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- GDP (PPP):
- $4.8 trillion
- -0.1% growth
- 1.5% 5-year compound annual growth
- $37,390 per capita
- Inflation (CPI):
- FDI Inflow:
The Japanese economy benefits from political and social stability and efficiently run institutions. The rule of law is firmly respected and supported by an effective judicial framework and a relatively low level of perceived corruption. The need for economic reforms is apparent following decades of stagnation and despite relatively high levels of income.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 73.1 (down 0.2 point)
- Economic Freedom Status: Mostly Free
- Global Ranking: 22nd
- Regional Ranking: 6th in the Asia–Pacific Region
- Notable Successes: Rule of Law and Trade Freedom
- Concerns: Management of Public Finance and Financial Freedom
- Overall Score Change Since 2012: +1.5
A monetary policy aimed at preserving low interest rates has reduced any acute concern over Japan’s large debt burden, but it has also limited the political motivation to implement urgently needed fiscal reform. Privatization of Japan Post, the country’s largest financial institution by assets, has moved forward with an initial public offering made in 2015.
Prime Minister Shinzo Abe’s Liberal Democratic Party has reversed a 13-year trend of steadily decreasing defense spending, has pushed forward on collective self-defense, and has made an issue of Chinese assertiveness near the Japanese-controlled Senkaku Islands. However, Abe has failed to generate the international confidence necessary to win support for defense reforms that would allow Japan a larger regional role. Abe has taken preliminary steps toward structural economic reform as part of his “Abenomics” plan to pull Japan from a two-decade economic slump, but he faces significant resistance from entrenched special interests.
The direct exchange of cash for favors from government officials in Japan is extremely rare. A web of close relationships among companies, politicians, government agencies, and other groups fosters an inwardly cooperative business climate conducive to corruption, most often seen in the rigging of bids on government public works projects. The judiciary is independent and provides secure protection of real and intellectual property.
The top personal income tax rate is 40.8 percent. The top corporate rate is 23.9 percent, which local taxes and an enterprise tax can increase significantly. Other taxes include a value-added tax and an estate tax. The overall tax burden equals 30.3 percent of total domestic income. Government spending amounts to 42.3 percent of GDP, and budget deficits are around 8 percent of GDP. Public debt is over twice the size of the economy.
With no minimum capital required, business formation takes less than 10 procedures, but dynamic entrepreneurial growth is discouraged by lingering regulatory rigidities. A propensity for lifetime-employment guarantees and seniority-based wages hurts productivity and impedes development of a more flexible labor market. A government effort to scale back institutionalized farm subsidies has encountered stiff political resistance.
Japan has a 1.2 percent average tariff rate. Imports of many agricultural products are restricted. The government screens investments in several sectors of the economy, including agriculture and telecommunications. The banking sector is competitive but lacks dynamic growth. Japan Post (the holding company for the post office, postal bank, and postal-insurance company) has distorted the financial sector.