Japan comes clean on overstating construction data

Tokyo — The Japanese government overstated construction orders data received from builders for years, Prime Minister Fumio Kishida said on Wednesday, an admission that could dent credibility of official statistics widely used by investors and economists.

It was not clear why the government started the practice of rewriting the data. It is also unclear how GDP figures may have been affected, though analysts expected any impact to be minimal, particularly as the builders involved were likely to be smaller firms.

“It is regrettable that such a thing has happened,” Kishida said. “The government will examine as soon as possible what steps it can take to avoid such an incident from happening again.”

He made the comment in a parliamentary session after the Asahi newspaper reported the ministry of land, infrastructure, transport and tourism has been “rewriting” data received from about 12,000 select companies since 2013 at a pace of about 10,000 entries per year.

Kishida said “improvements” had been made to the figures since January 2020 and that there was no direct impact on GDP data for fiscal year 2020 and 2021.

While the impact on past GDP numbers may be small, the revelation is likely to raise questions about the reliability of data that is a cornerstone for economists and investors looking to understand and forecast trends in the world’s third-largest economy.

Reliability damage

It is also not the first time that issues have been raised about government data, including a flaw in health ministry data in 2018.

“The biggest problem is not the effect on the GDP per se but the damage to reliability of [official] statistics,” said Saisuke Sakai, senior economist at Mizuho Research and Technologies.

“We can’t help doubting this kind of issue could happen across government ministries,” Sakai said.

The survey compiles public and private construction orders which in the 2020 fiscal year totalled about ¥80-trillion, and is among data used to calculate GDP.

For the survey, the ministry collects monthly orders data from construction companies through local prefecture authorities.

Companies that were late in submitting data would often send in several months’ worth of figures at once, the Asahi said. In these instances, the ministry would instruct local authorities to rewrite the orders for the combined months as the figure for the latest, single month.

Meanwhile, when an entry was missing from a company, the ministry would place a tentative figure by taking the average of the orders from the rest of the industry in that month, resulting in double-counting once the missing sum arrived, the newspaper said.

Small ratio

“Overall GDP data is unlikely to change much,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui DS Asset Management.

Considering Japan has hundreds of thousands of construction companies, the ratio of those concerned is very small, he said.

“How much influence do they have? The kind of sloppy company — which puts out numbers late — is probably not a big one.”

Land minister Tetsuo Saito — a member of the Komeito party, the junior partner of the ruling coalition — confirmed the practice in parliament, calling it “extremely regrettable”.

Asked about the issue, the government’s top spokesperson said only that the land ministry has been instructed to analyse “as soon as possible” what led to the practice.

“We will first wait for the results of that investigation,” chief cabinet secretary Hirokazu Matsuno told a news conference when asked whether past GDP figures, the government’s monthly economic report or other data may need to be revised.

The rewriting of the data, which may be in breach of law, continued until March, the Asahi said.

Reuters