Japanese GDP Data Miscalculated Since 1989

Japanese GDP Data Miscalculated Since 1989

May 1, 2005

You just can’t make this stuff up. The Japanese government admitted today that they have miscalculated every piece of Japanese GDP data for the past 16 years. Whoopsie! It shouldn’t be a problem though, as I’m sure the Japanese government will reimburse investors for any losses they suffered during this period as the Nikkei average fell from 42,000 to 11,000 today.

GDP data miscalculated since 1989
Japan’s gross domestic product data have been miscalculated since 1989 due to an error in a computing program regrading imported products, according to the Cabinet Office.
The corrections of the GDP data, which are large enough to change the first digit after the decimal point, appear only for the nominal GDP growth rate for 1997, the office said.
But the mistake would affect a wide range of economic data such as consumption expenditures and savings ratios for households. The office revised upward the 1997 nominal GDP growth rate from the initially announced 2.1 percent to 2.2 percent.
The office said the mistake was caused by flaws in the program regarding the consumption tax, which was raised from 3 percent to 5 percent in April 1997, among other things. Data correction work is expected to continue until late this year, it said.
The Japan Times: May 1, 2005

Must be a coincidence they announced the error over the weekend before Golden Week when Japan is shut down.

Who are we to talk? The U.S. GDP number for the 4th quarter was off by about a half a percent when first released because we forgot Canada. It was also distorted by the fact that Microsoft paid a special dividend in December of $32 billion, roughly 4x the market cap of GM. I could understand if we forgot Liechtenstein or Monaco, but Canada is real big and it’s right there above the the US. Hope we remembered all the countries this quarter.

There is a moral to this story. First, investors should base broad strategies on ideas, not data points. Second, if you are going to use data to make decisions, use asset price data, not GDP national income accounts; they are more accurate, they are easier to understand, and the asset markets are more than 10x the size of the GDP accounts.

All you needed to know about Japan since 1989 was that land prices fell every year. The spread between Japanese borrowing rates and the annual rate of change of prices for land and other real assets–the right way to measure real interest rates–averaged almost 1000 basis points. You can’t run a business and survive with that level of balance sheet drag. They are not falling anymore.


John Rutledge

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