2017 Index of Economic Freedom

Japan

overall score69.6
world rank40
Rule of Law

Property Rights89.4

Government Integrity86.1

Judicial Effectiveness73.8

Government Size

Government Spending52.3

Tax Burden68.5

Fiscal Health9.5

Regulatory Efficiency

Business Freedom82.3

Labor Freedom77.5

Monetary Freedom83.0

Open Markets

Trade Freedom82.6

Investment Freedom70.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 126.7 million
  • GDP (PPP):
    • $4.8 trillion
    • 0.5% growth
    • 0.6% 5-year compound annual growth
    • $38,054 per capita
  • Unemployment:
    • 3.3%
  • Inflation (CPI):
    • 0.8%
  • FDI Inflow:
    • $-2250.0 million
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Economic freedom in Japan is buttressed by political stability and a well-maintained rule of law. Overcoming entrenched economic stagnation, however, will require serious efforts at reform that challenge long-established economic and cultural interests. A large public debt, the highest in the developed world as a percentage of GDP, has taken a toll on private-sector economic activity, preventing more dynamic growth.

Disparities in productivity between different segments of the economy have continued to widen. Although its export-oriented economy has long benefited from global trade, Japan still maintains nontariff barriers that raise domestic prices and hurt overall efficiency. Japan also has lagged behind other countries in pursuing bilateral trade agreements, in part because of its unwillingness to expose certain sectors to foreign competition.

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Background

Prime Minister Shinzo Abe has energized Japan’s international security role by reducing constraints on the allowable roles and missions of its Self-Defense Forces. Japan and the United States have made sweeping changes in the bilateral alliance guidelines, enabling greater integrated security operations worldwide. Japan will now play a larger role in addressing international security challenges, including collective self-defense. Previously, for example, Japan was precluded from protecting U.S. forces deployed to defend Japan or even from transporting American munitions on Japanese ships.

Rule of LawView Methodology

Property Rights 89.4 Create a Graph using this measurement

Government Integrity 86.1 Create a Graph using this measurement

Judicial Effectiveness 73.8 Create a Graph using this measurement

Japan’s judiciary is independent and fair. It provides secure protection of real and intellectual property. The direct exchange of cash for favors from government officials is extremely rare. However, a web of close relationships among companies, politicians, government agencies, and other groups fosters a business climate that is conducive to corruption, most often seen in the rigging of bids on government public works projects.

Government SizeView Methodology

The top personal income tax rate is 40.8 percent. The top corporate tax rate is 23.9 percent, which local taxes and an enterprise tax can increase significantly. The overall tax burden equals 30.3 percent of total domestic income. Government spending has amounted to 39.9 percent of total output (GDP) over the past three years, and budget deficits have averaged 6.6 percent of GDP. Public debt is equivalent to 248.1 percent of GDP.

Regulatory EfficiencyView Methodology

The process for establishing a business is relatively streamlined, but bureaucracy is sometimes stifling, and structural problems discourage entrepreneurial growth. A propensity for lifetime employment guarantees and seniority-based wages impedes the development of a dynamic and flexible labor market. The government has continued its efforts to scale back institutionalized farm subsidies and liberalize electricity markets.

Open MarketsView Methodology

Trade is moderately important to Japan’s economy; the value of exports and imports taken together equals 37 percent of GDP. The average applied tariff rate is 1.2 percent. Many agricultural imports are restricted, and foreign investment in some sectors of the economy is screened by the government. The financial sector is competitive, but state involvement persists. Banks are well capitalized, and the share of nonperforming loans is low.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong89.81.2
2Singapore88.60.8
3New Zealand83.72.1
4Australia810.7
5Taiwan76.51.8
6South Korea74.32.6
7Malaysia 73.82.3
8Macau70.70.6
9Brunei Darussalam69.82.5
10Japan69.6-3.5
11Kazakhstan695.4
12Vanuatu67.46.6
13Thailand 66.22.3
14Philippines65.62.5
15Azerbaijan63.63.4
16Fiji63.44.6
17Tonga633.4
18Indonesia61.92.5
19Kyrgyz Republic 61.11.5
20Cambodia59.51.6
21Bhutan58.4-1.1
22Samoa58.4-5.1
23Tajikistan58.26.9
24China57.45.4
25Sri Lanka57.4-2.5
26Nepal55.14.2
27Solomon Islands558.0
28Bangladesh 551.7
29Mongolia54.8-4.6
30Micronesia54.12.3
31Laos544.2
32Pakistan 52.8-3.1
33India52.6-3.6
34Burma52.53.8
35Vietnam52.4-1.6
36Uzbekistan52.36.3
37Papua New Guinea50.9-2.3
38Kiribati50.94.7
39Maldives50.3-3.6
40Afghanistan48.9N/A
41Turkmenistan47.45.5
42Timor-Leste46.30.5
43North Korea4.92.6
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