Japan flag Japan: Economic and Political Overview

The economic context of Japan

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Japan, the world's third-largest economy, is highly exposed to external impacts due to its heavy reliance on exports. This vulnerability has manifested itself in recent years, as its economy has experienced periods of recession alongside the global economic slowdown. Likewise, the global economic crisis caused by the Covid-19 pandemic has had a significant impact (-4,6% in GDP growth in 2020). However, the country’s economy rebounded in 2021 (+1.7%) and 2022 (+1,7%), and is  estimated to growth 1.6% in 2023 (IMF, October 2022), on the back of strong public consumption and investment. Japan’s economy contracted slightly in Q3 2022, due mostly to a drop in net exports, raising concern that the recovery that had just begun was coming to an end. But the strength of import growth is a sign that domestic demand remains reasonably strong.
Looking ahead, real GDP growth should return to positive territory. A full unwinding of pandemic-related restrictions has unleashed pent-up demand for consumer spending. Unfortunately, high inflation is quickly eroding household purchasing power. As pent-up demand fades and the reality of weaker inflation-adjusted wages sets in, the economy will grow only modestly in 2023 (Deloitte Insights, 2023).

Japan has the highest debt-to-GDP ratio in the world: estimated at 262.5% in 2021 and 263.9% in 2022, it is expected to stabilise over the forecast horizon (261.1% in 2023 and 260.3% in 2024 according to the IMF). Public finances have been affected by the measures taken to contain the Covid-19-induced crisis (about 16% of GDP in 2020-2021), which included the Employment Adjustment Subsidy, cash benefits to SMEs and concessional loans. As a result, the general government deficit stood at 6.3% in 2021 (down from a record level of 9.2% one year earlier) and 7.3% in 2022. By the end of 2021, Kishida’s cabinet approved a larger-than-expected JPY 55.7 trillion fiscal stimulus package that includes more funding for universities and digitalization of rural areas, as well as financing to raise semiconductor manufacturing capacity, aimed at improving the country’s economic security. As the economy rebounds and the global situation normalizes, the IMF projects a deficit of 3.2% this year followed by a further decrease in 2024 (2.3%). Inflation was negative by 0.2% in 2021; nevertheless, inflationary pressures are building relatively quickly and the inflation reached 2% in 2022. The IMF expects the inflation rate to be reduced to 1.4% in 2023 and 1% in 2024.

Moving forward, budgetary consolidation will remain a key issue for the country as it tries to bring its debt levels under control. The demographic troubles faced by Japan are getting more serious. An ageing society causes a big challenge for the country, as the government’s expected spending on pensions and health care is set to keep on rising. Additionally, a declining birthrate leads to a significant decrease in the population, and as a result a decrease in the number of taxpayers. Japan’s working-age population has been declining for a few decades, but that has been offset by rising participation, helping in employment growth and maintaining a low unemployment rate. Elevated debt levels on business balance sheets could restrain employers’ ability to hire more and offer stronger wage gains. Unemployment was stable at 2.8% in 2021 but is expected to decrease marginally to 2.4% in 2023 and 2024.

In 2023, the country’s most immediate challenge will be to navigate the volatile international context, facing steep challenges against a backdrop of the persistent health and economic overhang of a global pandemic and a war in Europe, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.

Main Indicators 202020212022 (E)2023 (E)2024 (E)
GDP (billions USD) 5,048.795,005.544,233.544,409.744,526.48
GDP (Constant Prices, Annual % Change) -
GDP per Capita (USD) 40,11839,88333,82235,38536,492
General Government Balance (in % of GDP) -8.1-6.2-7.8-6.4-4.1
General Government Gross Debt (in % of GDP) 258.7255.4261.3258.2256.3
Inflation Rate (%) -0.0-
Unemployment Rate (% of the Labour Force)
Current Account (billions USD) 147.85197.3289.98131.75180.30
Current Account (in % of GDP)

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Even though Japan has some deposits of gold, magnesium, coal and silver, the country has very limited natural resources overall and, as a result, is highly dependent on imports to meet its raw material and energy needs. On the other hand, thanks to its large maritime area, the country is one of the world’s largest producers of fishing products. However, given that only 11% of Japan’s surface is suitable for cultivation, the agricultural sector is small in Japan. Tea and rice are the country’s two largest crops, though the sector as a whole is highly subsidised and protected. Agriculture contributes marginally to GDP (1%) and employs only 3% of the workforce.

The industrial sector is highly diversified, manufacturing products ranging from basic goods (such as steel and paper) to sophisticated technology. Japan dominates the automobile, robotics, biotechnology, nanotechnology and renewable energy sectors. Japan is home to several of the world's largest manufacturers of electronic products, which is why the country's industrial sector is often associated with technological sophistication. The country was the world’s third-largest producer of cars and the third-largest producer of ships in 2022. Its industrial sector represents 29% of GDP and employs nearly 25% of the workforce.

The service sector accounts for around 70% of GDP and employs over 72% of the workforce. Major services in Japan include banking, insurance, retailing, transportation and telecommunications. The country also has a significant tourism sector, which has seen substantial growth in recent years. Due to the crisis and the travel bans triggered by the Covid-19 pandemic, tourism has dropped to record levels (-87.1% y-o-y in 2020 – Japan National Tourism Organization). 2021 numbers were even lower, with only 213,063 foreign arrivals, despite the Olympic games that took place in Tokyo (where no foreign tourists were allowed to prevent the further spreading of the infection). The borders are now open and tourists are again making their way to Japan in 2023.

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook.  Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023, the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024 (International Monetary Fund - IMF, 2023). The impact of the 2022 world events appears to have affected both sides of most sectors and markets in this country for the third year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for agriculture, industry and service sectors.

Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 3.4 24.2 72.4
Value Added (in % of GDP) 1.0 29.0 69.5
Value Added (Annual % Change) -6.2 -4.3 -4.6

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.


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Indicator of Economic Freedom


The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

World Rank:
Regional Rank:

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation


Business environment ranking


The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

World Rank:

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024


Country Risk

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Latest Update: November 2023

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