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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.
The Covid-19 pandemic triggered a sharp contraction in 2020, with GDP shrinking by 4.2%. A recovery followed in 2021, with annual growth of 2.7%. Since then, growth has been slowing to 0.9% in 2022, 1.5% in 2023 and 0.1% in 2024. According to the International Monetary Fund’s April 2025 forecast, Japan’s GDP is expected to grow by 0.6% in 2025 and 2026. The IMF attributes this subdued outlook to external headwinds, notably U.S. tariffs on Japanese exports, which have dampened business sentiment and delayed investment decisions.
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. According to the IMF’s April 2025 data, after experiencing an inflation rate of 3.3% in 2023 and 2.7% in 2024, Japan’s inflation is projected to ease to 2.4% in 2025 and 1.7% in 2026. 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 economy remains predominantly service-oriented, with the services sector contributing approximately 71% to the nation’s GDP as of 2024. Key industries within this sector 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 27% of Japan’s GDP. Leveraging advanced technology, Japan is a leading manufacturer of consumer electronics, automobiles, optical media, and semiconductors. Notably, Japan’s automobile industry is the third-largest globally, with companies like Toyota, Honda, Nissan, and Mazda playing significant roles.
The agricultural sector, encompassing agriculture, forestry, and fishing, contributes approximately 1% to Japan’s GDP. Despite its small share, the sector remains vital for food security and rural employment.
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.
Japan Balance of Trade
In 2024, Japan’s total exports reached a record ¥107.09 tn (approximately $713 bn), marking a 6.2% increase from the previous year. This surge was driven by strong global demand for semiconductor manufacturing equipment, automobiles, and electronic components.
Despite the growth in exports, Japan recorded a trade deficit of ¥5.33 tn (around $34 bn) in 2024. However, this deficit represented a 44% reduction compared to the previous year, indicating an improvement in the trade balance.
According to Tendata, transport equipment remained Japan’s most significant export category, with vehicles (excluding railway and tramway stock) alone accounting for 21.3% of total exports, or $150.9 bn. Machinery, including nuclear reactors and industrial boilers, made up 17.8% of exports, followed closely by electrical and electronic equipment at 14.3%. Other notable export products included commodities not elsewhere classified and high-value optical, photographic, and technical instruments. A standout performer was semiconductor manufacturing equipment, which surged 27.2% to ¥4.5 tn, highlighting Japan’s key role in global tech supply chains.
In terms of export destinations, Asia continued to be Japan’s largest regional market, receiving ¥56.87 tn worth of goods, with exports to China increasing 6.2% to ¥18.87 tn. The United States remained Japan’s single largest national export partner, with a 5.1% increase in shipments reaching ¥21.3 tn. In contrast, exports to the European Union declined by 3.9% to ¥9.97 tn, largely due to weaker demand for automobiles and steel.
Imports increased by 1.8% in 2024 to reach ¥112.42 tn, marking the first annual rise after two consecutive years of decline.
Stock Exchanges and Capital Markets
The Tokyo Stock Exchange (TSE), part of Japan Exchange Group, is a leading global stock exchange. As of December 2024, the TSE listed 3,975 companies across its Prime, Standard, Growth, and TOKYO PRO Market segments, including six foreign firms.
The top five companies listed on the TSE in terms of market capitalization are automobile manufacturer Toyota Motor Corporation, bank holding Mitsubishi UFJ Financial, consumer electronics conglomerate Sony Corporation, multinational conglomerate Hitachi, and automation equipment manufacturer Keyence Corporation.
In 2024, the TSE experienced a significant influx of new listings, with 130 companies going public—the second-highest number in the past decade. Notably, approximately 40% of these new listings originated from regions outside of Tokyo, indicating a growing diversification in Japan’s capital markets.
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 early 2025, the BOJ held around ¥600 tn in JGBs, accounting for nearly half of the outstanding government bonds.
In January 2025, the BOJ raised its short-term policy interest rate to 0.5%, marking a shift from its long-standing ultra-low rate policy. This move impacted bond yields and investor strategies, signaling a gradual normalization of monetary policy.
Real Estate Market
Japan’s real estate market demonstrated resilience and adaptability amid evolving economic conditions in 2024. The residential sector experienced notable growth, particularly in urban centers, while the commercial sector saw increased activity driven by both domestic and foreign investment.
According to the Global Property Guide, in 2024, residential property prices in Japan continued their upward trajectory. The nationwide residential property price index increased by 4.32% in nominal terms and 0.64% when adjusted for inflation. This marks a consistent rise over the past few years, reflecting sustained demand for housing.
The Tokyo Metropolitan Area, encompassing Tokyo, Saitama, Kanagawa, and Chiba prefectures, saw a significant increase in property prices. In January 2025, the residential property price index in this region rose by 8.14% year-on-year, with an inflation-adjusted growth of 3.95%. Specifically, Tokyo experienced a 10.7% increase in home prices, or 6.42% after adjusting for inflation.
However, housing supply in the Tokyo Metropolitan Area showed a slight decline. The number of housing starts decreased by 0.4% year-on-year to 285,460 units in 2024, following a 5.2% drop in 2023. This reduction in new housing developments may contribute to the continued rise in property prices due to limited supply.
The commercial real estate sector remained active in 2024, with increased investment from both domestic and international investors. The market benefited from Japan’s economic recovery and favorable investment conditions. Notably, Tokyo’s property market experienced a significant boom, driven by low interest rates, a strong office-going culture post-COVID, rising tourism due to the weak yen, and financial incentives for companies to sell non-core assets.
Despite positive trends, challenges persist. Japan faces an oversupply of abandoned homes, known as “akiya,” totaling over 9 million as of 2023. This situation presents unique opportunities for foreign buyers seeking affordable properties, especially in rural areas.
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
