Asia and Oceania

Japan
Last reviewed: 17 October 2008

Country information

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ECONOMY

Basic Economic Facts

GDP: US$ 4,381 billion (2007 est.)
GDP per head: US$ 34,296 (2007 est.)
Annual Growth: +2.1% (2007 est.)
Inflation: 0.0% (2007 est.)
Major Industries: High-tech electronic products, motor vehicles, office machinery, chemicals.
Major trading Partners: US, EU, China, Taiwan, South Korea, Saudi Arabia, Australia and Thailand
Aid & development: ODA disbursement in 2006 was US$ 7.8bn
Exchange rate: £1 = 236 Yen (2007 average)

The post-war Japanese economy experienced rapid growth, expanding ten-fold from 1955 to 1990 allowing living standards to catch up and surpass those of established Western economies. A number of factors, including low interest rates, banking deregulation and sudden appreciation of the yen, resulted in a stock market and real-estate bubble in the late 1980s. At the end of 1989 the bubble burst; since then stock prices have fallen as much as 75 percent and the value of commercial land in Tokyo is down 85 percent.

The economy then stagnated for more than a decade due to sluggish consumption and weak investment as excesses from the 1980s unwound and Japan adjusted to Asian industrialisation and globalisation. A particular hindrance was the lingering non-performing loan problem that prolonged the life of the weakest companies and hampered economic recovery. Through the 1990s, the Government utilised huge fiscal and monetary stimuli to try to kickstart the economy. During Prime Minister Koizumi's term in office, there was a greater focus on structural reforms in the corporate and public sectors to lift Japan out of its economic malaise, culminating in the passing of legislation to privatise Japan Post, by some measures the largest financial institution in the world.

The economy recovered strongly with its expansion lasting as long as the longest previous expansion, which ended in 1970. Booming exports and business investment and solid growth in private consumption initially drove this, but increasingly, the domestic private sector then took over from exports as the main driver for growth. The economy seemed to be close to achieving self-sustaining growth. But growth has slowed recently and the Government put together a stimulatory package, including a 1.8 trillion-yen supplementary budget, in late August. The Government has signalled that it might introduce further stimulatory measures because recent financial turmoil has hit confidence and reduced demand.

Japan has the world's fastest ageing population thanks to the highest life expectancy in the world and a low birth rate. As a result, the population has started to shrink. The working-age population is forecast to contract by almost 20 percent over the next two decades if current trends continue. This presents significant challenges - all too familiar in Europe - for the provision of pensions and healthcare in the future.