Japan Economy Facts

Economical overview

Japan is an economic powerhouse and for many years had the world’s second largest economy after the United States. In 2010, however, China took second place. But since 1990, Japan has had problems with low economic growth and a large government debt. The fact that the population is declining is feared to lead to a shortage of labor in the future.

In 1945, Japan was crushed as one of the great losers of World War II – military, political and economic. Then it took less than ten years for the shattered industry to reach pre-war production levels again and the country’s rapid recovery hit the world with astonishment.

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Japan’s advance in the 1950s and 1960s is often called “miracle” but had several causes. The foundation was laid during the Meiji era (1868-1912) industrialization and already in the 1930s the country was a major exporter of industrial goods. It was also decisive that during the occupation of 1945–1952, the United States intervened with extensive assistance, implemented land reform and dissolved the large financial and industrial groups that had long dominated the economy. Several of the corporate groups were re-educated after the war and pushed for development, but then in the form of powerful multinational companies such as Mitsui, Mitsubishi and Matsushita.

Today’s business sector consists partly of gangs that have become known around the world, and partly of small, often family-owned companies. The economy has been characterized by a strong value community between business and the state. Trade and finance laws and other state regulations have been decided in close agreement with industry and the financial sector.

An important factor behind Japan’s strong growth has also been the high level of savings. Despite low interest rates, households have saved huge sums, which have helped to finance the large investments that have built up Japanese industry. The companies have also saved a large part of their profits and used them for investment. Domestic lending has also funded Japan’s sweltering government debt.

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The Korean War of 1950-1953 gave Japan’s first boost. After that, the wear and tear of the workers, an aggressive trade policy in conjunction with the large investments of companies and adaptation to the needs of the outside world contributed to giving Japan economic growth of over 10 percent in nearly two decades. Japan suffered more relief than many others in the global oil crisis of 1973. The country maintained annual growth of 4 to 6 percent until the late 1980s and appeared to be approaching the United States in economic strength. At the turn of the year 1989–1990, a steep race for the upgraded stock prices and property prices began. Then followed many years of low growth. Recovery periods alternated with new setbacks, and the aftermath of the financial crash was affecting Japan for over two decades.
Japan’s economic worries during the 1990s were exacerbated by an ever-increasing exchange rate of the country’s currency, the yen, and by economic problems in the western world. The outside world wanted or could not continue to buy Japanese products on a large scale. Unemployment rose and several large finance companies went bankrupt. The central government had to help with the remediation of the banks’ burdens of “bad loans” and the central bank introduced “zero interest” in 1998–1999 by lowering its policy rate to a zero-per- centage rate.

The next few years after the turn of the millennium saw signs that the economy was moving towards firmer land. Increased exports to China and the US key market contributed to the positive figures. The recovery was facilitated by pressured world market prices for raw materials such as oil. The privatization of Japan’s gigantic post office was also seen as part of the new venture.

The US mortgage crisis and the global financial crisis in its tracks had a negative impact on the economy. Exports decreased and in 2009 the economy shrank by more than 5 percent. The government tried to deal with tax cuts for households, loan guarantees for small businesses and tax relief for home loans. Towards the end of 2010, some improvement was noted, but the camp changed in one stroke in connection with the March 2011 earthquake and tsunami disaster. imports of natural gas after the triple disaster. Important car and electronics exports were hit hard when factories were forced to cancel distribution and transport due to the damage.

When the LDP took over the government in December 2012, the main objective was to get the economy in order. Prime Minister Abe and his government launched a new economic policy, “Abenomics”, with extensive stimulus measures in the form of infrastructure investments in combination with a more active central bank, including through huge support purchases of Japanese government bonds. In addition, structural reforms were planned, all in an attempt to get a positive spiral of consumption, investment and new jobs.

Abe’s program also included various deregulations, lower corporate taxes, attempts to reform agriculture, higher wages and measures to increase household purchasing power, restart nuclear power reactors and a new trade cooperation: the Trans-Pacific Partnership (TPP) – the proposed free trade and investment agreement between countries around the Pacific (see Foreign Trade).

The policy led to somewhat increasing growth, falling unemployment and, not least, that the country’s currency yen fell in value, which contributed to export companies’ revenues increasing. It was more difficult to stop the stubborn deflation (falling prices) which has lowered prices ever since the late 1990s and pushed down wages, which had a negative impact on the economy. The government has not succeeded in reaching the target of raising inflation to 2 percent. An increase in VAT from 5 to 8 percent in April 2014 meant that the Japanese reduced their consumption for a period.

But government finances were still hampered and hampered by a difficult problem: rising social costs as a result of the country getting more and more old people to take care of (see Social conditions). This has led to a continued large budget deficit, while the huge government debt, the highest among the world’s industrialized countries towards the end of the 2010s, continues to build on. However, since borrowing mainly takes place within the country, this is not considered to be an acute problem. As long as interest rates are low, the financing of central government debt continues, but the situation becomes more complicated if interest rates rise to more normal levels.

Other concerns are the low birth rates and the shrinking workforce that will support the growing proportion of older people in the population. In the autumn of 2015, the government of Abe supplemented its economic policy with attempts to encourage the Japanese to have more children with the goal of raising the birth rate to at least 1.8 percent. This would be done, among other things, by expanding childcare and reducing the high number of overtime hours (see also Labor Market). In order to tackle the problem of the shrinking labor force in the country, the government in 2018 passed amendments to immigration legislation in order to open to receive labor migrants. Foreign workers should be given the opportunity to obtain a five-year work visa for themselves and their families.

Economic growth remained at a moderate level towards the end of the 2010s. At the same time, however, the economy was adversely affected by the ongoing trade dispute between China and the United States, which affected Japan’s technology exports to China. However, the economy received some traction from investments ahead of the Tokyo 2020 Summer Olympics. An increase in VAT in the fall of 2019 was also expected to provide long-awaited revenue to the Treasury.


GDP per person

US $ 39,287 (2018)

Total GDP

US $ 4,970,916 million (2018)

GDP growth

0.8 percent (2018)

Agriculture’s share of GDP

1.2 percent (2017)

Manufacturing industry’s share of GDP

20.7 percent (2017)

The service sector’s share of GDP

69.1 percent (2017)


1.0 percent (2019)

Government debt’s share of GDP

237.1 percent (2018)



Triple Disasters 2011

The natural disaster that hit Japan in March 2011 had severe consequences and required around 20,000 lives. The quake, whose epicenter was in the Pacific Ocean about 40 miles northeast of Tokyo, was measured at 9.0 on the Richter scale. It was followed by a 10-20 meter high tsunami wave that extended over the northern parts of the country’s east coast, into the Tohoku region of the main island of Honshu.

The devastation was enormous: entire port cities were swept away, and many thousands of people were feared dead. At the same time, alarming reports came about the situation at the Fukushima Dai-ichi nuclear power plant, where explosions and fires occurred after the tsunami hit the plant. Within a couple of days, three of the six reactors in Fukushima Dai-ichi were hit by meltdowns, mainly due to the lack of cooling water. As a nuclear accident, Fukushima is only surpassed by Chernobyl.

Tens of thousands of people in the nuclear power plant’s vicinity were evacuated due to radioactive waste and hazardous levels of radiation. In total, the tsunami and earthquake damaged over one million buildings, of which about 125,000 were classified as completely destroyed and over a quarter of a million as “half-destroyed”.

Even in Tokyo, 25 miles further south, elevated levels of radioactive radiation were measured, but the capital was lucky with the wind direction during the most critical days.

The fight against all the effects of the triple disaster (quake, tsunami and nuclear accident) became chaotic. Despite all efforts, radioactive emissions were not prevented; radioactivity was detected in vegetables, milk and meat from the affected areas, in the drinking water and in the sea along the coast off the nuclear power plant, where the levels were very high.

The work to put a stop to the radiation and the leakage of radioactive water from the nuclear power plant has since become both difficult and lengthy, with a series of setbacks. Four of the Fukushima Dai-ichi reactors are too badly damaged to be used again and the other two should also be decommissioned. The dismantling of the entire plant is expected to take decades.

Prime Minister Kan described the disaster as the country’s most serious crisis since the Second World War. Hundreds of thousands of Japanese soldiers assisted in the relief efforts and the outside world sent rescue workers to the affected area. In the autumn of 2012, the official figure for the number of dead and missing persons was just over 18,500, while the number of injured persons was stated at just over 6,000. Almost all lives were extinguished by the tsunami, while the number of victims of the quake itself was relatively limited. The number of evacuees for another three years after the disaster (in March 2014) amounted to about 270,000.

Japan Economy Facts

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