Economy of Japan
The economy of Japan is one of the most advanced and dynamic economies in the world, characterized by its highly developed mixed economic system. Japan is known as a part of the East Asian model, a term used to describe a set of economic practices and strategies found in several countries in East Asia.
Historical Development
The economic history of Japan is marked by several significant periods, beginning with the Meiji Restoration in 1868, which initiated the modern era of economic growth and development in Imperial Japan. This era established the foundation of Japan's industrialization, transforming it from a primarily agricultural society into a modern industrial powerhouse.
Following World War II, Japan experienced an extraordinary period of economic growth known as the Japanese economic miracle, driven by technological advancements, high levels of investment in education and infrastructure, and a strong focus on export-oriented industrialization. However, the economy faced significant challenges during the Japanese asset price bubble of the late 1980s and early 1990s, which led to what is often referred to as the Lost Decades.
Economic Structure
Japan's economy is highly diversified and service-oriented. As of 2025, approximately 70% of its Gross Domestic Product (GDP) is derived from the service sector, with the industrial sector contributing most of the remainder. The Tokyo Stock Exchange is among the largest in the world, ranking fourth by market capitalization.
The country is also a leader in research and development, dedicating around 3.7% of GDP to R&D. This investment supports Japan's strong global position in technology and manufacturing. Japan has been home to several major corporations, with 38 of the Fortune Global 500 companies based there as of 2025.
Government and Economic Policy
The Ministry of Economy, Trade and Industry (METI) is the central body responsible for determining and implementing Japan's economic policies. The Minister of Economy, Trade and Industry is a key figure in the Cabinet of Japan, overseeing the nation's economic and industrial strategy.
The Bank of Japan plays a crucial role in managing monetary policy and maintaining economic stability. Historically, the bank has been instrumental in transitioning Japan from a closed economy to an open economy with a variable exchange rate, impacting global financial markets.
Social and Economic Challenges
Japan's economy faces several challenges, including an aging population, low birth rates, and a shrinking workforce, which exert pressure on social services and the pension system. Despite these challenges, Japan maintains a highly efficient social security system, absorbing around 23.5% of GDP.
The fluctuating value of the Japanese yen has also impacted Japan's nominal GDP as measured in American dollars, highlighting the volatility that can be associated with currency exchange rates.