The Cabinet Office’s Economic and Social Research Institute on Jan. 17 released the finalized figures on the country’s economy’s stocks (the net value of accumulated assets at a balance date) and flows (net transactions, including income and expenditure, during an accounting period) that were recorded in national accounts in 2012.
The preliminary value of transactions covering the October-December period last year has already been released in the form of gross domestic product figures, but the total value of assets in the economy is only disclosed once a year — and almost a year later — because it takes time to confirm the figures. Therefore, the recorded value of assets in the economy as of the end of 2012 is the latest available. As the adjusted totals now go back to 1994, I’d like to review the figures over the past 19 years and highlight a few salient points:
First, Japan’s net assets (or national wealth) — calculated by deducting national debt from assets — fell from ¥3,398.9 trillion at the end of 1994 to ¥3,000.3 trillion at the end of 2012 — a loss of ¥398.6 trillion over the past 19 years. Given that the nation’s nominal GDP was ¥472.6 trillion in 2012, the data shows that national wealth equivalent to as much as 84.3 percent of the year’s GDP was lost over the same period.
If this is likened to a household’s finances, by extension the value of a family’s assets are 84 percent less than what they were 19 years ago. These figures clearly illustrate the impact of Japan’s “lost decades.”
This subsequently raises the question of what has been lost over the past 19 years? Assets are generally divided into financial and nonfinancial assets. Tangible nonproduced assets have comprised the biggest component of the loss — mainly land, which is usually classified as a nonfinancial asset. The net worth of such assets fell by ¥813.9 trillion — from ¥1,958.6 trillion to ¥1,144.7 trillion — over 19 years. One of the two main factors behind the decline is of course the ongoing hangover from the asset-inflated bubble economy of the late 1980s and early ’90s. In addition, land has been exposed to market competition across national borders in such forms as the overseas transfer of manufacturing plants. In other words, Japanese land is still expensive by international standards.
Finally, I’d like to highlight the changes in the ratio between financial and nonfinancial assets. In 1996, financial assets accounted for 59.7 percent of the total versus 40.3 percent for nonfinancial assets. In 2012, the ratio of financial assets was up nearly 10 percentage points to 68.9 percent, with the nonfinancial assets accounting for 31.1 percent.
What these changes signify is that Japanese companies and households have become more defensive in a bid to maintain the liquidity of their assets.
On the other hand, expenditure in Japan’s public sector has increased, with the private sector investing in most of the public bonds that have been issued to finance that expenditure.
Needless to say, this has led to a stalemate in public-sector finances and fluctuations in currency exchange rates.
People tend to pay attention to GDP — statistics of short-term transactions — as an indicator of economic trends.
However, it is also important to watch figures pertaining to economic assets that reflect the accumulation of the total value of such transactions.
Teruhiko Mano is an international economics analyst.