋＋＋ ### ### ＋＋＋＋ ### ### ### ### ＋＋ ### ### ### ### ### 73 70Domestic production (excludingdevices) ### ### ### ### ### ＋＋ ### ### ＋ ### ### ＋ ### ### ### ### ### ＋ ### ### ### ＋＋ 66 72Domestic production (devices) ### ### ＋＋ ### ＋＋ ### ### ＋＋＋ ### ＋ ### ### ### ＋＋ ### ### ### ＋＋ 81 94

General machinery Order value ### ### ### ＋＋＋＋＋＋＋＋ ### ### ＋ ### ### ### ＋＋＋＋＋ ### ### 94 96Food Food spending ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### 97 97Electric power Power sales ### ### ### ＋ ### ### ＋ ### ### ＋ ### ### ### ＋ ### ### ### ### ＋ ### ### ### ### ＋ 96 99City gas City gas sales ＋ ### ### ＋＋＋ ### ### ### ＋ 120 123Marine transportation Tramp cargo traffic ＋ 120 123Distribution Truck tonnage ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### 86 87

Cell phone subscribers (includingPHS) ＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋ 138 145Broadband subscribers ＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋＋ 154 160

IT services Informational service sales growth ### ### ### ### ### ＋＋＋ ### ### ### ### ### ### ### ### ### ### ### ＋ 101 103Advertising/broadcastinAdvertising market size ### ### ### ### ### ＋＋＋ ### ### ### ### ### ### ### ### ### ### ### ＋ 80 82

Department store sales growth 81 88Supermarket sales growth 88 98Convenience store sales growth 104 111

Food services Food service expenditure growthper person ### ### ＋ ### ### ### ＋ ### ### ### ### ### ＋＋ ### ### ### ### ### ### ### ### 97 99Credit card shopping billings 162 163Installment billings 66 65Credit card cashing billings 29 28

Construction Nominal construction investment 83 86Housing New housing starts ### ### ### ### ### ＋＋ ### ＋＋＋ ### ### ### ＋ ### ### ### ＋＋＋ ### 67 67

New apartment buildings inmetropolitan area ### ### ### ### ### ### ＋＋ ### ＋ ### ### ### ### ### ### ### ### ＋＋ ### ＋＋＋ 53 61Office vacancy rate (Tokyo 23wards) ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### 96 96

Hotels Hotel occupancy rate (nationwide) 92 94Leasing Lease transactions ＋ ### ### ### ### ### ＋＋ ### ＋ ### ### ### ### ### ### ### ### ＋ ### 56 54Temporary staffing Temporary staff on employment

agency books ＋＋＋＋＋＋＋＋＋＋＋ ### ### ### ### ### ### ### 108 89

-1.4%＋

＋

-4.2%

-0.2%

-3.5%

1.0%

-4.8% 2.2%

(Forecast)2012

0.1%

-21.4%＋

-0.8%＋

＋

-5.3%

2011(Estimate)

2.3%

-2.1%

Non

-man

ufac

turin

g

-41.7%-3.0%

＋

-2.6%-0.8%

＋

1.3%

-1.8%

-1.5%

2010

＋

-3.1%

-2.8%

-3.5%-3.2%

-7.4%

0.4% 1.7%1.9% 0.5%

-7.3%

-2.7%-0.4%-5.5%

-1.2%

-0.7% -2.2%

-1.7%-1.5%-1.3%

0.9%

FY2005＝100

20072006

Man

ufac

turi

ng

Industrial electronics

Sector Indicator FY

1.6% ＋

2001 2002 2003 20052004

-2.8%-2.6%

-2.3%

Real estate

-0.2%

-2.1%

＋1.4% ＋＋＋

-1.5%

1.1%

-6.0%0.3%

-0.4%

＋

-0.5%-1.4%-1.0%

-11.4%-7.9%-7.0%

2009

-3.5%

-10.1%

-6.2%

-4.3%-1.8%

-17.0%

＋

-9.6%-17.2%

2008

1.9%

-4.3%

-2.2%

-0.7%＋

＋

-8.3%-16.6%

＋＋＋＋

＋＋＋＋＋＋＋

＋

-1.7%

-0.4%-5.2%

＋

Credit cards/consumercredit

＋

-4.6%1.6%

-4.9%＋

Telecommunications

Retail -0.8%-1.0%

-2.4%

-0.7%-2.7%

-2.8%

Figure 1-20: Production & demand trend forecasts (on a half-yearly basis, y-o-y)

Source: Compiled by MHCB Industry Research Division.

Note: => +2.5% or more y-o-y, => 0% - +2.5% y-o-y,

=> -2.5% - 0% y-o-y, => -2.5% or less y-o-y

Figures for municipal gas, marine transport, retail, credit cards/consumer credit, construction, housing, and hotels

are annualized.

For a breakdown of sector-specific production and demand trends, refer to the sector-specific outlooks given in

subsequent chapters.

十



II．CORPORATE PERFORMANCE

1. In FY2011, corporate performance witnessed a drastic decrease in profits due to the Great East Japan Earthquake, the floods in Thailand, and the soaring yen.

In FY2011, Japan’s 160 leading companies expect a decline in both revenue and profit, as sales fell by 1.0% year-on-year and operating profit by 29.8% year-on-year. (Even if the electricity sector is eliminated, both revenue and profit decreased, as sales declined by 1.1% and operating profit by 18.0%.) Sales decreased mainly in the assembly and processing sectors due to the effects of the Great East Japan Earthquake and the Thai floods. Operating profits fell to around 55% of peak levels (FY2007) as a result of the soaring yen and increasing fuel costs in the electricity sector. However, the effects of the disasters, as reflected in corporate performance, are expected to run their course in FY2011.

Japan’s 66 leading manufacturers expect decreases in both revenue and profit, as sales fell by 1.9% year-on-year and operating profit by 27.9% year-on-year. In the wake of the Great East Japan Earthquake and the floods in Thailand, the automobile and consumer electronics sectors expect a decrease in sales of approximately JPY 5 trillion. Operating profits are also expected to decrease due to the effects of foreign exchange, in addition to deteriorating market conditions, the fall in sales prices, and increased costs in dealing with the disasters.

Japan’s leading 94 companies in the non-manufacturing sector expect increased revenue but decreased profit, as sales increased by 0.6% year-on-year while operating profit decreased by 32.0% year-on-year. (If the electricity sector is eliminated, then sales would increase by 0.5% while operating profit would decrease by 2.7%.) Strong performances by the retail, food services, telecommunications, and other personal consumption-related sectors are expected to result in increased revenue. Major decreases in operating profit in the electricity sector due to increased power generation costs and in the maritime industry reflecting deteriorating market conditions are expected to become the main factors for decreased profits.

2. In FY2012, both revenue and profits will increase, but operating profit will not reach FY2010 levels.

In FY2012, both revenue and profits are expected to increase, as sales will increase by 1.1% year-on-year and operating profit by 26.6% year-on-year. (Sales would increase by 1.1% year-on-year, while operating profit would increase by 17.0% year-on-year, if the electricity sector is eliminated.) Although increases in revenue and profits are predicted in reaction to FY2011, sales and profit levels will not reach the levels of FY2010, and the climate

The effects of the earthquake, the soaring yen, and power generation costs weighed down on earnings.

Despite the early recovery of the systems of production, the manufacturing sector expects huge decreases in both revenue and profit.

The non-manufacturing sector expects increased revenue backed by the strong performances of personal consumption-related sectors.

Both revenue and profits will increase in reaction to FY2011.



surrounding corporate performance will continue to be harsh.

The 66 leading manufacturers expect increased revenue and profits through a 0.9% increase year-on-year in sales and an 18.0% increase year-on-year in operating profit. In terms of sales, despite the removal of restrictions on production caused by the disasters of FY2011 and the expectations of increased sales for the automobile and consumer electronics sectors, exports will be slow to recover, and consequently, overall sales for the manufacturing sector will remain more or less the same as FY2011. In terms of operating profit, while continuing to be affected by the soaring yen, the increase in sales mentioned above and the removal of cost-increasing factors such as personnel expenses, which were required in the early recovery from the earthquake, will contribute to increased profits. Additionally, in the consumer electronics sector, profits are predicted to increase fourfold year-on-year, as certain companies recorded costs in connection with structural reforms of the television business in FY2011. In the materials sector, while the effects of the disasters are expected to wear off and reconstruction-related demands are anticipated, sales are expected to decrease slightly against the backdrop of the decline in export volume. Operating profits are also expected to increase slightly, assuming similar foreign exchange levels as FY2011, along with efforts to aggressively cut costs. The oil industry, which is a materials sector based on domestic demand, expects decreases in both revenue and profits due to the effects of inventory assessment.

In FY2012, the leading 94 companies of the non-manufacturing sector expect increases in both revenue and profits as a result of a 1.5% increase year-on-year in sales and 37.7% increase year-on-year in operating profit. (If the electricity sector is eliminated, then sales would increase by 1.6% year-on-year and operating profit by 15.8% year-on-year.) Assuming that the nuclear power plants will resume operations from around June 2012, the electricity sector, which expects to record a deficit in FY2011, will turn around and report a profit, despite sales remaining nearly the same as the previous year, as a result of massive reductions in power generating costs thanks to stepped up thermal power generation. In the telecommunications sector, which is second to the electricity sector in the size of sales, the spread of smartphones will contribute to raising corporate performance, and increases in both revenue and profits are expected. In the housing and real estate sectors, where sales dropped sharply during the several months immediately following the Great East Japan Earthquake, the backlash to said decrease is expected to appear in FY2012 onward, and thus, increases in both revenue and profits are expected. Meanwhile, in the sectors related to personal consumption, such as supermarkets, convenience stores, and food services, strong sales are expected, in addition to increases in profits reflecting efforts to thoroughly cut costs and close unprofitable stores.

Disaster-related factors will run their course, and structural reforms will result in increased revenue and profits in the manufacturing sector.

Electricity and telecommunications in the non-manufacturing sector will dramatically see increased profits.



In summarizing FY2012, the following three points are expected to become the key factors for increases in revenue and profits: (1) the impact of the Great East Japan Earthquake and the floods in Thailand on corporate performance in FY2011, mainly in the assembly and processing sectors, will wear off in FY2012 (i.e., sales will increase as a result of rebuilding the systems of production, and there will no longer be increased costs such as personnel costs associated with reconstruction); (2) in addition to the major increases in profit planned for the infrastructure businesses such as telecommunications and electricity, the bottom line is expected to improve for the services industry, including retail and food services, backed by strong personal consumption; and (3) selection and concentration will proceed even further, and unprofitable businesses and stores will be re-examined.

However, in terms of profit levels, operating profit is expected to remain at around 90% of FY2010 levels, which is approximately 70% of the peak levels reached in FY2007. Although Japanese companies are casting off the effects of the disasters, another element of global uncertainty, i.e., the European financial crisis, has emerged and is becoming more and more manifest. If the effects of the European financial crisis spill over into China and Southeast Asia, Japanese companies—which consider Asia to be at the center of their growth—will not be immune from negative impact. While companies become increasingly global, potential risks such as the vulnerability of supply chains and vulnerability to the repercussions of the financial crisis are also becoming inherent in the countries in which the Japanese companies operate. Consequently, risk management, particularly the ability to deal with risks when they materialize, will become crucial to these Japanese companies.

These forecasts were based on the following data: currency conversion rates; first-half FY2011 = 80 yen/1 USD, second-half FY2011 = 77 yen/1 USD, first-half FY2012 = 75 yen/1 USD, second-half FY2012 = 77 yen/1 USD; crude oil prices (WTI); first-half FY2011 = 96.1 USD/bbl, second-half FY2011 = 97.3 USD/bbl, first-half FY2012 = 94.4 USD/bbl, second-half FY2012= 92.9 USD/bbl. However, it should be noted that if the yen rises more than expected due to the European financial crisis or other factors, then export-related companies and others may well see earnings coming under even greater pressure.

Although disaster-related factors will wear off, Japanese companies will be required to manage the risks related to the effects of the European debt crisis.



-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

-5% -3% -1% 1% 3% 5% 7%

Operating profit growth rate

Paper & pulp

[Shipbuilding: -10%, -48%]

PharmaceuticalsFood


Chemicals

Industrial electronics

Sales growth rate

Non-ferrousmetals

Iron & steel

[Cement: 3%, 49%]

Automobiles

[Consumer electronics: 4%, 289%]

[Pertoleum: -11%, -49%]


Figure 1-21: Corporate performance distribution (FY2012 forecast)

Manufacturing

Non-manufacturing

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-10% -5% 0% 5% 10%

Sales growth rate

Operating profit growth rate

Telecommunications

Real estate

Department stores

Broadcasting

Convenience stores

Distribution

Credit cards

Supermarkets

Food services

Leasing

Non-manufacturing industry average

Construction

[Electric power: 1%, into black]

HousingHuman resource services

[Marine transportation:4%, into black]

[City gas: 1%, 97%]

Consumer credit

[Hotels: 2%, 62%][Tourism: 7%, 59%]




Iron & steel 4 major integratedsteel Nippon Steel Corporation, JFE Holdings, Sumitomo Metal Industries, Kobe Steel Group

Chemicals 7 major diversifiedchemicals

Asahi Kasei Corporation, Ube Industries, Showa Denko, Sumitomo Chemical, Tosoh, Mitsui Chemicals, MitsubishiChemical Holdings

Pharmaceuticals 9 major companies Takeda Pharmaceutical Company, Astellas Pharma, Dainippon Sumitomo Pharma, Shionogi & Co., MitsubishiTanabe Pharma Corporation, Chugai Pharmaceutical Company, Eisai, Daiichi Sankyo, Otsuka Holdings

Non-ferrous metals 5 major companies JX Holdings (Metal), Mitsubishi Materials Corporation, Sumitomo Metal Mining, Mitsui Mining & Smelting Co.,DOWA Holdings

Paper & pulp 5 major companies Oji Paper Group, Nippon Paper Group, Daio Paper Corporation, Mitsubishi Paper Mills, Hokuetsu Kishu PaperCompany

Cement 2 leadingmanufacturers Taiheiyo Cement, Sumitomo Osaka Cement

Petroleum 5 listed companies Showa Shell Sekiyu, Cosmo Oil, Tonen General Sekiyu, Idemitsu Kosan, JX Holdings (excl. Metal)

Automobiles 8 finished vehiclemanufacturers Toyota, Honda, Nissan, Mitsubishi Motors, Mazda, Fuji Heavy Industries, Suzuki, Isuzu Motors

Shipbuilding 6 majormanufacturers

Mitsubishi Heavy Industries, Mitsui Engineering & Shipbuilding Co., IHI, Kawasaki Heavy Industries, SumitomoHeavy Industries, JFE Holdings (Universal Shipbuilding Group)

Consumerelectronics

3 majormanufacturers Sony, Panasonic, Sharp

Industrial electronics 5 majormanufacturers Hitachi, Toshiba, NEC, Fujitsu, Mitsubishi Electric Corporation

Food 7 major companies Kirin Holdings, Asahi Breweries, Ajinomoto, Nippon Meat Packers, Maruha Nichiro Holdings, Yamazaki BakingCo., Meiji Holdings

Electric power 10 power companiesHokkaido Electric Power Co., Tohoku Electric Power Co., Tokyo Electric Power Co., Chubu Electric Power Co.,Hokuriku Electric Power Co., Kansai Electric Power Co., Chugoku Electric Power Co., Shikoku Electric Power Co.,Kyushu Electric Power Co., Okinawa Electric Power Co.

Municipal gas 3 major companies Tokyo Gas, Osaka Gas, Toho Gas

Marine transport 3 major companies NYK Line, Mitsui O.S.K. Lines, Kawasaki Kisen Kaisha

Distribution 5 major companies Nippon Express, Yamato Holdings, Seino Holdings, Hitachi Transport System, Fukuyama Transporting Co.

Telecommunication4 major companies NTT, KDDI, SoftBank Mobile Corporation, SoftBank Telecom Corporation

Broadcasting 4 major commercialbroadcasters Nippon Television Network Corporation, Tokyo Broadcasting System Television, Fuji Media Holdings, TV Asahi

4 major departmentstore houses Mitsukoshi Isetan Holdings, J.Front Retailing, Takashimaya, H2O Retailing

4 major supermarketchains Seven & I Holdings, Aeon, Daiei UNY

4 major conveniencestore chains 7-Eleven, Lawson, Family Mart, CircleK Sunkus

Food service 8 major companies McDonald's Holdings Japan, Zensho Co., Yoshinoya Holdings, Royal Holdings, Seven & I Food Systems, SaizeriyaCo., Watami, Colowide Co.

4 major credit cardcompanies Mitsubishi UFJ NICOS, JCB, Sumitomo Mitsui Card Company, Credit Saison

4 major consumercredit companies Orient Corporation, Cedyna Financial Corporation, JACCS, APLUS

Construction 4 major generalconstructors Kajima Corporation, Shimizu Corporation, Obayashi Corporation, Taisei Corporation

Housing 5 major companies Sekisui House, Daiwa House Industry, Sekisui Chemical Co., Sumitomo Forestry Co., Asahi Kasei

Real estate 5 major companies Mitsui Fudosan, Mitsubishi Estate Co., Sumitomo Realty & Development Co., Tokyu Land Corporation, TokyoTatemono

Hotels 4 major companies Imperial Hotel, Royal Hotel, Fujita Kanko, Kyoto Hotel

Tourism 4 major companies JTB, Kinki Nippon Tourist, Nippon Travel Agency, H.I.S.

Temp staffing 8 major companiesTemp Holdings, Pasona Group, Meitec Corporation, Human Holdings Co., World Intec, Outsourcing, AltechCorporation, WDB

Leasing 7 major companies Fuyo General Lease, IBJ Leasing Company, Century Tokyo Leasing Company, Ricoh Leasing Company, HitachiCapital Corporation, Mitsubishi UFJ Lease & Finance Company, NEC Capital Solutions

Non-manufacturing industry subtotal (94 companies)

Manufacturing industry subtotal (66 companies)

Sector Breakdown Companies

Credit cards,consumer credit

Retail

Total (160 companies)

Figure 1-22: List of Japan’s leading companies



Source: Compiled by MHCB Industry Research Division. Note 1: These cash flow forecasts are based on the following yen/dollar exchange rates: 75 yen for the first half of FY2012; 77 yen for the second half of FY2012. Note 2: Convenience-store sales are chain-wide; operating profits are stand-alone figures.

Figure 1-23: Company cash flow forecasts (on a consolidated operating profit basis) (Unit: JPY billions)

Iron & steel 4 major integratedsteel 0.8% 10,650.0 -50.9% 260.0 -1.2% 10,520.0 23.1% 320.0

Chemicals 7 major diversifiedchemicals 2.6% 10,501.0 -4.1% 570.0 -2.5% 10,240.0 -3.9% 548.0

Pharmaceuticals 9 major companies -0.3% 6,627.5 -10.8% 945.4 2.3% 6,783.2 3.1% 974.8

Non-ferrous metals 5 major companies 1.9% 4,039.8 -11.5% 201.0 -2.6% 3,934.7 5.1% 211.2

Paper & pulp 5 major companies 0.3% 3,125.9 6.2% 134.3 1.6% 3,175.1 27.6% 171.3

Cement 2 leadingmanufacturers 1.3% 940.0 54.8% 37.0 2.7% 965.0 48.6% 55.0

Petroleum 5 listed companies 11.5% 22,161.9 20.1% 740.7 -10.9% 19,736.9 -48.9% 378.6

Automobiles 8 finished vehiclemanufacturers -7.4% 43,009.0 -47.8% 1,002.4 6.3% 45,725.7 36.4% 1,367.0

Shipbuilding 6 majormanufacturers -4.4% 1,143.2 -48.9% 29.7 -10.2% 1,026.2 -48.5% 15.3

Consumerelectronics

3 majormanufacturers -10.3% 16,950.0 -110.3% -60.0 4.4% 17,700.0 - 485.0

Industrial electronics5 majormanufacturers -0.4% 26,890.0 -11.6% 980.0 2.5% 27,550.0 24.5% 1,220.0

Food 7 major companies -1.2% 8,670.4 -6.5% 410.9 0.3% 8,696.1 9.4% 449.4

-1.9% 154,708.6 -27.9% 5,251.3 0.9% 156,052.9 18.0% 6,195.6

Electric power 10 power companies 0.7% 16,683.4 -140.9% -522.1 1.1% 16,867.3 - 290.3

Municipal gas 3 major companies 9.7% 2,920.3 -31.8% 120.1 0.6% 2,938.2 96.7% 236.1

Marine transport 3 major companies -11.2% 3,957.0 -116.8% -51.2 4.2% 4,122.0 - 42.5

Distribution 5 major companies 5.2% 4,183.4 11.5% 153.1 3.4% 4,325.0 8.6% 166.2

Telecommunication4 major companies 1.2% 16,280.2 3.0% 2,197.1 2.4% 16,675.2 18.2% 2,596.1

Broadcasting 4 major commercialbroadcasters 0.1% 1,466.5 5.8% 80.0 2.4% 1,501.5 19.9% 95.9

4 major departmentstore 0.1% 3,507.4 7.9% 64.8 0.5% 3,525.0 1.1% 65.5

4 major supermarketchains -4.1% 11,740.6 13.4% 514.7 -1.3% 11,593.5 0.3% 516.3

4 major conveniencestore chains 8.0% 7,476.6 6.0% 298.3 1.8% 7,612.7 1.3% 302.1

Food service 8 major companies -1.0% 1,367.7 5.9% 82.0 1.6% 1,389.7 7.7% 88.3

4 major credit cardcompanies -7.7% 870.0 7900.0% 120.0 -2.3% 850.0 -8.3% 110.0

4 major consumercredit companies -11.4% 540.0 19.3% 21.0 -7.4% 500.0 -9.5% 19.0

Construction 4 major generalconstructors 8.5% 5,400.0 21.8% 118.0 1.9% 5,500.0 -8.5% 108.0

Housing 5 major companies 1.8% 3,796.8 14.3% 230.9 5.6% 4,010.5 14.1% 263.5

Real estate 5 major companies -2.6% 3,808.0 -12.4% 441.0 2.4% 3,898.0 13.8% 502.0

Hotels 4 major companies -3.8% 167.1 -57.6% 2.1 1.5% 169.6 62.5% 3.4

Tourism 4 major companies -6.2% 403.8 -40.5% 9.9 7.0% 432.0 51.4% 15.1

Human resourceservices 8 major companies 4.6% 640.4 21.3% 18.8 1.3% 648.7 11.2% 20.9

Leasing 7 major companies -2.7% 2,580.7 6.3% 187.2 -2.3% 2,521.1 -1.2% 184.9

0.6% 87,789.9 -32.0% 4,085.7 1.5% 89,080.0 37.7% 5,626.1

-1.0% 242,498.5 -29.8% 9,337.0 1.1% 245,132.9 26.6% 11,821.7

Retail

Manufacturing industry subtotal (66 companies)

FY2012 forecastSales Operating profit

Breakdown

Credit cards,consumer credit

Sector FY2011 estimateSales Operating profit

Total (160 companies)

Non-manufacturing industrysubtotal (94 companies)



III．TOPICS: Raising productivity will support the growth of Japanese industries.

Japan’s real GDP in 2010 was approximately 510 trillion yen, which represented a roughly 3% decrease compared to the pre-Lehman crisis levels of 2007. According to the concept of growth accounting, economic growth may be divided into: (1) people (the input of labor), (2) goods (the input of capital), and (3) productivity (TFP1). In other words, in order to increase GDP, it is necessary to increase all three elements or any one of these elements. If we were to separate Japan’s GDP growth rate since 1970 into these three elements, it would become evident that: (1) in conjunction with the leveling off of the labor force growth rate and the prevalence of shorter working hours, the contribution by labor input has declined drastically; and (2) contribution by capital input is also diminishing against the backdrop of the pressure for stock adjustment, which has remained since the bursting of the economic bubble, along with the shifting of production centers overseas. Looking at the future trends in Japanese demographics, population decline and the further aging of the population are inevitable, and under such circumstances, increasing labor input would be an extremely difficult proposition. In terms of capital, an increasing number of Japanese companies are considering expanding their overseas businesses or moving their businesses overseas. Under such circumstances, it is not realistic to anticipate dramatic increases in domestic capital investment and capital input. Meanwhile, in terms of TFP, a comparison of the manufacturing sector with the non-manufacturing sector since the 1990s indicates that contribution by the non-manufacturing sector has become extremely small (see Figure 1-24). Additionally, when Japan’s TFP is compared to that of the major industrialized countries of U.S. and Germany, it has been lower than the TFPs of the two countries since the 1990s (see Figure 1-25). Considering these factors, perhaps it is not too far-fetched to consider that if we were to raise the TFP—especially the TFP of the non-manufacturing sector—then maybe it would become a major element in the revitalization of the Japanese economy. Therefore, we have decided to discuss the topic of TFP in this overview.

1 Total Factor Productivity: In growth accounting, TFP is the portion of GDP growth not explained by the input of capital and labor injection, and is calculated as the residual error of the two elements.

Raising productivity holds the key to economic growth.



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Needless to say, in order to raise productivity, companies will be required to make innovations on a micro-economic basis. Additionally, the optimum allocation of management resources through the appropriate transfer of labor and capital between companies and between industries is also indispensable. Particularly under current circumstances, where the manufacturing sector is relocating en masse, i.e., under the ever-increasing risk of the hollowing-out of the industry, the perspective of finding ways to utilize production elements that have become redundant in the manufacturing industry in other industries (including new industries) has become fundamental. M&As (cross-border) that utilize that benefits of the strong yen are expected to contribute to the smooth transfer of production elements. Moreover, the promotion of

Figure 1-24: Contribution trends of GDP components

Figure 1-25: Contribution trends of GDPs

(cy)

(cy)

IT investments and strategic M&As, which have correlations to the TFP growth rate, hold the key.

Source: Compiled by MHCB Industrial Research Division based on the Research Institute of Economy, Trade and Industry’s “JIP Database 2011.”

Source: Compiled by MHCB Industrial Research Division based on EUKLEMS Note: 1995 = 100

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technological innovation will also become crucial for raising productivity. In the U.S., the contribution of IT investments toward technological innovation is a well-known fact. In fact, a moderate correlation between TFP and IT investments can be seen (see Figure 1-26), and we will need to call attention to the importance of technological innovation based on the expansion of IT investments or the utilization of IT facilities. Furthermore, from the standpoint of policy support, the promotion of further deregulation will be required. When we examine the relationship between TFP and deregulation based on the regulation indices compiled by the Cabinet Office, we will be able to observe a moderate correlation between the two (see Figure 1-27). The enhancement of the competitive environment through deregulation is thought to not only create new industries but also lead to technological innovation associated with the improvement of the internal efficiency of companies and the changes in the input structure of production elements.

We observed the TFP growth rate, the “market growth rate,” and the “market size” of major non-manufacturing sectors (see Figure 1-28). As is clear from glancing at the graph, there is an uneven distribution of the TFP growth rate even in the non-manufacturing industry. However, it is believed that the enhancement of the productivity of sectors that carry weight in the non-manufacturing industry (i.e., with a large “market size”) and of the sectors that are likely to expand market size in the future (i.e., with a high “market growth rate”) will become imperative for raising the TFP of the non-manufacturing industry as a whole. For example, “wholesale” and “transport” are typical sectors with a large “market size” and with low TFP growth rates; while “medical/welfare” is typical of sectors with high “market growth rates” and high expectations for market expansion but with low TFP growth rates. We believe that these are the sectors that require further the utilization of M&As, IT investments, and policy support through deregulation.

Currently, Japan’s manufacturing industry, which had previously supported Japan’s economic growth, is facing a multitude of problems, including the dwindling of the labor force as a result of the aging of the population and low birthrate, and the hollowing-out of the industry through the relocation of production centers overseas; and the country is thus in danger of having its growth base undermined because of these problems. Under such circumstances, for the Japanese economy to get back on a powerful trajectory of growth, raising the productivity, particularly of the non-manufacturing industry, is indispensable. Further, in order to do so, micro-economic efforts by the companies, including strategic M&As and the expansion of IT investments, as well as the enhancement of the competitive environment through deregulation, is strongly called for.

IT investments and regulatory reforms are necessary for Japan’s economic growth.



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Figure 1-26: Correlation between the TFP growth rate and IT investments growth rate

Source: Compiled by MHCB Industrial Research Division based on the Research Institute of Economy, Trade and Industry’s “JIP Database 2011.” Note: The TFP growth rate is the average growth rate from 1995 to 2005.

Figure 1-27: Correlation between the TFP growth rate and the regulation index

Source: Compiled by MHCB Industrial Research Division based on the Research Institute of Economy, Trade and Industry’s “JIP Database 2011” and the Cabinet Office’s “Structural Reform Evaluation Report 6.” Note: The TFP growth rate is the average growth rate from 1995 to 2005. The regulation index indicates changes from 1995 to 2005.

Figure 1-28: TFP growth rate and market growth rate (non-manufacturing)

Source: Compiled by MHCB Industrial Research Division based on the Research Institute of Economy, Trade and Industry’s “JIP Database 2011” and the Ministry of Economy, Trade and Industry’s “Indices of Tertiary Industry Activity.” Note 1: Size of the bubble = weight of the index of tertiary industry activity. Note 2: The growth rate is the average growth rate from 1991 to 2005.

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Change in regulation indexDeregulation ←→Regulation



Figure 1-29: Industry-specific Production & Demand Trends and Topics













Source: Compiled by MHCB Industry Research Division Note: 2.5% or more month to month, □: 0% - +2.5% month to month, ▩: -2.5% - 0% month to month, ■: -2.5% or less month to month

The office vacancy rates for Tokyo's 23 wards do not indicate volatility but provide a mosaic in which the difference from previous-year figures is given as reverse sign values. A rise in vacancy rates is taken to indicate worsening industry conditions.

Tomoki Nakamura [email protected] Planning & Administration Team Industry Research Division Mizuho Corporate Bank, Ltd.

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