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Spotlight On: Japan's Economy
Embassy of Japan, Washington, D.C.
11/8/2003

Japan has the second largest economy in the world in terms of Gross Domestic Product (GDP), next to the United States. As of 1999, the GDP of Japan and the United States totaled 44.5% of the World GDP. Japanís GDP per capita in 1999 was $34,500, one of the highest in the world. This economic scale was achieved largely due to high economic growth from 1955 to the late 1960s. For example, Japanís average annual growth rate in the 1960s was 10.39%, more than twice as much as those of Western nations. Although Japan maintained a relatively high rate of growth until the late 1980s (the average annual growth rate in the 80s was 3.77%), the pace of economic growth slowed in the early 1990s, when the ďbubble economyĒ collapsed.

Japanís free market economy is highly industrialized. As of 2000, primary industries (agriculture, forestry, and fisheries) make up only 1.3% of total GDP. On the other hand, secondary industries (manufacturing, mining, and construction) account for 27.9% and tertiary industries (ex. services, transportation, distribution, banks, and government services) make up 71.8%. The Japanese economy is efficient and competitive, in particular, in some manufacturing fields such as computer technology and automotive industries.

Japanís industrialized economy relies on such factors as a well-educated work force, high level of technology, high savings, and investment rates. Since Japan has few natural resources, Japan has to import most of the raw materials it needs to manufacture industrial products. Exports of industrial products help Japan earn the foreign currency needed to purchase raw materials for its economy. As of 1997, imports of raw materials such as foods and fuels make up about 40% of Japanís total imports. Exports of industrial products account for approximately 95%.

While Japan's long-term economic prospects are considered good, Japan is currently in its worst period of economic growth since the World War II. The Koizumi administration is committed to address economic issues such as non-performing loans and deflation, and to conduct regulatory and other structural reforms, in order to revive the Japanese economy.

As of 2000, Japan's exports amount to approximately $ 480 billion and its imports amount to about $375 billion. Japan's dependence ratios on foreign trade are 10.1% for its exports and 8.0% for its imports, respectively.

Since Japan has few natural resources, Japan has to import most of the raw materials it needs to manufacture industrial products. Exports of industrial products help Japan earn the foreign currency needed to purchase raw materials for its economy. As of 1997, imports of raw materials such as foods and fuels make up about 40% of Japanís total imports. Exports of industrial products account for approximately 95%.

Japan has had the worldís largest trade surplus since 1983, and the government has taken numerous measures to improve trade conditions involving imports to Japanese markets. There are myriad government websites and publications on trade between the United States and Japan.

Japan's outward direct investment grew during the 1980s. There were several factors behind this: Japanese manufacturers such as automobile companies shifted their production to North America and Europe, in order to alleviate trade friction and to avoid the disadvantage of the strong yen; and many companies, particularly electric and electronic goods manufacturers, moved their production to Southeast Asia and China in search of high-quality, low-cost labor. In the 1980s, a large part of Japan's direct foreign investment went to North America and Europe. Since the beginning of the 1990s, Japan's outward direct investment has repeatedly fluctuated. However, the ratio of investment in Asia has been rising since many companies have been trying to rationalize their business by transferring some types of production activity to Asian countries and focusing on producing high-technology-related products in Japan.

Foreign Direct Investment (FDI) inflows into Japan have surged in recent years, reaching a record $28.3 billion in FY2000, over five times the level in 1997. This steady increase of FDI is due primarily to three inter-related trends: globalization, the rapid pace of technological change, and deregulation and regulatory reforms in Japan. Since the Japanese market is in the midst of an historic restructuring and the Japanese government has been taking numerous measures to facilitate FDI in Japan, there is ample scope for continued growth in FDI inflows, and the recent surge may just be the start of a long-term trend.

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