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Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
Mizuho bank 1038_industry_overview
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Mizuho bank 1038_industry_overview

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  • 1. Japan Industry Outlook / 38 2012 No.1 Table of Contents1, Comprehensive Industry - Japan 15, Broadcasting (Japanese only)2, Iron and Steel - Japan 16, Marine Shipping (Japanese only)3, Non-ferrous Metals - Japan 17, Logistics - Japan4, Paper and Pulp (Japanese only) 18, Electric Power - Japan5, Cement - Japan 19, City Gas (Japanese only)6, Chemicals - Japan 20, Retail - Japan7, Pharmaceuticals - Japan 21, Food and Beverage - Japan8, Petroleum - Japan 22, Food Service Industry - Japan9, Automobiles - Japan 23, Construction (Japanese only)10, Shipbuilding (Japanese only) 24, Real Estate and Housing - Japan11, General Machinery (Japanese only) 25, Travel and Tourism - Japan12, Electronics - Japan 26, Nonbank (Credit Cards & Credit) (Japanese13, IT Services - Japan only)14, Telecommunications - Japan 27, HR Service Industry (Japanese only) Contact: Industry Research Division Mizuho Corporate Bank, Ltd. mizuho.ird@mizuho-cb.co.jp
  • 2. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) COMPREHENSIVE INDUSTRY OVERVIEW 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 investmentsI. 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.The sluggish Although the Japanese economy has been bouncing back at an unimaginableoverseas economy is pace from the Great East Japan Earthquake, the floods in Thailand in Octobera factor for a and the European financial crisis stemming from the situation in Greece havedepressed domesticeconomy. 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 1 Mizuho Corporate Bank, Industry Research Division
  • 3. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) negative impact on the Japanese economy but also cause a downward swing in the growth rate for FY2012.The expansion and Although production activites in the manufacturing sector had been making adeepening of theEuropean debt crisis is strong turn-around since the Great East Japan Earthquake, they are beginninga cause for concern for to lose some of their momentum as a result of the slowdown in exportsthe manufacturing precipitated primarily by the current surge in the Japanese yen. In the future,sector. 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.Although the The business environment surrounding the non-manufacturing sector, whichnon-manufacturing had suffered the effects of negative rumors and the mood of voluntarysector continues to restraint following the earthquake, began to recover around summer andrecover after theearthquake, managed to reach pre-earthquake levels by October; however, it is currentlycurrent growth has flattening out. In the future, steady growth is predicted for personalflattened out. consumption in conjunction with improvements in the employment and income environment, which, in turn, will boost the activities of the non-manufacturing sector. Figure 1-1: Production and demand levels by sector (FY2005 = 100) 160 150 Production/demand levels by sector are shown as 140 candlesticks (FY2005 = 100) FY2011 Estimate 130 Left: FY2009 ⇒ FY2010 levels Center: FY20010 ⇒ FY2011 levels 120 FY2010 Actual FY2012 Forecast Right: FY2011 ⇒ FY2012 levels * Sectors displayed from left to right according to 110 FY2012 levels 100 90 FY2005=100 80 70 60 50 40 s) t s s ts n s on e es n n ea t ns cy g n th n n n les rs te rts s ke n en er le le tio ag io io ce en a c din ti o tio tio io le ti o ra de al w ar ti o sa sa cti st a rib ar stm hi e r sa ct sa ct ct nn vi uc em ts ro uc uc uc or uc e v en m n du ac du du du re es de sc to re od ke ita sg g od od od ve ov od sp an ry ns st o g ic in ro ro ro M Pow ub ro to l. k ar in pr ol in le pr pr pr ne m rv us pr rp ra lp sp uc xc ts of od tp a m ne s ti s rm op sa e ice se et ho n el el e o nc d (e Tr oi en ea Fo en ca ic io er len etr rg pe ar y te ac te as ev n o on ie tm fic str n ct el ew dv m ti c io ca es es ph bo m Su hy ti o Le en Fu cd tru Ce ctr at du ar A N es er ud ud in p ll nv Et uc rm ep ele ni ns in om ap Ce Cr Cr gs od Co t ro D co fo r/ p ar ice Tr er in D pr In ec al n um ld pe rv ita cs El in ui Pa se ns ni om ol tb od ro co op en N ct Fo etr ti c tm le M es le ar om ap ia str D ew du N In Source: Compiled by Mizuho Corporate Bank (MHCB) Industry Research Division 2. The European debt crisis and other phenomena are holding back production 2 Mizuho Corporate Bank, Industry Research Division
  • 4. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) activities, despite systems of production having returned to normal. Although the effects The floods in Thailand occurred just as the systems of production were being of the Thai floods are restored, and thus, the “Index of Industrial Production” currently remains at temporary, exports approximately 95% of the levels prior to the earthquake (see Figure 1-2). are turning into downward pressure. 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 Inventories are on increased by approximately 7% compared to before the earthquake (April a rising trend since the Great East 2010 through March 2011). Such inventories are thought to be a mixture of Japan Earthquake. 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). The slowdown in While reconstruction-related demand, which is expected to peak in FY2012, exports is due to the will boost domestic production on the supply side, there is no denying the fact European debt crisis that the European debt crisis will have even sharper and more broad-ranged pressing down on repercussions on the demand side. Thus, the further deceleration of exports production. has become the greatest risk for the recovery of production activities. Figure 1-2: Index of industrial production by sector Figure 1-3: Index of industrial production by goods 125150 115140 105130 95120110 85100 75 90 80 65 70 55 60 50 45 07/12 08/06 08/12 09/06 09/12 10/06 10/12 11/06 11/12 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Capital goods Construction goods Consumer durables Electronic components/devices Chemicals Consumer non-durables Production goods Transport machinery General machinery M ining & manufacturing Iron & steel 3 Mizuho Corporate Bank, Industry Research Division
  • 5. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) Figure 1-4: Inventory-shipment balance 80% Shipment growth > 60% Inventory growth 40% 20% 0% -20% Inventory growth > -40% Shipment -60% growth -80% Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 General machinery Iron & steelSource: Figure 1-2 and Figure 1-3 were compiled by MHCB Industry Research Division based on the Ministry of M ining & manufacturing Transport machineryEconomy, Trade & Industry’s “Index of Industrial Production.” Chemicals Electronic components/devicesNote: Indices are seasonally adjusted three-month moving averages. FY2005 = 100 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.” Figure 1-5: Inventory cycle 10% Inventory Industry 5% Source: Compiled by MHCB Industry Research Division based on the Ministry of (December 2008) 0% (December 2011) Economy, Trade & Industry’s “Index of Industrial Production.” -5% Note: Both “Shipment” and “Inventory” in the inventory cycle are year-on-year comparisons -10% -15% Shipment -20% -40% -30% -20% -10% 0% 10% 20% 30% 40% Greater recovery is In the non-manufacturing sector, the “Indices of Tertiary Industry Activity” seen in personal for the latest three months has more or less been the same (see Figure 1-6). services than in What is characteristic though is that personal services have recovered to a business services. 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. The “Indices of Although personal services are expected to continue performing strongly, Tertiary Industry substantial growth is not anticipated from business services, as the recovery of Activities” is more production activities in the manufacturing sectors has been somewhat limited. or less remaining Consequently, the “Indices of Tertiary Industry Activity” is expected to the same. remain more or less the same overall. 4 Mizuho Corporate Bank, Industry Research Division
  • 6. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) Figure 1-6: Tertiary industry activity indices116114 Transport112110 Information & telecommunications108106 Retail104102 Real estate10098 Hotel/restaurant business9694 Lifestyle support services (excluding92 entertainment))90 Professional/technical services, advertising8886 Health care, welfare8482 Overall Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11108106104 Overall102100 98 96 Personal services 94 Business services 92 90 Nov-07 M ay-08 Nov-08 M ay-09 Nov-09 M ay-10 Nov-10 M ay-11 Nov-11 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 5 Mizuho Corporate Bank, Industry Research Division
  • 7. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) Figure 1-7: Production/activity index trends by sector (month-on-month) FY2010 FY2011 2005=100 Key industries Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec FY2010 FY2011 Iron & steel + + 1.8% -10.2% -2.2% -2.1% 1.0% -0.7% 2.4% -2.9% + -1.2% -0.8% 81 94 M aterials m anufacture Non-ferrous metals 1.3% 1.8% 1.1% -16.5% + 1.9% + 1.2% 2.5% -2.3% + -2.5% 2.4% 84 89 Metals -0.6% 1.6% + -10.7% 2.1% + + -2.4% 0.2% -4.4% + 0.7% -0.1% 80 83 M anufacturing 2005= 100 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 99 100 Petroleum & 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 89 General machinery 0.8% 2.1% + -14.5% + + -0.8% 0.5% 1.0% -6.1% + -0.3% 0.9% 63 86 Fabrication/processing Transport machinery + 2.5% + -46.7% -1.9% + + + + -5.9% + -10.0% + 84 90 Precision machinery -0.4% 0.3% 0.9% -12.9% + 1.8% + + -2.2% -1.3% 2.0% -3.7% + 89 106 Electric 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 + -8.9% -11.3% -8.0% -16.7% + + + -10.6% -7.8% -6.8% -23.7% + 88 87 machinery Electronic devices + + 0.4% -6.6% -12.6% -0.6% + -3.4% 1.2% -2.3% -5.6% 0.5% + 112 127 Electricity, gas, heating, water 0.0% + -1.7% -3.5% -2.7% 0.2% 0.1% -0.9% -1.0% 1.1% 0.3% 0.0% 100 103 Information & telecommunications 0.0% -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 95 Transport N on-m anufacturing 2005= 100 Freight 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 Wholesale 0.2% -1.0% + -9.6% 1.9% 1.8% + 0.3% 0.2% -2.4% 0.1% -1.3% 84 86 Retail -5.1% 2.5% 1.5% -7.6% + + + -0.5% -2.8% -1.4% 1.8% -3.1% 102 104 Real estate 0.3% -0.3% 0.7% -2.1% -0.1% 1.6% -1.1% 1.0% 0.5% 0.2% -0.4% 0.6% 98 98 Leasing -1.2% 1.1% -0.9% -1.4% 0.5% + -0.4% -2.5% -0.3% -2.6% 0.9% -0.4% 105 102 Professional/technical services, advertising -1.4% 1.0% + -4.1% + -2.6% + -2.4% -0.4% + -2.7% -1.6% 96 94 Hotel/restaurant businesses 1.7% -0.8% 1.3% -12.9% + + 0.5% 1.9% 0.2% 1.4% 1.0% -0.5% 101 102 Lifestyle support services (excluding entertainment) 1.1% 0.9% -1.0% -9.6% + 1.6% + 1.4% 0.9% -1.6% 0.7% -0.7% 92 87 Health care, welfare 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 Broadly defined personal services -0.4% 0.5% 0.6% -6.1% + 1.4% 1.9% 0.4% -0.2% -0.2% 0.9% -1.0% 99 101 Broadly defined business services -0.3% -0.1% 1.1% -5.3% + -0.3% 1.9% -0.2% -0.1% -0.7% 0.3% -0.6% 95 96 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) FY2010 FY2011 2005=100 Manufacturing 2005=100 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec FY2010 FY2011 Iron & steel + + + -7.4% -8.0% -9.3% -6.1% -3.3% 0.1% -3.2% -0.1% -2.4% -7.5% 81 94 M aterials m anufacture 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 89 Metals + 0.8% + -7.0% -5.4% -3.0% 1.2% -1.2% -1.9% -4.5% -1.5% -1.9% -1.5% 80 83M anufacturing 2005= 100 Chemicals + -2.4% -6.7% -7.0% -8.2% + + -1.4% -2.4% -2.0% -5.4% -7.6% #N/A 99 100 Petroleum & 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 89 General machinery + + + + + + + + + + + + + 63 86 Fabrication/processing Transport machinery + -4.3% -0.2% -47.6% -47.9% -27.9% -11.1% -5.1% 1.5% -2.0% + 2.0% + 84 90 Precision machinery + + + -10.9% 1.5% 1.8% + + + + + + + 89 106 Electric machinery + + + -5.5% 0.4% 1.5% + + + -2.3% -2.4% -2.6% -5.1% 83 95 Information & telecommunications -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 machinery Electronic devices + + + -2.8% -15.5% -15.9% -10.0% -11.8% -10.5% -9.9% -13.0% -15.3% -14.0% 112 127 Electricity, gas, heating, water 1.2% + 1.0% -2.3% -5.7% -3.5% -4.2% -6.1% -9.5% -6.5% -3.7% -3.9% 100 103 Information & telecommunications 2.5% -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 95 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 99N on-m anufacturing 2005= 100 Freight transport Wholesale + + + 0.7% -2.7% 0.0% 2.3% 1.6% 1.5% -0.8% -1.7% -4.6% 84 86 Retail -0.7% -0.3% 0.5% -8.0% -3.3% 1.4% + + -1.4% -0.4% 2.4% -3.3% 102 104 Real estate 0.9% 0.3% 1.2% -1.1% -1.5% 0.3% -1.4% -0.2% 0.2% 0.5% 0.2% 0.8% 98 98 Leasing -4.7% -3.3% -4.3% -5.2% -4.6% -1.9% -1.9% -4.3% -3.8% -6.1% -4.4% -4.6% 105 102 Professional/technical services, advertising 0.2% -1.4% 2.1% -0.3% + 1.3% + -2.6% 0.9% + 1.5% -1.3% 96 94 Hotel/restaurant businesses + 2.0% + -10.8% -5.5% -0.6% 0.3% -0.3% -0.1% 1.5% 1.8% + 101 102 Lifestyle support services (excluding entertainment) -3.3% -3.9% -1.4% -28.9% -16.8% -6.0% 1.1% 0.7% -1.3% -1.3% + 1.6% 91 87 Health care, welfare + + + + + 1.4% 2.3% 2.4% + + + 2.4% 108 112 Broadly defined personal services 2.2% 0.9% 2.1% -5.0% -2.6% -0.2% 0.8% 1.0% 0.1% 0.5% 1.9% 0.4% 99 101 Broadly defined business services + 0.4% 2.0% -1.6% -1.3% -1.2% 1.1% -0.1% 0.1% -0.4% -0.5% -1.7% 95 96 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 6 Mizuho Corporate Bank, Industry Research Division
  • 8. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) 3. Exports are expected to weaken in the wake of the European debt crisis and the floods in Thailand. Negative factors Exports, which had been showing signs of recovery in conjunction with the exist both on the restoration of the systems of production since the Great East Japan supply and demand side due to the Earthquake, have been gradually losing momentum in the second half under effects of the the effects of the protracted European debt crisis and monetary tightening by European debt crisis China, and exports in December dropped by approximately 6% from the and the Thai floods. post-earthquake peak in exports, which was reached in September (see Figure 1-9). Exports to Europe By destination, exports mainly to Europe and Asia have begun to decrease, and Asia are which may be said to be a direct effect of the European crisis and the weakening. 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). Figure 1-9: Index of export volume by region Figure 1-10: Index of export volume by item180 150160 China 130140 ASEAN 110120 World 90100 NIES 70 EU 80 US 50 60 Nov-07 M ay-08 Nov-08 M ay-09 Nov-09 M ay-10 Nov-10 M ay-11 Nov-11 40 Iron & steel T ransport equipment Chemicals Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Overall General machinery Electric machinery 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. Japan is almost In terms of the trade balance, Japan has recorded a trade deficit for nine certain to record consecutive months since April 2011, against the backdrop of increased LNG a trade deficit for the full year. 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 7 Mizuho Corporate Bank, Industry Research Division
  • 9. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) the Lehman crisis. As far as the future is concerned, while the domestic systems of production Repercussions are pulling out of the effects of the series of natural disasters, exports are from the European debt expected to weaken as a result of the repercussions of the European debt crisis crisis are the spilling over into the Asian region via the international financial systems and greatest risk as a result of sluggish demand, as well as the decelerated growth of the factor. 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.Figure 1-11: Growth rate of mineral fuel imports (year-on-year) Figure 1-12: Balance of trade (seasonally adjusted) JPY trillions JPY trillions 8 1.5 40% Crude oil, raw oil 6 30% 1 LNG 4 20% Coal 0.5 10% 2 0% 0 0-10% -2 -0.5-20% -4-30% -1 -6-40% -8 -1.5 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Export amount (left axis) Import amount (left axis) Trade balance (right axis) Source: Compiled by MHCB Industrial Research Division based on the Ministry of Finance’s “Trade Source: Compiled by MHCB Industry Research Index of Trade Statistics.” Division based on the Ministry of Finance’s “Trade Statistics.” Note: Indices are seasonally adjusted 4. Moderate recovery for capital investments through the emergence of reconstruction-related demand in FY2012 onward The impact on the According to the Bank of Japan’s December Tankan Survey (large capital investment of enterprises), capital investments for both the manufacturing and the special non-manufacturing sectors are expected to grow by 7.6% and 3.5% reconstruction-related demand will be year-on-year, respectively. However, in light of the fact that in the September limited. 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 8 Mizuho Corporate Bank, Industry Research Division
  • 10. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) 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 Full-scale Earthquake, approximately 19 trillion yen has been recorded, if the FY2012 reconstruction budget (proposal) is to be included. However, at the present time, most of it is expected to begin in 2012 onward. 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. Figure 1-13: Annual capital investment budget growth rates (large enterprises) Manufacturing Non-manufacturing 102010 5 7.6% FY2006 0 3.5% FY2007 FY2008 0-10 FY2009-20 FY2010 -5 FY2011-30-40 -10 March survey June survey September December Actual March June survey September December Actual survey survey survey survey survey Figure 1-14: Capital investment amount trends (large enterprises) 45 Source: Figure 1-13 and Figure 1-14 Total were compiled by MHCB 40 Industry Research Division 35 Manufacturing based on the Bank of Japan’s industry 30 “Short-term Economic Survey Non-manufacturing of Principal Enterprises in 25 industry Japan” (Tankan Survey). 20 Note 1: Figure 1-13 includes Excess 15 software; exclude land purchases. 10 Note 2: Figure 1-14 estimates for Shortage 5 March 2012 are advance indicators based on the 0 December FY2011 edition of -5 the Bank of Japan’s -10 “Short-term Economic Survey Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12e 07/03 07/09 08/03 08/09 09/03 09/09 10/03 10/09 11/03 11/09 12/03e of Principal Enterprises in Japan (Tankan Survey).” 9 Mizuho Corporate Bank, Industry Research Division
  • 11. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) Figure 1-15: Machinery orders (JPY billions)1,4001,200 (External demand)1,000 Total private-sector demand 800 Non-manufacturing industry 600 400 Manufacturing industry 200 0 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 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 1-16: Total floor area of building construction starts (Million m 2 ) 7 T otal non-residential 6 Manufacturing industry 5 Non-manufacturing industry 4 3 2 1 0 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 Source: Compiled by MHCB Industry Research Division based on the Ministry of Land, Infrastructure, Transport and Tourism’s “Statistical Data File on Construction Starts.” 10 Mizuho Corporate Bank, Industry Research Division
  • 12. FY2012 Japan Industry Outlook (Comprehensive Industry Overview)5. Personal consumption will improve through economic stimulus measures and improvements in the income environment. Currently the Since FY2009, employment-related indicators have been on a moderate income/labor recovery trend, and the latest unemployment rate stands at 4.5%, with the climate is on a jobs-to-applicants ratio at 0.69 (see Figure. 1-17). In terms of the income recovery trend. 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 Personal consumption will and income situations and the incorporation once again of the 300 billion yen improve with the eco-car subsidy package in the 4th Supplementary Budget for FY2012 are backing of expected to boost personal consumption. With the exception of automobiles, government service expenditures toward hobbies and leisure rather than on durable goods measures. are expected to become the main focus of increased consumption. Figure 1-17: Employment indicators 1.8 1.6 5.5 1.4 5 1.2 1 Source: Compiled by MHCB Industry 4.5 Research Division based on the Ministry of 0.8 Finance’s “Financial Statements Statistics of 4 0.6 Corporations by Industry” and the Ministry of 0.4 Jobs-to-applicants ratio (left axis) Internal Affairs and Communication’s “Labor 3.5 0.2 New job offers (left axis) Force Survey.” Total unemployment (right axis) Note: 12-month moving averages 0 3 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Figure 1-18: Income indicators3.0%2.0% Source: Compiled by MHCB Industry1.0% Research Division based on the Ministry of0.0% Health, Labour and Welfare’s “Monthly-1.0% Labour Survey” and the Ministry of Internal-2.0% Affairs and Communication’s “Household-3.0% Survey.” Note: Three-month moving averages-4.0% Real wage index (y-o-y)-5.0% Real growth rate of consumer spending (y-o-y)-6.0% Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 11 Mizuho Corporate Bank, Industry Research Division
  • 13. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) Figure 1-19: Consumer confidence Index 50 45 40 35 30 Willingness to purchase durable goods 25 Life circumstances Consumer confident index 20 Income growth Employment 15 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11Source: Compiled by MHCB Industry Research Division based on the Cabinet Office’s “ConsumerConfidence Survey.”Note: Three-month moving averages 12 Mizuho Corporate Bank, Industry Research Division
  • 14. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) Figure 1-20: Production & demand trend forecasts (on a half-yearly basis, y-o-y) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 FY2005 Sector Indicator FY (Estimate) (Forecast) =100 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 2012 Iron & Steel Crude steel production ### ### + + ### ### ### ### ### ### ### + + + + ### ### + + + ### ### ### ### 93 93 Chemicals Ethylene production ### ### ### + ### + + ### ### ### ### + + ### ### ### ### + ### ### ### ### ### + 88 91 Non-ferrous metals Copper bullion production ### ### ### ### ### + ### ### ### + + + + ### ### ### ### + + ### ### ### + + 94 102 Paper & pulp Paper/paperboard production ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### + ### ### ### ### ### 84 83 Cement Cement production ### ### ### ### ### ### ### ### + + ### ### ### ### ### ### ### ### ### ### + ### ### ### 77 78 Manufacturing Petroleum Fuel oil production ### ### ### + + ### ### ### + + ### ### ### + ### ### ### ### ### ### ### ### ### ### 86 83 Automobiles Domestic passenger car production ### ### + + ### ### + ### ### + + + ### + + ### ### + + ### ### + + ### 82 85 Shipbuilding Steel ship production + ### ### ### + ### + + + + + ### ### + ### ### + + + ### ### ### ### ### 112 101 Consumer electronics Domestic production ### ### ### + + + + ### ### + + + + ### ### ### ### + + ### ### ### ### ### 73 70 Domestic production (excluding devices) ### ### ### ### ### + + ### ### + ### ### + ### ### ### ### ### + ### ### ### + + 66 72 Industrial electronics Domestic production (devices) ### ### + + ### + + ### ### + + + ### + ### ### ### + + ### ### ### + + 81 94 General machinery Order value ### ### ### + + + + + + + + ### ### + ### ### ### + + + + + ### ### 94 96 Food Food spending ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### 97 97 Electric power Power sales ### ### ### + ### ### + ### ### + ### ### ### + ### ### ### ### + ### ### ### ### + 96 99 City gas City gas sales 1.6% + + + + + + + ### ### + + + ### ### ### + 120 123 Marine transportation Tramp cargo traffic + 1.4% + + + + + 1.9% -3.5% + 2.3% + 120 123 Distribution Truck tonnage ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### 86 87 Cell phone subscribers (including PHS) + + + + + + + + + + + + + + + + + + + + + + + + 138 145 Telecommunications Broadband subscribers + + + + + + + + + + + + + + + + + + + + + + + + 154 160 IT services Informational service sales growth ### ### ### ### ### + + + ### ### ### ### ### ### ### ### ### ### ### + 101 103 Advertising/broadcastinAdvertising market size ### ### ### ### ### + + + ### ### ### ### ### ### ### ### ### ### ### + 80 82 Department store sales growth -0.4% -2.3% -2.8% -2.8% -0.2% -0.7% -0.5% -4.3% -10.1% -3.1% -2.1% -1.0% 81 88Non-manufacturing Retail Supermarket sales growth -5.2% -3.2% -3.5% -2.6% -2.7% -1.4% -0.7% -4.3% -2.6% -0.8% -0.8% 88 98 Convenience store sales growth -1.7% -1.8% -2.1% -0.7% -2.2% -2.4% -1.0% + -1.8% -0.8% + 104 111 Food service expenditure growth Food services per person ### ### + ### ### ### + ### ### ### ### ### + + ### ### ### ### ### ### ### ### 97 99 Credit card shopping billings + + + + + + + + + + + + 162 163 Credit cards/consumer credit Installment billings -4.9% -4.6% -2.7% -2.8% -1.5% -6.0% -11.4% -8.3% -9.6% 1.3% -5.3% + 66 65 Credit card cashing billings + 1.6% -0.4% 0.9% -1.5% 0.3% -7.9% -16.6% -17.2% -41.7% -21.4% -1.4% 29 28 Construction Nominal construction investment -7.4% -7.3% -5.5% -1.7% -1.3% -1.5% -7.0% + -17.0% -3.0% + 1.0% 83 86 Housing New housing starts ### ### ### ### ### + + ### + + + ### ### ### + ### ### ### + + + ### 0.1% 67 67 New apartment buildings in metropolitan area ### ### ### ### ### ### + + ### + ### ### ### ### ### ### ### ### + + ### + + + 53 61 Real estate Office vacancy rate (Tokyo 23 wards) ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### 96 96 Hotels Hotel occupancy rate (nationwide) 1.9% 0.5% -1.2% 0.4% 1.7% 1.1% -0.4% -2.2% -6.2% + -4.8% 2.2% 92 94 Leasing Lease transactions + ### ### ### ### ### + + ### + ### ### ### ### ### ### ### ### + ### -4.2% -3.5% 56 54 Temporary staff on employment Temporary staffing agency books + + + + + + + + + + + ### ### ### ### ### ### ### -0.2% 108 89Source: Compiled by MHCB Industry Research Division. 十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-yFigures for municipal gas, marine transport, retail, credit cards/consumer credit, construction, housing, and hotelsare annualized.For a breakdown of sector-specific production and demand trends, refer to the sector-specific outlooks given insubsequent chapters. 13 Mizuho Corporate Bank, Industry Research Division
  • 15. FY2012 Japan Industry Outlook (Comprehensive Industry Overview)II.CORPORATE PERFORMANCE1. 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 revenueThe effects of the and profit, as sales fell by 1.0% year-on-year and operating profit by 29.8%earthquake, the year-on-year. (Even if the electricity sector is eliminated, both revenue andsoaring yen, andpower generation profit decreased, as sales declined by 1.1% and operating profit by 18.0%.)costs weighed down Sales decreased mainly in the assembly and processing sectors due to theon earnings. 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, Despite the early recovery of the as sales fell by 1.9% year-on-year and operating profit by 27.9% year-on-year. systems of In the wake of the Great East Japan Earthquake and the floods in Thailand, production, the the automobile and consumer electronics sectors expect a decrease in sales of manufacturing sector approximately JPY 5 trillion. Operating profits are also expected to decrease expects huge decreases in both due to the effects of foreign exchange, in addition to deteriorating market revenue and profit. conditions, the fall in sales prices, and increased costs in dealing with the disasters.The Japan’s leading 94 companies in the non-manufacturing sector expectnon-manufacturing increased revenue but decreased profit, as sales increased by 0.6%sector expects year-on-year while operating profit decreased by 32.0% year-on-year. (If theincreased revenuebacked by the strong electricity sector is eliminated, then sales would increase by 0.5% whileperformances of operating profit would decrease by 2.7%.) Strong performances by the retail,personal food services, telecommunications, and other personal consumption-relatedconsumption-related sectors are expected to result in increased revenue. Major decreases insectors. 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 Both revenue and increase by 1.1% year-on-year and operating profit by 26.6% year-on-year. profits will increase (Sales would increase by 1.1% year-on-year, while operating profit would in reaction to FY2011. 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 14 Mizuho Corporate Bank, Industry Research Division
  • 16. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) surrounding corporate performance will continue to be harsh.Disaster-related The 66 leading manufacturers expect increased revenue and profits through afactors will run their 0.9% increase year-on-year in sales and an 18.0% increase year-on-year incourse, and operating profit. In terms of sales, despite the removal of restrictions onstructural reforms production caused by the disasters of FY2011 and the expectations ofwill result inincreased revenue increased sales for the automobile and consumer electronics sectors, exportsand profits in the will be slow to recover, and consequently, overall sales for the manufacturingmanufacturing sector will remain more or less the same as FY2011. In terms of operatingsector. 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.Electricity and In FY2012, the leading 94 companies of the non-manufacturing sector expecttelecommunications increases in both revenue and profits as a result of a 1.5% increasein the year-on-year in sales and 37.7% increase year-on-year in operating profit. (Ifnon-manufacturing the electricity sector is eliminated, then sales would increase by 1.6%sector will year-on-year and operating profit by 15.8% year-on-year.) Assuming that thedramatically seeincreased profits. 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. 15 Mizuho Corporate Bank, Industry Research Division
  • 17. FY2012 Japan Industry Outlook (Comprehensive Industry Overview)Although In summarizing FY2012, the following three points are expected to becomedisaster-related factors the key factors for increases in revenue and profits: (1) the impact of the Greatwill wear off, Japanese East Japan Earthquake and the floods in Thailand on corporate performancecompanies will be in FY2011, mainly in the assembly and processing sectors, will wear off inrequired to manage therisks related to the FY2012 (i.e., sales will increase as a result of rebuilding the systems ofeffects of the European production, and there will no longer be increased costs such as personneldebt crisis. 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. 16 Mizuho Corporate Bank, Industry Research Division
  • 18. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) Figure 1-21: Corporate performance distribution (FY2012 forecast) Operating profit growth rate [Consumer electronics: 4%, 289%] Manufacturing 40% [Cement: 3%, 49%] 35% Automobiles 30% 25% Manufacturing industry Paper & pulp Sales growth rate 20% Industrial electronics 15% Iron & steel 10% Non-ferrous Food Pharmaceuticals 5% Chemicals metals 0% -5% [Pertoleum: -11%, -49%] [Shipbuilding: -10%, -48%] -10% -5% -3% -1% 1% 3% 5% 7%Non-manufacturing [Electric power: 1%, into black] Operating profit growth rate [City gas: 1%, 97%] 25% [Hotels: 2%, 62%] Non-manufacturing industry average Broadcasting [Tourism: 7%, 59%] 20% [Marine transportation: 4%, into black] T elecommunications 15% Human resource services Housing Real estate Sales growth rate 10% Food services Distribution 5% Supermarkets Convenience stores 0% Leasing Department stores -5% Consumer credit Construction -10% Credit cards -15% -10% -5% 0% 5% 10% Source: Compiled by MHCB Industry Research Division. 17 Mizuho Corporate Bank, Industry Research Division
  • 19. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) Figure 1-22: List of Japan’s leading companies Sector Breakdown Companies 4 major integratedIron & steel Nippon Steel Corporation, JFE Holdings, Sumitomo Metal Industries, Kobe Steel Group steel 7 major diversified Asahi Kasei Corporation, Ube Industries, Showa Denko, Sumitomo Chemical, Tosoh, Mitsui Chemicals, MitsubishiChemicals chemicals Chemical Holdings Takeda Pharmaceutical Company, Astellas Pharma, Dainippon Sumitomo Pharma, Shionogi & Co., MitsubishiPharmaceuticals 9 major companies Tanabe Pharma Corporation, Chugai Pharmaceutical Company, Eisai, Daiichi Sankyo, Otsuka Holdings JX Holdings (Metal), Mitsubishi Materials Corporation, Sumitomo Metal Mining, Mitsui Mining & Smelting Co.,Non-ferrous metals 5 major companies DOWA Holdings Oji Paper Group, Nippon Paper Group, Daio Paper Corporation, Mitsubishi Paper Mills, Hokuetsu Kishu PaperPaper & pulp 5 major companies Company 2 leadingCement Taiheiyo Cement, Sumitomo Osaka Cement manufacturersPetroleum 5 listed companies Showa Shell Sekiyu, Cosmo Oil, Tonen General Sekiyu, Idemitsu Kosan, JX Holdings (excl. Metal) 8 finished vehicleAutomobiles Toyota, Honda, Nissan, Mitsubishi Motors, Mazda, Fuji Heavy Industries, Suzuki, Isuzu Motors manufacturers 6 major Mitsubishi Heavy Industries, Mitsui Engineering & Shipbuilding Co., IHI, Kawasaki Heavy Industries, SumitomoShipbuilding manufacturers Heavy Industries, JFE Holdings (Universal Shipbuilding Group)Consumer 3 major Sony, Panasonic, Sharpelectronics manufacturers 5 majorIndustrial electronics Hitachi, Toshiba, NEC, Fujitsu, Mitsubishi Electric Corporation manufacturers Kirin Holdings, Asahi Breweries, Ajinomoto, Nippon Meat Packers, Maruha Nichiro Holdings, Yamazaki BakingFood 7 major companies Co., Meiji HoldingsManufacturing industry subtotal (66 companies) Hokkaido Electric Power Co., Tohoku Electric Power Co., Tokyo Electric Power Co., Chubu Electric Power Co.,Electric power 10 power companies 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 GasMarine transport 3 major companies NYK Line, Mitsui O.S.K. Lines, Kawasaki Kisen KaishaDistribution 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 4 major commercialBroadcasting Nippon Television Network Corporation, Tokyo Broadcasting System Television, Fuji Media Holdings, TV Asahi broadcasters 4 major department Mitsukoshi Isetan Holdings, J.Front Retailing, Takashimaya, H2O Retailing store housesRetail 4 major supermarket Seven & I Holdings, Aeon, Daiei UNY chains 4 major convenience 7-Eleven, Lawson, Family Mart, CircleK Sunkus store chains McDonalds Holdings Japan, Zensho Co., Yoshinoya Holdings, Royal Holdings, Seven & I Food Systems, SaizeriyaFood service 8 major companies Co., Watami, Colowide Co. 4 major credit card Mitsubishi UFJ NICOS, JCB, Sumitomo Mitsui Card Company, Credit SaisonCredit cards, companiesconsumer credit 4 major consumer Orient Corporation, Cedyna Financial Corporation, JACCS, APLUS credit companies 4 major generalConstruction Kajima Corporation, Shimizu Corporation, Obayashi Corporation, Taisei Corporation constructorsHousing 5 major companies Sekisui House, Daiwa House Industry, Sekisui Chemical Co., Sumitomo Forestry Co., Asahi Kasei Mitsui Fudosan, Mitsubishi Estate Co., Sumitomo Realty & Development Co., Tokyu Land Corporation, TokyoReal estate 5 major companies TatemonoHotels 4 major companies Imperial Hotel, Royal Hotel, Fujita Kanko, Kyoto HotelTourism 4 major companies JTB, Kinki Nippon Tourist, Nippon Travel Agency, H.I.S. Temp Holdings, Pasona Group, Meitec Corporation, Human Holdings Co., World Intec, Outsourcing, AltechTemp staffing 8 major companies Corporation, WDB Fuyo General Lease, IBJ Leasing Company, Century Tokyo Leasing Company, Ricoh Leasing Company, HitachiLeasing 7 major companies Capital Corporation, Mitsubishi UFJ Lease & Finance Company, NEC Capital SolutionsNon-manufacturing industry subtotal (94 companies)Total (160 companies) Source: Compiled by MHCB Industry Research Division. 18 Mizuho Corporate Bank, Industry Research Division
  • 20. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) Figure 1-23: Company cash flow forecasts (on a consolidated operating profit basis) (Unit: JPY billions) FY2011 estimate FY2012 forecast Sector Breakdown Sales Operating profit Sales Operating profit 4 major integratedIron & steel 0.8% 10,650.0 -50.9% 260.0 -1.2% 10,520.0 23.1% 320.0 steel 7 major diversifiedChemicals 2.6% 10,501.0 -4.1% 570.0 -2.5% 10,240.0 -3.9% 548.0 chemicalsPharmaceuticals 9 major companies -0.3% 6,627.5 -10.8% 945.4 2.3% 6,783.2 3.1% 974.8Non-ferrous metals 5 major companies 1.9% 4,039.8 -11.5% 201.0 -2.6% 3,934.7 5.1% 211.2Paper & pulp 5 major companies 0.3% 3,125.9 6.2% 134.3 1.6% 3,175.1 27.6% 171.3 2 leadingCement 1.3% 940.0 54.8% 37.0 2.7% 965.0 48.6% 55.0 manufacturersPetroleum 5 listed companies 11.5% 22,161.9 20.1% 740.7 -10.9% 19,736.9 -48.9% 378.6 8 finished vehicleAutomobiles -7.4% 43,009.0 -47.8% 1,002.4 6.3% 45,725.7 36.4% 1,367.0 manufacturers 6 majorShipbuilding -4.4% 1,143.2 -48.9% 29.7 -10.2% 1,026.2 -48.5% 15.3 manufacturersConsumer 3 major -10.3% 16,950.0 -110.3% -60.0 4.4% 17,700.0 - 485.0electronics manufacturers 5 majorIndustrial electronics -0.4% 26,890.0 -11.6% 980.0 2.5% 27,550.0 24.5% 1,220.0 manufacturersFood 7 major companies -1.2% 8,670.4 -6.5% 410.9 0.3% 8,696.1 9.4% 449.4Manufacturing industry subtotal -1.9% 154,708.6 -27.9% 5,251.3 0.9% 156,052.9 18.0% 6,195.6(66 companies)Electric power 10 power companies 0.7% 16,683.4 -140.9% -522.1 1.1% 16,867.3 - 290.3Municipal gas 3 major companies 9.7% 2,920.3 -31.8% 120.1 0.6% 2,938.2 96.7% 236.1Marine transport 3 major companies -11.2% 3,957.0 -116.8% -51.2 4.2% 4,122.0 - 42.5Distribution 5 major companies 5.2% 4,183.4 11.5% 153.1 3.4% 4,325.0 8.6% 166.2Telecommunication4 major companies 1.2% 16,280.2 3.0% 2,197.1 2.4% 16,675.2 18.2% 2,596.1 4 major commercialBroadcasting 0.1% 1,466.5 5.8% 80.0 2.4% 1,501.5 19.9% 95.9 broadcasters 4 major department 0.1% 3,507.4 7.9% 64.8 0.5% 3,525.0 1.1% 65.5 store 4 major supermarketRetail -4.1% 11,740.6 13.4% 514.7 -1.3% 11,593.5 0.3% 516.3 chains 4 major convenience 8.0% 7,476.6 6.0% 298.3 1.8% 7,612.7 1.3% 302.1 store chainsFood 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 card -7.7% 870.0 7900.0% 120.0 -2.3% 850.0 -8.3% 110.0 companiesCredit cards,consumer credit 4 major consumer -11.4% 540.0 19.3% 21.0 -7.4% 500.0 -9.5% 19.0 credit companies 4 major generalConstruction 8.5% 5,400.0 21.8% 118.0 1.9% 5,500.0 -8.5% 108.0 constructorsHousing 5 major companies 1.8% 3,796.8 14.3% 230.9 5.6% 4,010.5 14.1% 263.5Real estate 5 major companies -2.6% 3,808.0 -12.4% 441.0 2.4% 3,898.0 13.8% 502.0Hotels 4 major companies -3.8% 167.1 -57.6% 2.1 1.5% 169.6 62.5% 3.4Tourism 4 major companies -6.2% 403.8 -40.5% 9.9 7.0% 432.0 51.4% 15.1Human resource 8 major companies 4.6% 640.4 21.3% 18.8 1.3% 648.7 11.2% 20.9servicesLeasing 7 major companies -2.7% 2,580.7 6.3% 187.2 -2.3% 2,521.1 -1.2% 184.9Non-manufacturing industry 0.6% 87,789.9 -32.0% 4,085.7 1.5% 89,080.0 37.7% 5,626.1subtotal (94 companies)Total (160 companies) -1.0% 242,498.5 -29.8% 9,337.0 1.1% 245,132.9 26.6% 11,821.7 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. 19 Mizuho Corporate Bank, Industry Research Division
  • 21. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) III.TOPICS: Raising productivity will support the growth of Japanese industries.Raising productivity Japan’s real GDP in 2010 was approximately 510 trillion yen, whichholds the key to represented a roughly 3% decrease compared to the pre-Lehman crisis levelseconomic growth. 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 ofcapital and labor injection, and is calculated as the residual error of the two elements. 20 Mizuho Corporate Bank, Industry Research Division
  • 22. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) Figure 1-24: Contribution trends of GDP components 6.0% Contribution of TFP (Non-manufacturing) 5.0% Contribution of TFP (Manufacturing) 4.0% Contribution of increased capital input TFP (Non-manufacturing) Contribution of increased labour input 3.0% TFP GDP growth rate (Manufacturing) 2.0% Capital 1.0% Labour 0.0% (cy) -1.0% 1970- 1975 1975- 1980 1980- 1985 1985- 1990 1990- 1995 1995- 2000 2000- 2005 2005- 2008 Source: Compiled by MHCB Industrial Research Division based on the Research Institute of Economy, Trade and Industry’s “JIP Database 2011.” Figure 1-25: Contribution trends of GDPs 110 Japan 108 US 106 Germany 104 102 100 98 96 (cy) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Compiled by MHCB Industrial Research Division based on EUKLEMS Note: 1995 = 100 Needless to say, in order to raise productivity, companies will be required toIT investments andstrategic M&As, make innovations on a micro-economic basis. Additionally, the optimumwhich have allocation of management resources through the appropriate transfer of laborcorrelations to the and capital between companies and between industries is also indispensable.TFP growth rate, Particularly under current circumstances, where the manufacturing sector ishold the key. 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 21 Mizuho Corporate Bank, Industry Research Division
  • 23. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) 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 supportedIT investments and Japan’s economic growth, is facing a multitude of problems, including theregulatory reforms dwindling of the labor force as a result of the aging of the population and loware necessary forJapan’s economic birthrate, and the hollowing-out of the industry through the relocation ofgrowth. 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. 22 Mizuho Corporate Bank, Industry Research Division
  • 24. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) Figure 1-26: Correlation between the TFP growth rate Figure 1-27: Correlation between the TFP growth rate and IT investments growth rate and the regulation index TFP growth rate0.06 T FP growth rate 2.0%0.05 Wholesale 1.5%0.04 1.0%0.03 0.5%0.02 Air transport business0.01 Wholesale 0.0% Road transport business Change in regulation index Retail 0 -0.5% Road transport business-0.01 -1.0% Medical-0.02 Medical Air transport business -1.5% Retail-0.03 Deregulation ←→Regulation -2.0%-0.04 IT investments growth rate -1.0 -0.5 0.0 0.5 -0.1 0 0.1 0.2 0.3 Source: Compiled by MHCB Industrial Research Source: Compiled by MHCB Industrial Research Division Division based on the Research Institute of Economy, based on the Research Institute of Economy, Trade and Trade and Industry’s “JIP Database 2011.” Industry’s “JIP Database 2011” and the Cabinet Office’s Note: The TFP growth rate is the average growth rate “Structural Reform Evaluation Report 6.” from 1995 to 2005. Note: The TFP growth rate is the average growth rate from 1995 to 2005. The regulation index indicates changes from 1995 to 2005. 1.5% TFP growth rate Telecommunications business Figure 1-28: TFP growth rate and market growth rate Real estate business (non-manufacturing) Electricity 1.0% Accommodation business Market growth rate Wholesale/retail business 0.5% T ransport business 0.0% Medical/welfare business -0.5% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 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. 23 Mizuho Corporate Bank, Industry Research Division
  • 25. FY2012 Japan Industry Outlook (Comprehensive Industry Overview)Figure 1-29: Industry-specific Production & Demand Trends and Topics 24 Mizuho Corporate Bank, Industry Research Division
  • 26. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) 25 Mizuho Corporate Bank, Industry Research Division
  • 27. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) 26 Mizuho Corporate Bank, Industry Research Division
  • 28. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) 27 Mizuho Corporate Bank, Industry Research Division
  • 29. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) 28 Mizuho Corporate Bank, Industry Research Division
  • 30. FY2012 Japan Industry Outlook (Comprehensive Industry Overview) 29 Mizuho Corporate Bank, Industry Research Division
  • 31. FY2012 Japan Industry Outlook (Comprehensive Industry Overview)Source: Compiled by MHCB Industry Research DivisionNote: + 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 monthThe office vacancy rates for Tokyos 23 wards do not indicate volatility but provide a mosaic in whichthe 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 tomoki.nakamura@mizuho-cb.co.jp Planning & Administration Team Industry Research Division Mizuho Corporate Bank, Ltd. 30 Mizuho Corporate Bank, Industry Research Division

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