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After the return of independence in 1952, the Japan economy started changing and growing. The post-World War II economic transformation began with substantial government support, leveraging a skilled workforce, high domestic savings, and technology advancements. This led Japan to become a leader in electronics, automotive, and other high-tech sectors.
After fighting deflation for over two decades, former Prime Minister Shinzo Abe launched a three-pronged approach to revitalise the economy in 2013, called “Abenomics”. This refers to a set of fiscal and monetary policies that combine fiscal stimulus, monetary easing, and structural reform. Successive administrations have continued similar policies.
Japan’s economy, already stagnating, was severely affected by the Covid-19 pandemic, with GDP contracting by 4.6% in 2020 but rebounding to 1.7% in 2021.
Growth was 1.1% in 2022 and 1.9% in 2023. However, the International Monetary Fund (IMF) now projects slower growth: 0.3% for 2024 and 1.1% for 2025.
Japan GDP Annual Growth Rate (in %)
Currency and Central Bank
The Japanese yen (JPY), symbolized as “¥,” is the official currency of Japan and ranks as the third-most-traded currency globally, following the U.S. dollar and the euro.
The Bank of Japan (BOJ), also referred to as Nichigin, is the central bank of Japan. It was established in 1882 and serves as the nation’s central bank, overseeing monetary policy, issuing currency, and maintaining financial system stability.
In recent years, the BOJ has implemented various measures to address economic challenges, including prolonged deflation and sluggish growth.
The BOJ’s monetary policy continues to focus on achieving a 2% inflation target through measures such as yield curve control and asset purchases. However, the bank faces challenges, including a weakening yen and global economic uncertainties, which influence its policy decisions.
Japan Economy: Inflation (in %)
Japan had one of the lowest inflation rates worldwide, but times are changing. The IMF’s October 2024 data reflects the changing inflation landscape. After experiencing an inflation rate of 3.3% in 2023, Japan’s inflation is projected to ease slightly, with the IMF forecasting 2.2% for 2024 and 2.1% for 2025.
These figures indicate a gradual return to lower inflation levels, though Japan’s rate remains above its long-term historical averages.
Industry and Trade
Japan’s services sector remains the largest, contributing approximately 70% to the nation’s GDP. Key industries include banking, real estate, retail, insurance, telecommunications, and transportation. Prominent Japanese firms such as SoftBank, Nomura, Mitsubishi Estate, AEON, and Japan Airlines are among the world’s largest companies.
The industrial sector accounts for about 29% of Japan’s GDP. Leveraging advanced technology, Japan is a leading manufacturer of consumer electronics, automobiles, optical media, and semiconductors.
To accelerate digitalization, the government established the Digital Agency in 2021, aiming to modernize the public sector and incentivize private sector digital transformation through tax benefits.
In 2023, Japan’s total exports were valued at approximately $798.25 bn, ranking it as the world’s fifth-largest exporter, according to Statista. Major exports include transport equipment (notably motor vehicles and parts), machinery, electrical machinery, and various manufactured goods. The United States and China are Japan’s main export partners.
Japan Balance of Trade
As the world’s sixth-largest importer, Japan’s imports in 2023 totaled around $785.86 bn. The country primarily sources mineral fuels (such as coal and LNG), electrical machinery, and chemicals. Key import partners include China, Australia, and the United States
Stock Exchanges and Capital Markets
The Tokyo Stock Exchange (TSE), part of Japan Exchange Group, is a leading global stock exchange. As of September 2024, the TSE listed 3,953 companies, with a combined market capitalization of approximately ¥973.4 tn (about $6.93 tn).
The top five companies listed on the TSE in terms of market capitalization are automobile manufacturer Toyota Motor Corporation, bank holding Mitsubishi UFJ Financial, multinational conglomerate Hitachi, consumer electronics conglomerate Sony Corporation, and automation equipment manufacturer Keyence Corporation.
The Nikkei 225 or the Nikkei Stock Average is a price-weighted index, commonly used for the TSE, along with the Tokyo Stock Price Index or TOPIX.
Bond Market
Japan’s bond market, valued at approximately $9 tn, is one of the world’s largest. The Ministry of Finance (MOF) oversees the issuance of Japanese Government Bonds (JGBs), which are pivotal in financing the nation’s public debt.
The Bank of Japan plays a significant role in the bond market through its asset purchase programs. As of October 31, 2024, the BOJ held a substantial portion of outstanding JGBs, reflecting its ongoing monetary policy measures.
The BOJ’s July 2024 interest rate hike to 0.25% marked a shift from its long-standing ultra-low rate policy, impacting bond yields and investor strategies.
Real Estate Market
Japan’s real estate market has demonstrated resilience and adaptability amid evolving economic conditions. In 2023, the market experienced a 27% surge in investment, primarily driven by domestic investors.
The residential real estate market has shown promising growth. In the first quarter of 2024, the nationwide residential property price index increased by 2.65% year-on-year, following a 1.96% rise in Q4 2023. This upward trend reflects sustained demand for housing, particularly in urban centers like Tokyo, where apartment prices have surged by 30% over the past five years.
The commercial real estate sector has also been active. Despite positive trends, challenges persist. Japan faces an oversupply of abandoned homes, known as “akiyas,” totaling over 9 mn as of 2023. This situation presents unique opportunities for foreign buyers seeking affordable properties.
Foreigners and foreign companies can own real estate in Japan, purchase real estate without restrictions regardless of real estate type, and trade real estate without public notice of transactions.
Japan Housing Index (in %)
Editorial Note:
This article was written with the assistance of AI. A human editor reviewed and refined the text for accuracy and quality before publication.
Source of charts: tradingeconomics.com
