Published March 29, 2018
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In the long-running dispute between Bank of Japan and the government department in charge of measuring the economy, the BOJ has had a half-win in its quest to change how gross domestic product is calculated.
While BOJ chief economist Toshitaka Sekine was rebuffed in his call for wholesale change in how the data was compiled, the Cabinet Office has agreed to release more data on how it estimates GDP. At a meeting of the government’s statistics committee on Wednesday, the Cabinet Office said it would make more information available sometime before April 2019, though it didn’t say exactly what figures.
The BOJ’s concerns stems from the fact that that Japan’s GDP data is subject to relatively large revisions after the initial release, making it more difficult to set monetary policy. Japan had the second largest gap between preliminary and final GDP numbers among 18 developed nations, according to a report in 2015 by the Organisation for Economic Co-operation and Development.
Sekine said at the Wednesday meeting of the committee that there had also been large revisions to private consumption data after previous hikes in the sales tax.
“I don’t believe that GDP data with such big swings reflects the real state of the economy,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. The release of more detailed data should help economists and the BOJ make their own calculations, and make it easier for people to decide which is correct, he said.
The central bank wanted the government to adopt a calculation method that smooths out ups and downs, making revisions smaller.
“It’s obvious how important it is for economic assessment to improve the quality of quick estimations of GDP to get closer to revised figures,” Sekine said. “It will become even more important” when a planned sales tax in 2019 is likely to cause swings in the GDP report, he said.
The cabinet office prioritizes providing a very accurate historical record of what happened with the economy over the longer-term. That may mean that there are larger revisions to previous data months or years after the first release.
Some independent members of the statistics panel don’t agree with the central bank.
“I do believe we need very accurate GDP data to grasp the state of the economy,” said Tsutomu Watanabe, a professor at the University of Tokyo and a former BOJ official. “But I’m not sure if smoothing out swings in GDP revisions is the most important thing. It’s probably a challenge the BOJ has to cope with by good communications based on its own analysis.”
Japan has far fewer government statisticians compared with the U.S., U.K., France, Germany and Canada. The U.S. had the most with 13,022 officials, far more than Japan’s 1,925, according to a report by Japan’s internal affairs ministry in 2016.
The BOJ has been active in searching for better economic data in recent years. It has compiled an index for consumer spending and also created an inflation index. Some BOJ economists went as far as compiling their own GDP data, which estimated the economy was 29 trillion yen ($271 billion) bigger in 2014 than the government’s numbers showed.
In 2016, Finance Minister Taro Aso also expressed his concerns that flawed statistics could mislead economic policy makers.
The central bank and economists will be waiting to see what the Cabinet Office reports in coming months. That debate isn’t over.
Re-disseminated by The Asian Banker from Bloomberg.com