THE MACHINERY INDUSTRY OF JAPAN 2009

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2 THE MACHINERY INDUSTRY OF JAPAN 2009 CONTENTS 1. Recent Trends in the Machinery Industry 1-1. Production Trends Foreign Trade The Importance of the Machinery Sector in Japanese Industry 2-1. Scale of the Machinery Industry... 3 (1) Number of Operations... 3 (2) Employment... 4 (3) Shipments... 5 (4) Value Added... 6 (5) Exports and Imports... 7 (6) Investment in Plants and Equipment... 8 (7) Research and Development The Machinery Industry s Share of Net Domestic Product Recent Trends in the Establishment of New Factories and Plants Detailed Trends in the Machinery Industry 3-1. Production in the Machinery Industry (1) Production Index (2) Production Value Labor Indices for the Machinery Industry (1) Regular Employment Index (2) Wages and Salary (3) Hours Worked (4) Productivity Index Plants and Equipment Investment in the Machinery Industry (1) Investment Trends (2) Machinery Orders Research and Development in the Machinery Industry Exports of Machinery and Equipment Imports of Machinery and Equipment Foreign Direct Investment by the Machinery Industry Plant Exports Recent Trends in the Establishment of New Factories and Plants Outline of JMF 4-1. Organization and Activities Members... 39

3 1 Recent Trends in the Machinery Industry 1-1. Production Trends According to METI s Current Production Statistics Survey, in 2008 the index of industrial production fell 3.4% from the year earlier to (2005=100), falling for the first time in six years. Looking at the industry, the production index for general decreased 8.1% from the previous year, electrical fell 2.7%, information and communications electronic fell 4.8%, electronic parts and devices fell 3.6%, transport fell 1.7%, and the production index for precision instruments increased 2.3% from the year earlier. For general, although production increased in agricultural and chemical, production fell in areas such as semiconductors/flat panel display manufacturing, construction, boilers and power units, textile, and other types of general, resulting in the first decrease in six years for the general category. Production of electrical fell for the second consecutive year as production of consumer electrical appliances, electric measuring and electronic applications fell, even though production of electrical stationary machines and batteries increased. Production of information and communication electronic fell for the first time in four years as production of communication, electronic calculators, and other information and communication decreased, even though production of consumer electronic appliances Table 1-1.Production Index in the Machinery Industry (2005 = 100, % ) Industries Production Index Change(from previous year) ~ 6 Mining and manufacturing ( 26.8) General ( 37.5) Electrical ( 21.3) Information and ( 20.8) communication electronics Electronic parts and devices ( 34.0) Transport ( 43.9) (excl. ships and rolling stocks) Precision instruments ( 29.8) (Note ) ( )change from previous half year (Source ) METI[Current Production Statistics Survey] Industries Table 1-2.Production in the Machinery Industry (billion yen, % ) Production Change(from previous year) ~ 6 General 15, ( 74.8) Electrical 7, ( 41.4) Information and 7, ( 41.4) communication electronics Electronic parts and devices 9, ( 51.9) Transport 36, ( 63.5) (excl. ships and rolling stocks) Precision instruments ( 46.5) Total 77, ( 60.7) (Note ) ( )change from previous half year (Source ) METI[Machinery Statistics] increased. For electronic parts and devices, the production index fell for the first time in seven years due to decreased production in integrated circuits, semiconductor parts, and semiconductor elements, despite an increase in parts for electronic. The production index for transport also fell for the first time in seven years as production of automotive parts, motorcycles, and passenger cars all fell. For precision instruments, although production of watches fell, production of measuring and optical appliances and instruments rose, resulting in the sixth consecutive year of increase. For 2009, the industrial production index in Japan was falling steeply, both in the first half and in the second half of the year. For the industry in the first half of 2009, the production index fell 31.3% compared with the same period a year earlier (a decrease of 26.8% from the second half of 2008). The index for the general category fell 45.0% compared to the same period a year earlier, electrical fell 27.6%, information and communications electronic fell 29.9%, electronic parts and devices fell 39.6%, transport fell 50.2%, and precision instruments fell 32.3%. For the second half of 2009, the industrial production index in Japan continued to decline sharply, both for the July-September period and for the October-December period. For the industry, production of general, electrical, information and communications electronic, electronic parts and devices, transport, and precision instruments all fell precipitously. According to METI s Machinery Statistics, total production for the industry in 2008 amounted to 77,221.5 billion Foreign Trade Looking at the export and import trends of and, total exports in 2008 decreased 5.5% over the year earlier to 53,484.0 billion, falling for the first time in seven years. Exports of general and electrical fell 4.2% and 9.3% respectively, each falling for the first time in seven years. Transport exports fell for the first time in nine years, decreasing 3.7% over the prior year, while exports of Machineries Table 1-3.Exports of Machinery Exports (billion yen, %) Change(from previous year) ~ 6 General 15, ( 40.9) Electrical 15, ( 38.2) Transport (incl. ships and rolling stocks) 20, ( 46.6) Precision instruments 2, ( 32.1) Total 53, ( 41.8) (Note 1)( )change from previous half year (Note 2) See table 3-21 for further information. (Note 3) The classification of is in accordance with the classification for "The Basic Classification Index for The Survey Report on Trade of Japan". (Source ) MOF[Trade Statistics ] 1

4 Machineries Table 1-4.Imports of Machinery Imports (billion yen, % ) Change(from previous year) ~ 6 General 6, ( 26.3) Electrical 8, ( 30.3) Transport (incl. ships and rolling stocks) 2, ( 37.5) Precision instruments 1, ( 27.6) Total 18, ( 29.6) (Note 1) ( )change from previous half year (Note 2) See table 3-25 for further information. (Note 3) The classification of is in accordance with the classification for "The Basic Classification Index for The Survey Report on Trade of Japan". (Source) MOF[Trade Statistics] precision fell 3.3%, the fourth consecutive year of decline. In the category of general, exports of agricultural, pulp/paper making and processing as well as conveyance machines increased, while exports of power units, electronic calculators, and office fell. In the electrical category, exports of heavy electric and batteries rose, but exports of semiconductors and electronic parts, visual apparatus, telecommunications, and electric circuits all fell. For transport, exports of ships rose, but exports of automobiles, auto parts, and aircraft all fell. Exports in the precision instruments category fell as exports of scientific and optical and watches/ clocks decreased. Imports of and in 2008 fell for the first time in 9 years, by 7.4% from a year earlier to 18,736.0 billion. By category, imports of general fell 6.8%, electrical fell 7.3%, and transport and precision instruments both fell 8.6%. As a result, in 2008 the trade surplus for and increased for the seventh consecutive year. In the first half of 2009, total exports of and fell 46.5% from the same period a year earlier and fell 41.8% compared to the last half of Machinery imports for the first half of 2009 fell 34.3% compared to the same period a year earlier and 29.6% compared to the last half of Both exports and imports followed a sharply downward trend in the second half of

5 2 The Importance of the Machinery Sector in Japanese Industry 2-1. Scale of the Machinery Industry (1)Number of Operations According to METI s industrial statistics, at the end of 2008, manufacturing operations with four or more employees numbered 263,061, representing an increase of 1.9%, or 4,829 plants since the end of The number of operations belonging to the industry at the end of 2008 was 71,064, an increase of 0.6%, or 437 establishments since the end of However, industry plants made up 27.0% of all manufacturing operations, down 0.4 points from the end of Breaking down the industry plants by sector, general, with its large number of small and medium-sized enterprises, accounted for the most plants with 38,669 (14.7% of all manufacturing operations), followed by the transport sector with 12,623 plants (4.8%), the electrical sector with 11,447 plants (4.4%), the electronic parts/devices/electronic circuits sector with 5,832 plants (2.2%), and information and communications with 2,493 plants (0.9%). J S I C code no. Industries Table 2-1.Number of Operations Number of operations Number of operations Change (%) Weight (%) Number of operations Total(Manufacturing) 258, , , Manufacture of food 32,352 32, , Manufacture of beverages, tobacco and feed 4,576 4, , Manufacture of textile mill products, except 20,384 19, , apparel and other finished products made from fabrics and similar materials 12 Manufacture of lumber and wood products 8,563 8, , except furniture 13 Manufacture of furniture and fixtures 8,516 8, , Manufacture of pulp, paper and paper products 7,457 7, , Printing and allied industries 16,466 16, , Manufacture of chemical and allied products 4,824 5, , Manufacture of petroleum and coal products Manufacture of plastic products 15,731 16, , Manufacture of rubber products 3,217 3, , Manufacture of leather tanning, and leather 2,113 2, , products, and fur skins 21 Manufacture of ceramic, stone and clay 13,150 12, , products 22 Manufacture of iron and steel 4,492 4, , Manufacture of non-ferrous metals and 2,991 3, , products 24 Manufacture of fabricated metal 33,714 33, , ~27 Manufacture of general 33,792 33, , Manufacture of electronic parts, devices and circuits 5,699 5, , Manufacture of electrical 11,792 11, , Manufacture of information and communication electronics 2,226 2, , Manufacture of transportation 12,032 12, , (incl ~ 3122 manufacture of railroad and parts, and 3131 shipbuilding and repairing, and 3134 marine engines.) 31 Manufacture of precision instruments and 4,128 4, Total of industry (25,26,27,28,29,30,31) 69,669 70, , Miscellaneous manufacturing industries 9,372 9, , (Note 1) Operations with 4 or more employees (Note 2) According to the revision of JISC, the old category of "manufacture of precision instruments" was merged into 2 categories of "manufacture of general ", "other manufacturing ". (Note 3) JSIC means the Japan Standard Industrial Classification (Source) METI[Census of Manufactures(Outline printings)2008] Change (%) Weight (%) 3

6 (2)Employment At the end of 2008 there were 8,364,607 people employed in manufacturing operations with four or more employees. This represented a 1.8% decrease (153,938 jobs) from the year earlier. Employment in the industry was 3,520,271, a decrease of 2.7% or 95,997 people from the previous year. The industry accounted for 42.1% of all manufacturing employment, decreasing 0.4 points from the year earlier. By sector, the general sector employed the most people with 1,218,670 (14.6% of total employment in all manufacturing operations), followed by transport with 1,029,652 (12.3%), electronic parts/devices/ electronic circuits with 521,471 (6.2%), electrical with 511,670 (6.1%), and information and communications with 238,808 (2.9%). J S I C code no. Industries Table 2-2.Number of Employees Number of employees Number of employees Change (%) Weight (%) Number of employees Total(Manufacturing) 8,225,442 8,518, ,364, Manufacture of food 1,093,080 1,135, ,138, Manufacture of beverages, tobacco and feed 102, , , Manufacture of textile mill products, except 358, , , apparel and other finished products made from fabrics and similar materials 12 Manufacture of lumber and wood products 120, , , except furniture 13 Manufacture of furniture and fixtures 124, , , Manufacture of pulp, paper and paper products 208, , , Printing and allied industries 329, , , Manufacture of chemical and allied products 343, , , Manufacture of petroleum and coal products 23,892 24, , Manufacture of plastic products 445, , , Manufacture of rubber products 125, , , Manufacture of leather tanning, and leather 29,929 29, , products, and fur skins 21 Manufacture of ceramic, stone and clay 289, , , products 22 Manufacture of iron and steel 213, , , Manufacture of non-ferrous metals and 132, , , products 24 Manufacture of fabricated metal 655, , , ~27 Manufacture of general 1,014,715 1,063, ,218, Manufacture of electronic parts, devices and circuits 503, , , Manufacture of electrical 565, , , Manufacture of information and communication 217, , , electronics 31 Manufacture of transportation 989,730 1,050, ,029, (incl ~ 3122 manufacture of railroad and parts, and 3131 shipbuilding and repairing, and 3134 marine engines.) 31 Manufacture of precision instruments and 154, , Total of industry (25,26,27,28,29,30,31) 3,445,507 3,616, ,520, Miscellaneous manufacturing industries 167, , , (Note 1) Operations with 4 or more employees (Note 2) According to the revision of JISC, the old category of "manufacture of precision instruments" was merged into 2 categories of "manufacture of general ", "other manufacturing ". (Source) METI[Census of Manufactures(Outline printings)2008] Change (%) Weight (%) 4

7 (3)Shipments In 2008, shipments for all manufacturing operations with four or more employees amounted to 335,578,826 million, a decrease of 0.3% or 1,177,890 million from the previous year. Machinery industry shipments were 155,894,039 million, a decrease of 2.4% or 3,889,972 million over Machinery industry shipments accounted for 46.5% of all manufacturing shipments, down 0.9 points from the year earlier. By sector, shipments for transport led the way with 63,766,639 million (19.0% of total manufacturing shipments), followed by general with 40,247,738 million (12.0%), electronic parts/devices/electronic circuits with 20,560,300 million (6.1%), electrical with 16,838,479 million (5.0%), and information and communications with 14,480,883 million (4.3%). J S I C code no. Industries Table 2-3.Shipments Shipments Shipments Change (%) Weight (%) Shipments Change (%) (million yen) Total(Manufacturing) 314,834, ,756, ,578, Manufacture of food 22,673,228 24,196, ,941, Manufacture of beverages, tobacco and feed 9,596,711 10,243, ,911, Manufacture of textile mill products, except 4,190,352 4,293, ,687, apparel and other finished products made from fabrics and similar materials 12 Manufacture of lumber and wood products 2,502,482 2,709, ,564, except furniture 13 Manufacture of furniture and fixtures 2,157,783 2,270, ,041, Manufacture of pulp, paper and paper products 7,201,471 7,659, ,794, Printing and allied industries 6,855,822 6,982, ,737, Manufacture of chemical and allied products 26,199,536 28,293, ,129, Manufacture of petroleum and coal products 15,682,031 13,701, ,006, Manufacture of plastic products 11,411,572 12,398, ,073, Manufacture of rubber products 3,295,111 3,534, ,487, Manufacture of leather tanning, and leather 467, , , products, and fur skins 21 Manufacture of ceramic, stone and clay 7,756,925 8,492, ,174, products 22 Manufacture of iron and steel 18,472,703 21,191, ,332, Manufacture of non-ferrous metals and 9,016,159 10,770, ,480, products 24 Manufacture of fabricated metal 14,451,016 15,188, ,149, ~27 Manufacture of general 33,331,312 36,273, ,247, Manufacture of electronic parts, devices and circuits 19,004,116 20,935, ,560, Manufacture of electrical 19,663,276 21,065, ,838, Manufacture of information and communication 12,495,990 13,324, ,480, electronics 31 Manufacture of transportation 59,835,573 63,910, ,766, (incl ~ 3122 manufacture of railroad and parts, and 3131 shipbuilding and repairing, and 3134 marine engines.) 31 Manufacture of precision instruments and 4,073,145 4,274, Total of industry (25,26,27,28,29,30,31) 148,403, ,784, ,894, Miscellaneous manufacturing industries 4,501,303 4,545, ,702, (Note 1) Operations with 4 or more employees (Note 2) Some past data has been revised. (Note 3) According to the revision of JISC, the old category of "manufacture of precision instruments" was merged into 2 categories of "manufacture of general ", "other manufacturing ". (Source) METI[Census of Manufactures(Outline printings)2008] Weight (%) 5

8 (4)Value Added In 2008, value added for all manufacturing operations with four or more employees amounted to 101,304,661 million, down 6.8% or 7,351,784 million from Machinery industry value added came to 45,583,969 million, a decrease of 9.4% or 4,716,431 million from the previous year. Value added for the industry accounted for 45.0% of value added for all manufacturing operations, decreasing 1.3 points from the year earlier. By sector, transport led the way with 15,654,549 million in value added (15.5% of the value added for all manufacturing operations), followed by general with 14,798,196 million (14.6%), electronic parts/devices/ electronic circuits with 6,060,520 million (6.0%), electrical with 5,795,388 million (5.7%), and information and communications with 3,275,316 million (3.2%). J S I C code no. Industries Table 2-4.Value Added Value added Value added Change (%) Weight (%) Value added Change (%) (million yen) Total(Manufacturing) 107,598, ,656, ,304, Manufacture of food 8,562,524 8,718, ,693, Manufacture of beverages, tobacco and feed 2,945,065 3,024, ,809, Manufacture of textile mill products, except 1,877,718 1,826, ,885, apparel and other finished products made from fabrics and similar materials 12 Manufacture of lumber and wood products 894, , , except furniture 13 Manufacture of furniture and fixtures 922, , , Manufacture of pulp, paper and paper products 2,490,072 2,450, ,376, Printing and allied industries 3,182,898 3,091, ,889, Manufacture of chemical and allied products 10,994,048 10,801, ,966, Manufacture of petroleum and coal products 688, , , Manufacture of plastic products 4,399,379 4,515, ,160, Manufacture of rubber products 1,407,867 1,423, ,293, Manufacture of leather tanning, and leather 180, , , products, and fur skins 21 Manufacture of ceramic, stone and clay 3,847,018 3,895, ,565, products 22 Manufacture of iron and steel 5,961,700 5,545, ,749, Manufacture of non-ferrous metals and 2,779,403 2,575, ,005, products 24 Manufacture of fabricated metal 6,037,545 5,980, ,928, ~27 Manufacture of general 12,919,959 13,259, ,798, Manufacture of electronic parts, devices and circuits 6,977,083 6,999, ,060, Manufacture of electrical 6,586,723 6,858, ,795, Manufacture of information and communication 3,585,547 3,668, ,275, electronics 31 Manufacture of transportation 16,800,432 17,690, ,654, (incl ~ 3122 manufacture of railroad and parts, and 3131 shipbuilding and repairing, and 3134 marine engines.) 31 Manufacture of precision instruments and 1,814,157 1,823, Total of industry (25,26,27,28,29,30,31) 48,683,901 50,300, ,583, Miscellaneous manufacturing industries 1,742,982 1,754, ,686, (Note 1) Operations with 4 or more employees (Note 2) For value added for establishments with 29 or fewer employees, gross value added was used. (Note 3) Some past data has been revised. (Note 4) According to the revision of JISC, the old category of "manufacture of precision instruments" was merged into 2 categories of "manufacture of general ", "other manufacturing ". (Source) METI[Census of Manufactures(Outline printings)2008] Weight (%) 6

9 (5)Exports and Imports According to METI s White Paper on International Trade, Japanese exports (yen-based) for 2008 amounted to 81,018,088 million, representing a 3.5 decrease from the previous year. Machinery and exports were 53,484,449 million, decreasing as well by 5.5%. Machinery and exports made up 66.0% of all exports by value (general claimed 19.6%, electrical 19.0%, transport 24.8%, and precision instruments 2.6%), down 1.5 points from the previous year. Japanese imports (yen-based) for 2008 amounted to 78,954,750 million, an 8.0% increase from the previous year. Machinery and imports were 18,736,395 million, a 7.4% decrease. Machinery and imports made up 23.7% of all imports by value, a decrease of 4.0 points from As a result, the trade surplus for 2008 amounted to 2,063,338 million, a sharp decrease of 80.9% from the previous year. The trade surplus for the industry also fell 4.5% to 34,748,054 million. Note: 2008 dollar-based Japanese exports came to $777,310,460 thousand, a 9.2% increase from the previous year. Of this amount, and exports were $513,138,722 thousand, a 6.9% increase over dollar-based Japanese imports came to $757,550,370 thousand, a 22.1% increase from the previous year. Of this amount, and imports were $179,760,098 thousand, an increase of 4.7% over Table 2-5.Machinery & Equipment Exports(yen base) Commodity (million yen) 08/07 Weight (%) (%) Grand total 75,246,173 83,931,438 81,018, Foodstuff 358, , , Raw materials 899,675 1,046,410 1,053, Mineral fuels 644,881 1,026,388 1,869, Chemicals 6,793,864 7,745,339 7,268, Machinery & 51,694,452 56,613,644 53,484, General 14,799,978 16,631,358 15,927, Electrical 16,075,687 16,949,810 15,368, Transport 18,243,616 20,839,284 20,068, Railroad 98,914 74, , Motor vehicles 12,299,549 14,316,960 13,736, Ships 1,635,513 1,823,893 1,994, Precision instruments 2,575,171 2,193,192 2,120, Manufactures goods 8,673,824 9,876,142 10,176, Iron & steel products 3,485,138 4,042,343 4,573, Nonferrous metals 1,249,620 1,554,642 1,472, Manufactures of metals 1,048,511 1,121,829 1,106, Non- metallic mineral ware 860, , , (Source) MOF[Trade Statistics] Table2-6.The weight of the exports(2008) (Billion yen) Table 2-7.Machinery & Equipment Imports(yen base) Commodity (million yen) 08/07 Weight (%) (%) Grand total 67,344,293 73,135,920 78,954, Foodstuffs 5,709,641 6,040,818 6,211, Raw materials 4,733,304 5,670,265 5,538, Ore of nonferrous 1,671,169 2,136,258 1,659, Iron ore and concentrates 833,911 1,037,488 1,368, Mineral fuels 18,656,553 20,206,105 27,658, Petroleum 11,535,082 12,278,827 16,262, Petroleum products 1,866,751 1,981,596 2,378, LNG 2,659,474 3,140,266 4,652, Coal 1,611,924 1,740,465 3,050, Machinery & 19,206,130 20,239,105 18,736, Chemicals 4,909,332 5,471,184 5,737, Manufactures goods 6,554,228 7,409,494 7,336, Iron and steel products 758, ,786 1,188, Nonferrous metals 2,162,163 2,618,893 2,531, Manufactures of metals 888, , , (Source) MOF[Trade Statistics] Table 2-8.The weight of the imports(2008) (Billion yen) 7

10 Table 2-9.Machinery & Equipment Exports (dollar base) (thousand dollar) Commodity /07 Weight (%) (%) Grand total 647,278, ,705, ,301, Foodstuff 3,079,647 3,536,861 3,869, Raw materials 7,739,140 8,873,145 10,108, Mineral fuels 5,547,363 8,703,366 17,933, Chemicals 58,441,841 65,677,427 69,738, Machinery & 444,683, ,061, ,138, General 127,311, ,027, ,813, Electrical 138,285, ,727, ,444, Transport 156,934, ,708, ,536, Railroad 850, , , Motor vehicles 105,802, ,402, ,786, Ships 14,068,929 15,465,895 19,138, Precision instruments 22,152,009 18,597,405 20,345, Manufactures goods 74,613,540 83,745,798 97,637, Iron & steel products 29,979,682 34,277,478 43,880, Nonferrous metals 10,749,419 13,182,752 14,123, Manufactures of metals 9,019,449 9,512,669 10,614, Non- metallic mineral ware 7,405,170 8,025,083 8,710, (Source) MOF[Trade Statistics] Table 2-10.Machinery & Equipment Imports(dollar base) (thousand dollar) Commodity /07 Weight (%) (%) Grand total 579,305, ,163, ,505, Foodstuffs 49,115,191 51,223,760 59,597, Raw materials 40,716,594 48,081,616 53,136, Ore of nonferrous 14,375,647 18,114,627 15,918, Iron ore and concentrates 7,173,428 8,797,490 13,127, Mineral fuels 160,486, ,339, ,357, Petroleum 99,226, ,119, ,020, Petroleum products 16,058,073 16,803,154 22,822, LNG 22,877,196 26,628,220 44,636, Coal 13,866,013 14,758,458 29,267, Machinery & 165,214, ,619, ,760, Chemicals 42,230,813 46,393,488 55,045, Manufactures goods 56,380,456 62,829,594 70,385, Iron and steel products 6,521,738 8,325,159 11,405, Nonferrous metals 18,599,252 22,207,182 24,285, Manufactures of metals 7,642,202 8,444,297 9,204, (Source) MOF[Trade Statistics] (6)Investment in Plants and Equipment According to the survey on planned capital spending compiled by the Development Bank of Japan to assess investment trends, based on firms replying to both fiscal 2007 and fiscal 2008 surveys, total investment in plants and in fiscal 2008 fell 7.1% from the previous year, the first decline in five years. Looking at major sectors in manufacturing, spending by the steel industry increased 10.3%, oil was up 7.1%, and general rose 4.2%. However, other sectors saw large decreases in spending, including electrical (down 31.1%), food products (down 10.5%), and chemicals (down 10.4%). Spending by the transport industry also stopped increasing and fell by 7.3%. As a result, investment by the manufacturing industries fell for the first time in 6 years, down 9.7%. Investment by the non-manufacturing sector included increases by the power generation industry (up 10.6% from the previous year) and the wholesale/retail industry (up 8.2%). However, sectors such as transport (down 15.2%), leasing (down 13.9%), and real estate (down 13.3%) had double-digit declines, resulting in the first decline in spending by the non-manufacturing sector in four years (down 5.6%). Investment by the industry fell 13.3% from the year earlier. For fiscal 2009 (based on firms replying to both fiscal 2008 and fiscal 2009 surveys), total investment in plants and totaled 18,220.6 billion, a 9.2% decrease and the second consecutive year of decline. Investment by manufacturing fell to 7,057.9 billion, falling by more than 20% (20.7%) for the first time since Spending by the non-manufacturing sector fell slightly (0.1%) to 11,162.7 billion. Spending by manufacturing represented 38.7% of total investment in plants and while the nonmanufacturing sector accounted for 61.3%. For the principal sectors beginning with manufacturing, although investment in the oil industry (up 45.4% from the year earlier) and food products (up 6.2%) both rose, investment in precision (down 53.3%), transport (down 32.8%), electrical (down 24.6%), and general (down 23.0%) all registered large decreases. For the non-manufacturing sector, although investment in the power generation sector (up 12.0%) and transport sector (up 7.4%) both increased, investment in the real estate industry (down 16.6%) and leasing (down 15.8%) both registered double-digit declines. In fiscal 2009, the industry saw a 29.2% decrease in investment from the year earlier. The share of fiscal 2009 total investment in plants and held by the various sectors is as follows: power generation, 15.2%; telecommunications/information, 14.8%; transport, 12.6%; transport, 7.7%; electrical, 6.8%; general, 3.9%; precision instruments, 0.6%. Together, the four major industries accounted for 19.0% of the total, a decrease of 5.4 points from the year earlier. (7)Research and Development According to the MIC s survey on scientific and technological research, research expenditures by Japanese industry for fiscal 2008 fell by 1.4% from the year earlier to 13,632.0 billion, decreasing for the first time in nine years. The manufacturing sector spent 87.2% of the total or 11,883.1 billion. The industry spent 8,160.2 billion on research, which is 59.9% of the total amount spent by Japanese industry. The number of researchers in 2008 was 625,028 in all industries, 87.7% or 547,860 of whom were in the manufacturing sector. The industry accounted for 61.3% of the total for Japanese industry, employing 382,957 researchers. 8

11 Sector Table 2-11.Investment in Plants and Equipment by Sector (100 million yen, %) Change Investment Change Weight Actual result Actual result Plan Actual result Plan/ Actual result Actual result Plan 2006/ /2006 F.Y.2008 F.Y / /2008 F.Y.2008 F.Y.2009 All industry , , Manufacturing ,005 70, Machinery industry ,974 34, General ,281 7, Electric ,383 12, Transportation ,900 14, Precision ,410 1, Food and beverages ,747 3, Chemicals ,109 9, Petroleum ,396 3, Iron and steel ,800 8, Other manufacturing ,979 9, Non-manufacturing , , Electric power ,689 27, Telecom. and information ,142 26, Transportation ,361 22, Real estate ,993 12, Leasing ,983 2, Construction ,848 2, Wholesale and retail ,308 10, Other non-manufacturing ,392 6, (Source) The Development Bank of Japan[Survey on Planned Capital Spending, June 2009] Table 2-12.Weight of Investment in Plants and Equipment by Sector (Source) The Development Bank of Japan[Investment in Plants and Equipment Research Report, June 2009] Table 2-13.Research and Development in Machinery Industry (F. Y. 2008) Sector Companies performing Expenditure on R & D Researchers Number of companies Weight in total companies (%) Total (100 million yen) Weight (%) Weight in sales(%) Total Weight (%) Total 17, , , Manufacturing industry 13, , , Machinery industry 6, , , General 3, , , Electrical 1, , , Information and communication , , electronics Electronic parts and devices , , Transport s , , (incl. ships and rolling stocks) Other manufacturing industries 7, , , Non-manufacturing industry 3, , , (Note) (Source) MIC[Survey of Research and Development, 2009] 2-2. The Machinery Industry s Share of Net Domestic Product In 2008, the industry s net domestic product amounted to 34,731.8 billion or 8.5% of NDP for all of Japanese industry, down 0.9 points from the year earlier. This figure also amounted to 42.0% of the total for manufacturing, a decrease of 1.0 points from the year earlier. By sector, general had 11,079.0 billion in net domestic product, or 13.4% of the total for manufacturing, while electrical had 10,633.8 billion (12.9%), transport had 11,480.0 billion (13.9%), and precision instruments had 1,539.0 billion (1.9%). 9

12 Classification of economic activities Table 2-14.The Machinery Industry's Share of Net Domestic Product Amount Amount Amount Share of total (Nominal, billion yen, %) Share of manufacturing 1. Industries 378, , , (1)Agriculture, forestry and fishing 5, , , (2)Mining (3)Manufacturing 91, , , Food products and beverages 11, , , Textiles Pulp, paper and paper products 2, , , Chemicals 5, , , Petroleum and coal products 6, , , Non-metallic mineral products 2, , , Basic metal 7, , , Fabricated metal products 4, , , [9~12 Machinery industry] 39, , , General 11, , , Electrical, and supplies 13, , , Transport 12, , , (incl. ships and railroad ) 12.Precision instruments 1, , , Others 12, , , (4)Construction 26, , , (5)Electricity,gas and water supply 6, , , (6)Wholesale and retail trade 62, , , (7)Finance and insurance 31, , , (8)Real estate 40, , , (9)Transport and communications 25, , , (10)Service activities 87, , , Producers of government services 31, , , (1)Electricity, gas and water supply (2)Service activities 10, , , (3)Public administration 20, , , Producers of private non-profit services to households 9, , , (1)Service activities 9, , , Sub-total 418, , , Taxes and duties on imports 5, , ,945.2 Other 3, , ,610.3 Imputed bank service charge 24, , ,633.1 Grand total 396, , ,447.2 (Source) Economic and Social Research Institute, Cabinet Office[National Accounts] 2-3. Trends in the Establishment of New Factories In 2008, the number of new factories built was 1,630, a decrease of 9.0% or 161 plants from the 1,791 established in The total area of new factories was 2,180 hectares (1 hectare=10,000 sq. meters), a decrease of 20.5% or 561 hectares from the 2,741 hectares developed in Both figures fell for the first time in six years. By sector, the general sector established 321 plants, 8.4% more than the 296 in 2007, and these plants covered 364 hectares, 27.2% less than the 500 hectares the year earlier. The electrical sector established 60 new plants, 1.7% more than the 59 in 2007, and these plants covered 96 hectares, an area 77.8% greater than the 54 hectares a year earlier. The transport sector established 208 new plants in 2008, a 1.0% increase over the 206 plants established in 2007, and these plants covered 437 hectares, 16.3% less than the 522 hectares developed a year earlier. For the information and communications sector, the number of new plants was virtually unchanged from the previous year, but the area developed decreased dramatically. For the electronic parts and devices sector, the number of plants decreased from the previous year, but the area utilized increased. Table 2-15.Trends in the Establishment of New Factories and Plants Change(%) 2008/2007 Number 1,544 1,782 1,791 1, Area(ha) 2,298 2,365 2,741 2, (Note 1) 1. Lands of 1,000 m2 or over, newly acquired or leased, for the purpose of constructing factories, plants or business sites for manufacturing, electricity(excluding hydroelectric or geothermal power plants), gas or heat supply business ha = 10,000 m2 (Note 2) See table 3-34 for further information. (Source) METI[2008 Survey of New Locations for Factories and Plants] 10

13 3 Detailed Trends in the Machinery Industry 3-1. Production in the Machinery Industry (1)Production Index According to METI s Current Production Statistics Survey, the index of industrial production of Japan in 2008 fell 3.4% from the previous year to (2005=100), the first decrease in six years. 1 General Machinery In 2008, the production index for general fell 8.1% from the previous year to 100.4, the first decrease in six years. Looking at the types of, the production index for semiconductor/flat panel display manufacturing fell for the second consecutive year, by 28.9%. Although the index for flat panel display manufacturing rose, the index for semiconductor manufacturing fell. The index for construction fell 11.1%, the first decrease in 6 years. Although there was increased production of construction cranes and bulldozers, production of shovel-type excavators decreased. The production index for boilers and power units fell 7.0%, the first decrease in 5 years. Although production of steam turbine parts increased, production of boiler parts, water-pipe boilers, and internal combustion engines all decreased. The production index for textile fell 27.3%, the first decrease in three years, as production of knitting machines and looms as well as commercial sewing machines all fell. The production index for metalworking fell 6.1%, the first decrease in six years, as production of machining centers, numerically controlled drilling machines, and metal cutting machines all declined. The production index for agricultural rose 9.1%, the first increase in two years, as production of combines and wheel tractors increased. The production index for chemical rose 4.3%, the fifth consecutive year of increase, as production of heat exchangers and reactor both increased. 2 Electrical Machinery In 2008, the production index for electrical fell 2.7% to 100.4, the second consecutive year of decline. Looking at the types of, the production index for electric measuring fell 23.3%, the second consecutive year of decline. Within this group, production of semiconductor/ic measuring, electric measuring devices, and industrial measuring control all fell. The production index for consumer electric appliances fell 5.4%, also the second consecutive year of decline. Within this group, production of electric refrigerators, stand-alone air conditioners, and ventilation fans all fell. The production index for electronic applications fell 10.0%, the first decline in six years. Within this group, production of electronic microscopes increased, but production of medical x-ray and medical ultrasound applied showed decreases. The production index for batteries increased 12.9%, the seventh consecutive year of increase, in spite of decreased production of lead storage batteries, as production of large storage lithium ion batteries increased. 3 Information and Communication Electronic Equipment In 2008, the production index for information and communication electronic fell 4.8% to 103.2, the first decline in four years. Looking at the types of, the production index for communication fell 17.6%, declining for the second consecutive year, despite increased production of digital transmission, as production of cell phones and electronic switching apparatus decreased. The production index for electronic computers fell 4.2%, decreasing for the second consecutive year, despite increased production of mainframe computers, as production of notebook computers and external memory devices decreased. The production index for household electronic rose 4.2%, increasing for the seventh consecutive year, despite decreased production of products such as video cameras, as production of digital cameras, LCD televisions, and DVD video increased. 4 Electronic Parts and Devices In 2008, the production index for electronic parts and devices fell 3.6% to 126.3, marking the first decline in seven years. Looking at the types of, the production index for parts for electronic fell 0.6%, the first decrease in seven years. Within this group, production of active matrix LCDs (large type) increased, but production of electronic circuit boards and fixed capacitors decreased. The production index for semiconductor elements fell 2.9%, the first decline in three years. Within this group, production of luminescent diodes increased, but production of transistors and laser diodes decreased. For integrated circuits, the production index fell 8.9%, the first decrease in Year Mining and manufacturing Table 3-1.Production Index in the Machinery Industry General Electrical Information and communication electronics Electronic parts and devices Transport (Note) (2005 = 100,%) Precision instruments / (Note) Excluding ships and rolling stocks. (Source) METI[Current Production Statistics Survey] 11

14 three years as production of memory, logic, and personal computer chips all decreased. 5 Transport Equipment The production index for transport in 2008 fell 1.7% from the previous year to 111.6, marking the first decline in seven years. Looking at the types of, the index fell 0.5% for automotive vehicles, the first decline in five years. Although there was increased demand domestically for ordinary passenger cars due to the positive effect of the introduction of new models, foreign demand decreased as a result of a chilled consumer mindset stemming from the financial crisis originating in the U.S. in September. The production index for auto parts fell 3.2%, the first decline in ten years. While domestic demand increased, U.S. and European demand decreased. The index for motorcycles and motorbikes fell 24.9%, the second consecutive year of decline as domestic demand fell along with U.S. and European demand. 6 Precision Instruments The production index for precision instruments in 2008 increased 2.3% from the previous year to 117.6, and marked the sixth consecutive year of increase. Looking at the types of, the index for optical instruments rose 11.9%, marking the fifth consecutive year of increase as production of optical parts such as interchangeable camera lenses increased due to the introduction of new products. The production index for measuring and instruments rose 1.7%, marking the sixth consecutive year of increase. Although production of testing fell, production of gas meters and analytical instruments showed increases. The production index for watches and clocks fell 10.0%, dropping for the tenth consecutive year as production of battery operated clocks and watches fell. (2)Production Value In 2008, the Japanese industry, with the exception of a few sectors, was improving nicely, supported by growth in exports to Asian and North American countries as well as emerging markets and resource-rich countries. Additional support was coming from healthy investment in areas such as energy and the environment. However, the international financial crisis which began in the U.S. in September and the accompanying dramatic slowdown in the global economy, along with a worldwide drop in stock prices and the effects of a stronger yen, all worked to bring about a drastic reduction in exports in the second half of the year, as well as a decline in investment in plants and facilities and a collapse in personal consumption. The result was a dire condition for both domestic and overseas demand. Accordingly, production for the industry in 2008 showed a 3.1% decrease from the previous year to 77,221.5 billion, according to Machinery Statistics of METI. The production trends by sector are as follows: 1 General Machinery Production of general in 2008 decreased 6.6% from the previous year to 15,139.3 billion. Looking at the types of, production of boilers and power units decreased by 9.9% as demand for boilers/turbines and internal combustion engines, as well as most other categories, fell sharply beginning about September. Production of mining and construction and crushers decreased 1.1%. Within this group, overseas demand for construction from emerging countries showed strong growth, but demand for construction for urban applications from developed countries such as the U.S. and Europe fell sharply in the second half of the year. Production of chemical and storage rose 0.9% as the demand for large-scale facilities such as plants was strong and exports to Asia maintained their level of the previous year. The category of pulp and paper making machines; plastic processing ; and printing, plate making, bookbinding and paper converting machines fell 10.0%. Domestic demand fell as unit pricing of printing in the printing industry, which is the user industry for these machines, dropped and demand for commercial printing fell as well. Overseas demand from Western countries and Asia fell sharply as well. Production of oil-hydraulic and pneumatic fell 1.0% as demand from user industries cooled greatly in the second half of the year. Production of conveyance machines and industrial robots decreased 3.3% as demand cooled from the sector s two largest customers the automotive and electrical/ electronic industries. Production of agricultural Year Machinery industry Table 3-2.Production in the Machinery Industry General Electrical Information and communication electronics Electronic parts and devices Transport (million yen, %) Precision ,892,444 13,201,310 7,142,214 8,040,070 9,482,842 30,343, , ,212,377 14,121,159 7,255,236 7,870,423 9,141,807 32,117, , ,822,030 15,339,160 7,550,095 8,112,570 10,035,932 34,987, , ,711,814 16,216,726 7,677,014 7,717,947 10,294,794 36,957, , ,221,502 15,139,301 7,466,725 7,281,206 9,617,121 36,807, ,499 Weight / (Note 1) In this table, ships and rolling stocks were excluded from" transport ". (Note 2) As statistical figures are rounded off to the nearest figure, there are cases where the total figure and the figures in the breakdown do not reach the same total. (Note 3) Some past data has been revised. (Source) METI[Yearbook of Machinery Statistics 2008] 12