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Economy in Brief

Chain-Linking Comes to Japan's GDP Accounts
by Carol Stone November 19, 2004

The Cabinet Office of the Japanese Government announced yesterday that it would shift GDP calculations to chain-weighting beginning with the release of revised Q3 data on December 8. It will also switch the reference year from 1995 to 2000 and incorporate new input data in various components.

Beneficially for users, the Cabinet Office released "Interim series", in which the current official data are converted to a chain-weighted basis, so the effect of the chain-weighting alone can be seen. Total GDP in 1995 yen is reduced from ¥567.6 trillion in Q3 to ¥550.2 trillion, or about 3.1%. The hesitant growth in the latest couple of quarters is eliminated all together.

While this now flat pattern in Japanese GDP might be disappointing, some growth is still evident over the last year, and the pattern now in evidence allows a more realistic appraisal. Chain-weighting or chain-linking reduces the numerical impact on total growth of components for which prices are falling rapidly. Since computer prices are the main single source of price decline, the adjustment to growth is most apparent in fixed investment. Private fixed investment is lowered by ¥5.2 trillion or 5.3% in the latest quarter. While in nominal yen, investment is 15.5% of total GDP, its share of the chaining adjustment is 30%. Interestingly, this negative difference is, however, a recent development, and in the late 1990s, chained investment was sometimes slightly larger than fixed-weight investment. This unusual situation bears closer investigation and may be related to the overall pattern of deflation in the Japanese economy.

The "interim" chain-weight series are now contained in Haver's JAPAN database, right in the "National Accounts" menus. Our colleagues at Nomura Research Institute in Tokyo assisted with a quick translation of the release tables into English.

Trillion Yen 3 Qtr 2004 2 Qtr 2004 Year Ago 2003 2002 2001
GDP: Chain Weighted 550.2 550.4 535.8 535.9 528.9 530.8
  % Change -0.0 0.0 2.7 1.3 -0.4 0.2
Fixed Weighted 567.6 567.2 546.9 546.4 533.3 534.5
  % Change 0.1 0.3 3.8 2.5 -0.2 0.6
             
Private Fixed Investment: Chain Weighted 93.9 94.6 87.4 88.2 82.6 88.1
  % Change -0.8 0.2 7.4 6.8 -6.3 0.7
Fixed Weighted 99.1 99.3 90.7 91.1 83.1 89.3
  % Change -0.2 0.6 9.2 9.6 -6.9 1.7
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