Is Japan using the right data?

Economic restructuring and renewal depends not only on effective policies, but also on the right data to forge those policies. A recent concern voiced not just by economists and investors but by the ruling Liberal Democratic Party itself has called into question some of the data on which the government bases its decisions. Whether the figures are reliable is hard to determine, but greater transparency in the process is greatly needed.

As the Bank of Japan forges ahead with a stimulus program in hopes of reigniting the economy, its methods of determining consequences is extremely important. Insufficient or unclear data mean that the effects are not fact-based but ideologically driven. The same applies to the consumption tax hike planned for April 2017, as well as other indicators for recessions and growth. In all those areas, understanding the consequences of government actions depends on verifiable, reliable and openly published data.

Though the quality of the government’s data has been rapped in the past, recently that criticism has focused on a number of substantive issues. For example, last year, the first reports on GDP showed a recession in the third quarter. However, revised data released weeks later showed growth. Which one was right? Over the last decade or so, quarterly GDP figures have been revised by an average of 1.7 points. That may not matter much to the armchair economist, but the difference is significant and affects many other decisions.

Questions extend to other Cabinet Office research, such as on household spending, which has long been a measure of the Japanese economy. Determining household spending relies on retail sales data. According to many economists, the samples for that data may overemphasize elderly consumers and insufficiently consider other groups. The consumer price index has also failed to completely take into account online shopping.

The BOJ is eager to use its monetary policies to persuade companies to raise wages. But how wages are measured is open to criticism. If data about pay hikes are not reliable, then it is hard to evaluate the effects of the bank’s policies. The result is confusion rather than effective policymaking.

Economists are notorious for disagreeing about data, but it is hard to know which analysis of the data is most reasonable. The LDP wants to argue that its policies have been validated, while critics of Abenomics argue the policies have not been beneficial. However, without reliable data presented in a timely and transparent fashion, it is hard to say which side is right.

The government, in particular the Cabinet Office, needs to improve the quality of its statistics. The process of collecting data, analyzing it and implement policies based on that analysis is extremely important for the future of Japan’s economy.