Was Japan's Economy 29 Trillion Yen Bigger Than Thought in 2014?
The official view in Japan for more than a year has been that the economy contracted in 2014 after a sales-tax hike stunted consumer spending. A new analysis from economists at the central bank paints a very different picture, suggesting that gross domestic product actually grew 2.4 percent.
The contradictory data add to existing concerns that inaccurate statistics could lead to policy missteps as the government and the Bank of Japan strive to find the right measures to strengthen the economy. The BOJ has stepped up its efforts to get better data, starting a consumption index earlier this year and releasing an in-house version of monthly price data that differs from the numbers issued by the statistics bureau.
The Cabinet Office calculates the official GDP statistics based on expenditure, while the new estimate from the BOJ uses income data. Theoretically, the numbers should match, as they both measure the same thing—the size of domestic production.
The BOJ report estimates Japan’s economy was 29.5 trillion yen ($291 billion) bigger in 2014 than the official data show.
The Cabinet Office disagreed with the assessment and the methodology used to calculate business profits. It’s unlikely that the economy in 2014 continued as strongly as the previous year, considering that 2013 growth was pushed up by people buying ahead of the tax increase, according to Testuro Sakimaki, executive research fellow at the Cabinet Office research bureau.
"It is true that Japan’s GDP data is problematic, and I’m hugely in favor of any effort to accurately measure it," said Taro Saito, director of economic research at NLI Research Institute. "I doubted whether the growth rate in fiscal 2014 was as bad as the data showed, although I don’t know if it’s as high as this estimate from the BOJ."
While the new research isn’t presented as the stated position of the central bank, Governor Haruhiko Kuroda expressed similar concerns last month. At a government economic policy council meeting he called for an improvement in Japan’s statistics, noting that it was odd that tax revenues had been much better than forecast, even as the economy did much worse.
The head of the BOJ’s statistics office also summarized the report’s findings at a meeting of the government’s statistics review panel on the same day.
The BOJ’s analysis had higher estimates for company profits and workers’ income, which accounted for most of the 29.5 trillion yen difference in 2014. The report used data on both individual and company tax payments to calculate income. These data aren’t used in the official Cabinet Office release.
Hiroyuki Fujiwara, the central bank economist who led the study, wrote that the reasons for the divergence between the two results is not entirely clear. He points to the effects of the sales-tax increase and also gaps in the survey data used to calculate the official numbers as possible causes.
Both the BOJ and Cabinet Office stressed that the analysis applied only to fiscal-year data. The latest quarterly numbers will be released next week.
"Many economists have concerns about the trustworthiness of GDP data," said NLI’s Saito. "I hope this debate leads to a constructive discussion of the issue."
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