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News Release

Outlook for the Kansai Economy in FY 2008
Economy beset by troubles at home and abroad has both strengths and weaknesses;
outlook mixed, but growth set to recover to 2% range

December 12, 2007

Overview

In recent months, the Japanese economy has been beset by troubles at home and abroad, including (i) the sub-prime loan crisis in the United States, (ii) the confusion over the approval of applications for building certification that has arisen since the revised Building Standards Law came into force and (iii) the rise in prices and fall in real incomes due to the rise in the price of crude oil, cereals, etc.

In the United States, a fall of $10 billion in housing investment and of $80 billion in consumer spending is generally reckoned to result in US imports falling by $7.8 billion. A breakdown of these figures suggests that the greatest impact on Japan will be felt in the automobile and automotive parts industries. Recently, Japanese exports of automobiles and parts to the United States have been falling, but shipments to China have been growing. The Kansai Region is not greatly affected by the former, and does not benefit to any significant extent from the latter. Thanks to a sharp rise in shipments to newly developing economies and resource-producing countries, exports as a whole are steady.

In recent months, the number of construction starts has remained well below its former level, but the trends in the number of applications for building certification and the number of buildings certified suggest that the situation will become less confused as time goes on. The trend on a progress basis, calculated from the fall in the number of construction starts to date, suggests that housing investment is likely to show a sharp fall for fiscal 2007 sharply, but a year-on-year rise in fiscal 2008. If housing investment falls by 15% in fiscal 2007, the value of output at national and regional levels is likely to fall by approximately 1% of gross production, taking fiscal 2004 as the base year. Of this, the value of the output of the Kansai Region is likely to fall by approximately \885 billion, and the areas most affected are likely to include the construction, fabricated metal products, primary metal, and ceramics & stone products industries.

The impact of the deterioration in terms of trade on Japan as a whole will be absorbed gradually, at the various demand stages, and will not be passed on to the final consumer to any great degree or in a concentrated manner, but in recent months the increase in consumer prices has been greatest among the most frequently purchased goods. This has created the impression that the overall prices including the other products are rising faster than the trend shown by statistical indicators, and may be reinforcing the perception that real incomes are stagnating. In the business-to-business field, some small and medium-sized non-manufacturing enterprises are finding it difficult to make a profit, and it is likely that such enterprises will start to take a more cautious stance on capital investment. By contrast, capital investment growth is robust among large enterprises in the Kansai Region.

The real economic growth rate for the Kansai Region is likely to recover to the 2% range, reaching around 2.1%, in fiscal 2008, higher than the figure of 1.4% projected for fiscal 2007, when the sharp fall in housing investment will lead to a temporary downturn. Capital investment, especially among large enterprises, and exports, supported by rapid growth among the newly developing economies and oil-producing countries, will continue to drive economic growth. Meanwhile, if the special factor whereby the growth of housing investment will appear to accelerate is disregarded, demand from the household sector is likely to grow at a gentle pace.

For more information on the content of this report, please contact Kiyoshi Yoshimoto , the Japan Research Institute, Limited.

Tel: 06-6534-5204

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