Japan's Prime Minister Admits Country Has Been Overstating Construction Data for Decades

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On December 15th, Japan's Prime Minister admitted overstatements by the government regarding the value of some construction orders; this struck a blow to investors and economists' confidence in the country's official statistics.

Initial reports reveal wrong numbers from relatively small construction firms, causing minimal impact on Japan's GDP.

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

According to the report, the Ministry of Land, Infrastructure, Transport, and Tourism rewrote data received from some 12,000 companies since at least 2013. However, some indicators evidence problems that go back as far as 2000. It amounts to more than 10,000 orders per year.

Although Kishida recognizes improvements in this issue since January 2020, the long-term persistence of these circumstances in the world's third-largest economy causes consternation.

"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."

The manipulated figures contributed to public and private orders totaling 80 trillion yen ($700 billion) in 2020.

Overdue data, months-worth at a time, caused the problem. The ministry, reacting to late numbers, rewrote orders such that combined months represented the current month. Hence, a single monthly report could account for several months-worth of funds.

"We engaged in such a practice to reflect the actual situation regarding orders placed. If we had refused to collect data that way, the number of samples would have dwindled," said a ministry official directly in charge of the data. He said that it could have started as early as 2000.

"We were under pressure not to reduce samples, even though looking back, this practice was weird."

Worse yet, with missing entries from companies, the ministry averaged orders for the rest of the industry for the month; this caused double-counting.

The government's top spokesman said that the land industry would analyze the data "as soon as possible."

"We will first wait for the results of that investigation," Chief Cabinet Secretary Hirokazu Matsuno told reporters.

Economists and investors remain skittish amid Japan's misreported construction industry numbers.

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