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(Left) Silver coin: Konjikido at Chuson-ji, Chuson-ji lotus and Motsuji Pure Land Garden
(Right) Bicolor clad coin: Shin-ooido at Chuson-ji and Gokusui no En Festival at Motsuji
From a series of commemorative coins each featuring a design unique to the 47 respective prefectures, which have been issued in sequence since FY2008 in commemoration of the 60th anniversary of the enactment of the Local Autonomy Law. In 2011, "Hiraizumi - Temples, Gardens and Archaeological Sites Representing the Buddhist Pure Land," with Chuson-ji and Motsuji among them, became inscribed on UNESCO's World Heritage Site List.
Japan's fiscal year starts in April, and ends in March of the following year. In setting the national budget, the government submits a proposed budget for the upcoming fiscal year to the Ordinary Session of the Diet, which begins in January. The proposal is then discussed, and an initial budget is approved usually before the fiscal year begins in April. In the event that the Diet does not approve the budget by the end of March, an interim budget comes into effect. The interim budget is effective from the beginning of April until such time when the proposed budget is approved. If it becomes necessary to amend the budget in the course of a fiscal year, the government submits a supplementary budget for Diet approval. In May 2011, the government budgeted, in the form of the supplementary budget for fiscal year 2011, part of the expenditures expected to be required within the fiscal year for the purpose of prompt recovery from the Great East Japan Earthquake.
Japan's national budget consists of the general account, special accounts, and the budget for government-affiliated agencies. Using revenues from general sources such as taxes, the general account covers core national expenditures such as social security, public works, culture/education/ science and national defense. Special accounts are accounts established for the national government to carry out projects with specific objectives, and are managed and administered independent of the general account. The number and particulars of special accounts change from year to year; for fiscal 2011, a total of 17 special accounts have been established, including the national debt consolidation fund and the grants of allocation tax and transferred tax. Government-affiliated agencies are entities established by special laws and are entirely funded by the government. Currently, the Japan Finance Corporation, the Okinawa Development Finance Corporation, and the Japan International Cooperation Agency (Loan Aid Section) are operated as government-affiliated agencies.
The size of the general account budget expenditure expanded to 89.32 trillion yen in fiscal 2000. This expansion was caused by the increasing costs of social security, which have been triggered by the rapidly aging society, and a series of economic measures implemented after the collapse of the bubble economy. Since then, the national government finance has been facing severe difficulties.
The size of the general account budget for fiscal 2011 was 92.41 trillion yen, an increase of 0.11 trillion yen (0.1 percent) from the initial budget of fiscal 2010. This is equivalent to 19.1 percent of the fiscal 2011 GDP, forecasted by the government at 483.8 trillion yen.
In fiscal 2011, major expenditures from the initial general account budget include social security (31.1 percent), national debt service (23.3 percent), local allocation tax grants, etc. (18.2 percent), education and science (6.0 percent), and public works (5.4 percent).
With regard to revenue sources for the fiscal 2011 initial general account budget, income tax, consumption tax and corporation tax account for 34.0 percent. Even with the addition of other taxes and stamp revenues, these revenue sources only amount to 44.3 percent of the total revenue.
There are two budget categories in the local government finance: the ordinary account and the public business accounts. The former covers all kinds of expenses related to ordinary activities of the prefectural and municipal governments. The latter covers the budgets of independently accounted enterprises such as public enterprises (water supply and sewerage utilities, hospitals, etc.), the national health insurance account and the elderly medical care account.
While expenditures such as national defense are administered solely by the national government, a large portion of expenditures that directly relate to the people's everyday lives are disbursed chiefly through local governments. In particular, a high proportion of the following expenditures are disbursed through local governments: public hygiene and sanitation expenses, which include areas such as medical service and waste disposal; school education expenses; expenses covering judicial, police and fire services; and public welfare expenses, which cover the development and management of welfare facilities for children, the elderly and the mentally and physically challenged.
The revenue composition of local governments usually remains almost the same each fiscal year, while their budget scale and structure vary from year to year. The largest portion of fiscal 2008 (net) revenues came from local taxes, accounting for 42.9 percent of the total. The second-largest source, 16.7 percent, was local allocation tax grants, which are allocations from the national government to local governments from national tax revenues, in certain percentages of income tax, corporation tax, liquor tax, consumption tax and tobacco tax revenues, to secure financial resources for standard public services and basic social infrastructure so that they should be available to residents of all regions. Local governments with stable tax revenues do not receive local allocation tax grants, though such comprise a large proportion of revenues in financially-fragile local governments.
The net total indicates the actual amount of governmental expenditures after eliminating duplications such as the transfer of funds between different accounts in the national budget, the local allocation tax grants and other subsidies from the national government to local governments. In the initial budget for fiscal 2010, the gross total of national government expenditure was 463 trillion yen. However, after eliminating duplications, the net total was 218 trillion yen. Furthermore, the local public finance program, which consists of the estimated sum of ordinary accounts for the following fiscal year for all local governments, amounted to 82 trillion yen. Therefore, after eliminating duplications between national and local accounts (32 trillion yen), the net total of both national and local government expenditures combined was 268 trillion yen.
In fiscal 2009, the net total of national and local government expenditures was 262 trillion yen, approximately 60 percent of which, net of overlaps, were expenditures "directly related to people's lives." The national government disbursed 43 percent of this amount, while the local governments disbursed 57 percent.
A function-by-function breakdown of expenditures "directly related to people's lives" showed that social security expenditure accounted for the largest portion (29.8 percent), followed by public bonds (18.9 percent), land preservation and development (12.0 percent), and then general administration (11.9 percent). Public bonds are issued to compensate for shortages of national and local revenues. Their issue volumes have increased mainly due to, for example, economic stimulus measures and decreasing tax revenues since 1992. A rising amount of public bond redemptions, among other factors, has resulted in public bonds making up a high percentage of government expenditures net of overlaps.
Japan's ratio of outstanding general government debt to GDP, a stock measure in a fiscal context, has been deteriorating rapidly due to its public bond issues over a series of years and is now the worst among major industrial countries.
Taxes consist of national tax (income tax, corporation tax, etc.), which is paid to the national government, and local tax, which is paid to the local government of the place of residence. The ratio of taxation burden, which is the ratio of national and local taxes to national income, was 18.3 percent in fiscal 1975. This ratio gradually increased thereafter, reaching 27.7 percent in fiscal 1990. Since then, however, the ratio has decreased due to the decline in tax revenue arising from the recession that ensued after the bubble economy ended, showing 21.8 percent in fiscal 2003. In fiscal 2011, it was 22.0 percent in terms of national and local taxes combined (12.3 percent for national tax and 9.7 percent for local tax). Japan's ratio is lower in comparison with other major industrial countries. Nevertheless, there is a possibility that the taxation burden will become heavier due to an increase in welfare and pension-related spending as the population ages.
As the central bank, the Bank of Japan (i) issues Bank of Japan notes, or the currency of Japan; (ii) manages and stores treasury funds and provide loans to the government; (iii) provides deposit and loan services to general financial institutions; and (iv) implements monetary policies by adjusting the level of money stock to promote sound development of the economy.
At the end of 2010, currency in circulation totaled 86.86 trillion yen (82.31 trillion yen in Bank of Japan notes and 4.54 trillion yen in coins), up 1.6 percent from the year before.
The Bank of Japan compiles and publishes statistics on the following indicators: (i) M1, or cash currency in circulation plus deposit money; (ii) M2, or cash currency in circulation plus deposits in banks, etc. in Japan; (iii) M3, or M1 plus quasi-money plus CDs (certificates of deposit); and (iv) broadly-defined liquidity, which covers a broad range of liquidity, including government securities. The average outstanding money stock as of December 2010 was 501 trillion yen in M1 and 782 trillion yen in M2.
The basic discount rate and basic loan rate (formerly referred to as the "official discount rate") is the interest rate on loans charged by the Bank of Japan to financial institutions. The rate was frozen at 0.50 percent for the period from September 1995 to February 2001. However, it was subsequently lowered gradually, reaching 0.10 percent in September 2001, and this extremely low interest rate level was maintained for several years. In view of Japan's economic recovery that followed, the rate was raised in stages, up to 0.40 percent in July 2006, and 0.75 percent in February 2007. However, the rate was cut in stages to address the rapidly deteriorating economy in the wake of the Lehman shock, down to 0.50 percent in October 2008 and then to 0.30 percent in December of the same year.
In addition to the Bank of Japan, Japan's financial system is comprised of private and public financial institutions. Private financial institutions include those that accept deposits (banks, credit depositories, agricultural cooperatives, etc.) and those that do not (securities companies, insurance companies, etc.).
As to the latest number of offices, including the branches of financial institutions operated domestically, post offices handling postal savings had the largest network with 24,137 offices. This was followed by domestically licensed banks, including city banks and regional banks, with a combined total of 13,405 offices and branches. Securities companies operated at 2,218 offices including branches. In the course of the financial system reform, mergers and restructuring progressed among major banks, resulting in their being reorganized into three major financial groups. Recently, regional banks and credit depositories operating in their respective regions have been continuing their efforts to expand operations base through corporate mergers.
For a long time, the business role of each type of financial institution had been clearly divided and regulated by specialized systems. However, the deregulation and reform of financial systems --known as the Big Bang-- produced dramatic changes overseas, eventually causing significant alterations in the Japanese financial system. A rapid surge in asset prices from the mid-1980s and the following correction of asset prices in the 1990s created a massive expansion of loans and huge bad debts in their wake. In the financial crisis between 1997 and 1998, several large financial institutions went bankrupt. This prompted legislative enactments in 1998 that were intended to stabilize the financial system, which accelerated the implementation of measures to deal with bankrupt financial institutions, including temporary nationalization. As a result, the overdue task of addressing bad debts was finally laid to rest.
In order to lead a revival of the nation's economy by solving the bad debt problems of major banks, the government launched the Program for Financial Revival in October 2002, demanding that major banks reduce their ratio of bad debts from 8.4 percent in March 2002 to approximately half that level by March 2005. As a result, the ratio of the major banks' bad debts decreased to 2.9 percent in March 2005, meeting the government's target, and the bad debt problems have thus been settled. The ratio recorded in March 2011 was 1.8 percent.
The Flow of Funds Accounts Statistics, which is a comprehensive set of records of financial transactions, assets and liabilities, indicates that financial assets in the domestic sectors totaled 5,656 trillion yen according to preliminary figures at the end of March 2011. Of these assets, those of the domestic nonfinancial sector were 2,842 trillion yen. The household sector (including the business funds of individual proprietorships) had assets of 1,476 trillion yen, in the forms of deposits, stocks and other financial assets. In Japan, the household sector holds more than 50 percent of its financial assets in cash or relatively secure forms of assets.
Stock prices in Japan rose sharply in the second half of the 1980s, spearheading the bubble economy. However, the stock market started to fall in 1990 ahead of land prices. At the end of 1989, the total market value of the first section of the Tokyo Stock Exchange was 591 trillion yen, but only three years later, at the end of 1992, it dropped by more than 50 percent to 281 trillion yen. The market recovered to reach 442 trillion yen at the end of 1999, but dipped again in 2000. Then in 2003, stock prices recovered reflecting improved corporate earnings and a positive turnaround in plant and equipment investment. At the end of 2006, the total market value of the first section of the Tokyo Stock Exchange reached 539 trillion yen. Since the subprime mortgage problem surfaced in August 2007, however, stock prices followed a downward path on account of growing anxiety over financial markets on a global scale. Although there was, subsequently, a sign of recovery in stock prices at one point, another downward trend set in and then the September 2008 Lehman shock led to considerable falls in stock prices, followed by, once again, a sustained period of descent. However, the financial results of U.S. financial institutions announced in March 2009 eased apprehensions about their business, and this gave rise to signs of turnaround. At the end of 2010, the total market value amounted to 306 trillion yen.
At the end of March 2011, the total number of individual stockholders (individuals of Japanese nationality and domestic groups without corporate status) in possession of stocks listed on the Tokyo/Osaka/Nagoya/ Fukuoka/Sapporo Stock Exchanges totaled 45.9 million. In value terms, the ratio of stocks they possessed was 20.3 percent. The ratio of Japanese stocks held by foreign investors (total of corporations and individuals) was 26.7 percent in value terms, marking the second consecutive year of increase. Records also show that Internet trading remained on a strong growth path.
A survey conducted of 290 securities firms by the Japan Securities Dealers Association (JSDA) showed that 17.9 percent of those companies offered Internet trading at the end of March 2011. Internet trading thus accounted for 20.3 percent of the total value of stock brokerage transactions from the period of October 2010 to March 2011.
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