Overestimated construction data in Japan: PM

The Japanese prime minister said the government had overestimated the value of some construction orders received from builders for years, undermining the credibility of official statistics widely used by investors and economists.

Officials and analysts said the builders involved were relatively small companies, so the practice likely had only a minimal impact on gross domestic product (GDP) figures.

“It is regrettable that such a thing has happened,” Prime Minister Fumio Kishida said.

“The government will review as soon as possible what steps it can take to prevent such an incident from happening again.”

He made the comment to parliament after the Asahi newspaper reported that the Ministry of Land, Infrastructure, Transport and Tourism had “rewritten” data received from about 12,000 companies since 2013 at a rate of around 10 000 admissions per year.

Kishida said “improvements” had been made since January 2020 and there had been no direct impact on GDP data for fiscal years 2020 and 2021.

However, the news is likely to raise questions about the reliability of the data which is a cornerstone for economists and investors looking to understand and forecast trends in the world’s third-largest economy.

This is not the first time that issues have been raised about government data.

A similar concern was expressed about a loophole in the Department of Health’s salary data found in 2018.

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

“We cannot help but doubt that this kind of problem can occur in government departments,” Sakai said.

Construction orders data combines public and private orders, which in FY2020 totaled around 80 trillion yen (AU $ 980 billion).

The numbers also feed into Japan’s GDP calculations.

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

Companies that fall behind in submitting data often send several months of numbers at a time.

In these cases, the ministry would ask local authorities to rewrite the orders for the combined months as a figure for the last single month.

“We have embarked on such a practice to reflect the actual situation regarding orders placed. If we had refused to collect data in this way, the number of samples would have decreased,” said a ministry official directly in charge of data.

The official added that the practice may have started around 2000, when the ministry started tracking the data.

“We were under pressure not to reduce the samples, although in hindsight, this practice was strange.”

Additionally, when an entry was missing for a company, the ministry would enter a provisional figure by taking the average of orders from the rest of the industry during that month, resulting in double counting once the missing sum arrived.

Considering that Japan has hundreds of thousands of construction companies, the proportion of those affected was very small, said Akiyoshi Takumori, chief economist at Sumitomo Mitsui DS Asset Management.

“What influence do they have? The kind of sloppy business that releases numbers late is probably not great. “

Still, Land Minister Tetsuo Saito, a veteran lawmaker from the Komeito party – the smaller of the two ruling coalition parties – confirmed the practice in parliament and said it was “extremely unfortunate”.

Ministry officials said they did not directly report the data flaws to Saito’s predecessor, Kazuyoshi Akaba.

Asked about the matter, the main government spokesperson said only that the Land Ministry had been tasked with analyzing “as soon as possible” what had led to the practice.

“We will first wait for the results of this investigation,” Chief Cabinet Secretary Hirokazu Matsuno told reporters.

Reformulating the data in this way, which may have broken the law, continued until January 2020 after the Accounts Committee reported it to the ministry, the ministry said.

He added that pre-2019 construction survey forms had already been removed, so it would be difficult to restore monthly figures from previous years.

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