Japan is a highly developed market economy and one of the most affluent countries in the world. Its economy grew rapidly between the 1960s to 1980s. Since the collapse of an asset price bubble in 1991, Japan has experienced a decades-long phase of stagnation, but a recent rise in inflation suggests that a turning point may have been reached.
Key facts about Japan’s economy
Japan ranked third worldwide in terms of GDP, which amounted to 4.24 trillion U.S. dollars in 2022. With a population of 125 million, the country also has one of the largest consumer markets.
Japan achieved rapid economic growth as a major exporter of manufactured goods in the post-war period. Although it is still renowned as a major producer of electric appliances and automobiles, its economy has become more service-oriented since the 1980s. The service sector makes up nearly 70 percent of the GDP. It is followed by the manufacturing sector at 29 percent.
Japan was the world’s third-largest importer and fifth-largest exporter in 2022. Due to the scarcity of arable land and natural resources, it is highly dependent on the import of fuels, raw materials, and food. Trade in goods and services accounted for over 37 percent of the GDP.
History and recent developments
Driven by technological progress, the expansion of industrial production, and an export-oriented growth strategy, Japan rapidly caught up with other advanced economies and emerged as the leading exporter and second-largest economy in the world in the 1970s. Excessive investment in land and stocks in the 1980s led to the formation of a speculative asset price bubble, which collapsed in 1991. This resulted in an economic recession of unprecedented length, coined the lost decade. Since then, Japan has struggled with stagnation for decades.
In 2013, a set of policies dubbed Abenomics, consisting of structural reform and fiscal and monetary expansion, was introduced to end deflation and drive growth. But Japan’s economy has only recently shown signs of a possible shift. In 2022 and 2023, inflation rose to levels unseen since the burst of the speculative bubble, above the central bank's inflation target of two percent. Whether this trend will continue also depends on the development of wages. As the rise in prices generally leads to a decline in household purchasing power, wages must rise sufficiently for consumption to continue to grow and a healthy level of inflation to be maintained.
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