U.S. State Department Geographic Bureaus: East Asia and Pacific Bureau

Japan's Economy

Fact sheet released by the Bureau of East Asian and Pacific Affairs,
U.S. Department of State, July 31, 1997.

Blue Bar rule

Japan's industrialized, free-market economy is the world's second largest. Japan is the world's largest foreign aid donor, a major source of world capital, and a technology leader in many fields. Its economy is highly efficient and competitive in areas linked to international trade, and provides the Japanese people with a high standard of living. Japan's GDP in 1995 was $4.7 trillion; its per capita GDP was $36,863.

Japan has only limited natural resources, including mineral deposits and fish, and is highly dependent on imported raw materials, particularly petroleum and iron and aluminum ore. Less than 16% of the country's area is arable, and this land is intensively cultivated. The country's main agricultural products are rice, vegetables, fruits, milk, meat and silk. Farming, however, comprises less than 10% of the total labor force. Japan's industries include machinery and equipment, metals and metal products, textiles, autos, chemicals and electrical and electronic equipment.

After achieving one of the highest economic growth rates in the world during the 1970s, and sustaining it through most of the 1980s, the Japanese economy slowed dramatically in the early 1990s, when the "bubble economy" collapsed. Future economic growth in Japan will be hampered by major structural problems, including excessive regulation of the economy and the government's belief that market stability takes precedence over competition. Japanese economic and business leaders have joined outsiders in calling for rapid deregulation, and a deregulation plan was announced by the government in 1996.

Demographic trends will also complicate future economic growth, as Japan's rapidly aging population consumes an ever increasing share of economic output. Current projections reveal that a quarter of the population will be 65 or over by 2025, and will consume more than a quarter of GDP.

Japan is a large net exporter of goods to the rest of the world; its major markets include the United States, Western Europe and developing countries. While it is the largest foreign investor in Japan, the United States has had a bilateral merchandise trade deficit with Japan since the mid-1960s. The U.S. trade deficit has decreased in recent years, but Japan remains a difficult market for new entrants due to government regulation, exclusionary private business practices and lax anti-trust enforcement.

Domestic demand in Japan has traditionally been weak. In the wake of the economic downturn in the early 1990s, many firms experienced substantial over-capacity, driving down private investment. Banks continue to struggle with a large number of bad loans made during the 1980s, particularly in the real estate sector. The government has encountered heavy opposition to the use of public funds to bail out failed out financial institutions.

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Blue Bar rule

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