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Land ministry overstated construction orders data for years, potentially inflating Japan’s GDP

The government overstated construction orders data for years, Prime Minister Fumio Kishida admitted Wednesday, in a practice that may have inflated the country’s gross domestic product.

The revelation was first reported by the daily Asahi Shimbun, which said the land ministry had been “rewriting” data received monthly from about 12,000 select companies since 2013, at a pace of about 10,000 entries per year.

“It is extremely regrettable, and we need to figure out why it happened and how to prevent a recurrence. That’s a must,” Kishida said during a Lower House Budget Committee session.

Land minister Tetsuo Saito offered an apology, saying he will take measures to prevent a recurrence. The ministry was instructed to compile a report on the incident as soon as possible.

A senior government official said that it was unclear how much the alterations may have affected GDP.

The data covers public and private construction orders and is used to calculate GDP. In the 2020 fiscal year that ended in March, the compiled figures totaled roughly ¥80 trillion.

Construction companies are obliged to report the number of construction orders they receive every month to prefectural governments, which then compile the data and submit it to the land ministry.

Tetsuo Saito bows during a Lower House Budget Committee session on Wednesday. | KYODO
Tetsuo Saito bows during a Lower House Budget Committee session on Wednesday. | KYODO

But when construction companies that are late turning in their data submitted figures for the past several months in bulk, rather than reporting figures one month at a time, the ministry had been instructing prefectures to revise the data to make it look like it was all reported in the latest month.

At the same time, if a construction company did not report its orders immediately for the latest month, the ministry compiled an estimate for the company based on the average number of orders received industrywide. The estimate would then be included in the overall construction orders data, leading to an overlap that would inflate figures. The practice had been in place since fiscal 2013, which began in April of that year.

“It has led to an overlap of data but we didn’t think it was a problem back (in fiscal 2013),” a land ministry official said.

The rewriting of the data, which may be in violation of the statistics law, continued until this March.

Saito told the budget committee that the data had been retroactively fixed from January 2020 after the Audit Board pointed out the overlap in September this year. This means GDP figures for the past two years have already been revised to reflect the corrected construction order statistics.

The overstated monthly construction orders data, one of the 53 major statistics the government releases, could further damage the credibility of government statistics. In December 2018, the labor ministry revealed it had published its monthly labor survey without collecting enough data.

Prime Minister Fumio Kishida speaks during a Lower House Budget Committee session on Wednesday. | KYODO
Prime Minister Fumio Kishida speaks during a Lower House Budget Committee session on Wednesday. | KYODO

The revelation is the latest blow to the Kishida administration, which has taken flak over its flip-flopping on how best to distribute cash handouts to households with children.

The largest opposition party, the Constitutional Democratic Party of Japan, appears determined to grill the administration over the controversy.

Takeshi Shina, a CDP Lower House lawmaker, on Wednesday demanded a thorough, third-party investigation take place before the fiscal 2022 budget debate kicks off in parliament in January.

“This issue is not only about statistics, but also about the credibility of the budget,” Shina said.

Kishida rebutted Shina’s argument, noting that since the numbers have been corrected from January 2020, there would not be an impact on the GDP figures for fiscal years 2020 and 2021.

“Japan is currently in a very difficult situation in terms of people’s lives and businesses due to the coronavirus pandemic and we need to think about revitalizing the economy, and in that race against time, the government and politicians must fulfill their responsibilities,” Kishida said. “In a period like this, we recognize that we must proceed with deliberations on the main budget.”

Depending on the responses of the ruling bloc and the land ministry, the upcoming regular parliamentary session — the first with Kishida as prime minister — could make for a turbulent start to 2022.

It is too soon to know what impact the latest development will have on Kishida, but politically it could turn out to be a blessing in disguise. The data was altered under the administration of Shinzo Abe, who retook office in December 2012. Given that Kishida and Abe have a delicate relationship, Kishida could seize the opportunity to further distance himself from the former leader and assert his independence.

The role of land minister has long been held by a lawmaker from Komeito, the Liberal Democratic Party’s junior partner. Although the LDP and Komeito continue to form a coalition, Kishida himself does not have a close connection to the party, unlike his predecessor, Yoshihide Suga. The two parties differ somewhat on constitutional revision and defense, especially when it comes to acquiring the capability to strike enemy bases.

Chief Cabinet Secretary Hirokazu Matsuno on Wednesday dismissed the possibility of Saito, who took over the post at the start of the Kishida administration, stepping down as land minister, but the issue could drive a wedge between the two parties and complicate the inter-party relationship.

Information from Kyodo added

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