1. Summary
The chain-linking method will be applied to Japan's System of National Accounts from the second preliminary quarterly estimates of GDP for July - September 2004 and the annual revision for Fiscal 2003, which will be released on December 8, 2004.

2. Background
It is well known that the inflation-adjusted economic growth rates may be overestimated for years far from the base year under the present method (fixed-base year, rebased every five years). For example, the influences of the items whose prices are rapidly going down, such as computers, tend to be overestimated.
To eliminate these biases, the SNA93 recommends a chain-linking method that requires more frequent rebasing. The United States adopted the chain-linking method in 1996, Canada in 2001, and the United Kingdom in 2003.

3. Process to the New Method
In Japan, application of the chain-linking method has been examined since 2001. For example, the chain-linked deflators have been published in the Annual Report on National Accounts as a reference series. Furthermore, from April 2004, the advisory committee for SNA (chaired by Mr. Masahiro Kuroda, Ph.D., Vice-President and Professor of Keio University) and its subsidiary committee for methodological study (chaired by Mr. Sei Kuribayashi, Professor of Chuo University) were initiated, and the application of the chain-linking method in the next rebasing, which will be finalized around the end of 2005, has been studied.
On October 19, the advisory committee recommended that "the chain-linking method is preferred to calculate the real term figures in the next rebasing work rather than the present fixed-base year method" and encouraged the adoption of the chain-linking method in advance of the next rebasing.
In response to this recommendation, the Economic and Social Research Institute (ESRI) has verified the chain-linking method and the procedures for estimation. On November 18, 2004, ESRI proposed the introduction of the chain-linking method (see the next section), and it was approved at the joint-meeting of the committee and the sub-committee for methodological study (chaired by the deputy chairman: Mr. Sei Kuribayashi).

4. Details

• When:
  From the second preliminary quarterly estimates of GDP for July - September 2004 and the annual revision for Fiscal 2003, which are planned to be released on December 8, 2004
• For which series chain-linking method is implemented:
  GDP (Expenditure) and its components, from January - March 1994
• Types of chain indexes:
  Volume measures: Laspeyres type index based on previous calendar years
  Deflators: Paasche type index based on previous calendar years
• Reference year (The year for which the deflators are expressed as equal to 100):
  Calendar year 2000
• Planned date of publication of Annual Report on National Accounts 2003:
  To be published at the beginning of May, 2005
• Treatment of the fixed-base year series:
  The fixed-base year series are to be released as a reference series approximately two weeks after the publication of the second preliminary estimates of GDP.
• The application of chain-linking system to production and capital stock accounts will be further studied.
  The preliminary estimates on capital stock of the private sector will be compiled with the present method (i.e., the fixed-base year method) for some time to come. The publication will be delayed in accordance with the release of the reference GDP series.

5. Provisional Estimation of Chain-linked GDP(Fig.5-1)(PDF Format 160KB)   (Fig.5-2)(PDF Format 365KB)
In order to review the method at the advisory committee, interim chain-linked estimates were calculated by using the same data sources for compiling recent flash estimates of GDP. The chain-linking method will be officially applied to Japan's SNA from the second preliminary quarterly estimates of GDP for July-September 2004 and the annual revision for Fiscal 2003, which will be released on December 8, 2004. The forthcoming nominal and real term figures will be revised due to the following factors;

• Annual revision for Fiscal 2003,
• Newly available data, for example, "Quarterly Financial Statements Statistics of Corporation by Industry",
• Calendar year 2000 will be chosen as the new reference year instead of Calendar year 1995.

6. Information on Briefing Session
A briefing session on the methodological change (in Japanese) has been scheduled for Monday, November 22, at 10:30 a.m. in Room 220, Government Building No. 4. Applicants who wish to attend the session must register with us their name, professional affiliation, and contact address by 3:00 p.m. on November 19, 2004. Please fax us at 03-3581-0516 or 03-3581-0716, or email:Here