2019 Index of Economic Freedom

Japan

overall score72.1
world rank30
Rule of Law

Property Rights84.1

Government Integrity78.0

Judicial Effectiveness68.5

Government Size

Government Spending55.0

Tax Burden68.2

Fiscal Health55.7

Regulatory Efficiency

Business Freedom80.5

Labor Freedom79.0

Monetary Freedom85.9

Open Markets

Trade Freedom80.0

Investment Freedom70.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 126.7 million
  • GDP (PPP):
    • $5.4 trillion
    • 1.7% growth
    • 1.3% 5-year compound annual growth
    • $42,832 per capita
  • Unemployment:
    • 2.8%
  • Inflation (CPI):
    • 0.5%
  • FDI Inflow:
    • $10.4 billion

Japan’s economic freedom score is 72.1, making its economy the 30th freest in the 2019 Index. Its overall score has decreased by 0.2 point, with a decline in scores for judicial effectiveness and trade freedom exceeding an improvement in fiscal health. Japan is ranked 8th among 43 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

“Abenomics” has contributed to a mild economic recovery that, if maintained until 2020, will be Japan’s longest period of economic recovery since the 1980s. The revitalization agenda combines bold monetary and flexible fiscal policies as well as structural reforms. Trade liberalization is also a goal, but it has been overshadowed by rising tensions in global commerce. Japan has one of the world’s heaviest government debt burdens. Political stability and a well-maintained rule of law strengthen its economic freedom.

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Background

A longtime global economic power and Western ally, Japan has had a history of revolving-door leadership in recent years. Prime Minister Shinzo Abe, in office since 2012 and elected to a historic third term in October 2017, has provided much-needed political stability but has been hampered by political scandals. The public wants deeper reforms to remedy Japan’s endemic economic problems but fears the upheaval that such measures would cause. The government’s “Abenomics” policy has made a dent in deflation, but demographic decline caused by a low birth rate and an aging, shrinking population poses a major long-term economic challenge. Security concerns include North Korea’s nuclear and missile threats and China’s claims of sovereignty in the East and South China Seas.

Rule of LawView Methodology

Property Rights 84.1 Create a Graph using this measurement

Government Integrity 78.0 Create a Graph using this measurement

Judicial Effectiveness 68.5 Create a Graph using this measurement

Japan’s judiciary is independent and fair. It enforces contracts and provides secure protection of real and intellectual property. Levels of corruption are low, but close relationships among companies, politicians, and government agencies foster an inwardly cooperative business climate conducive to corruption. The traditional practice of amakudari (granting retired government officials top positions within Japanese companies) is common in several sectors.

Government SizeView Methodology

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. The overall tax burden equals 30.7 percent of total domestic income. Over the past three years, government spending has amounted to 38.7 percent of the country’s output (GDP), and budget deficits have averaged 3.9 percent of GDP. Public debt is equivalent to 236.4 percent of GDP.

Regulatory EfficiencyView Methodology

The process for establishing a business is relatively streamlined, but bureaucracy is sometimes stifling. A propensity for lifetime employment guarantees and seniority-based wages impedes the development of a dynamic and flexible labor market. Although the government modified some energy subsidies in 2018, heavy subsidies continue in infant care, education, elderly care, and environmental protection.

Open MarketsView Methodology

The combined value of exports and imports is equal to 31.3 percent of GDP. The average applied tariff rate is 2.5 percent. As of June 30, 2018, according to the WTO, Japan had 381 nontariff measures in force. Japan has lagged behind other countries in pursuing bilateral trade agreements. The government screens foreign investment in some sectors. The financial sector is competitive, but state involvement persists.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong90.20.0
2Singapore89.40.6
3New Zealand84.40.2
4Australia80.90.0
5Taiwan77.30.7
6Malaysia 74-0.5
7South Korea72.3-1.5
8Japan72.1-0.2
9Macau710.1
10Thailand 68.31.2
11Indonesia65.81.6
12Kazakhstan65.4-3.7
13Azerbaijan65.41.1
14Brunei Darussalam65.10.9
15Philippines63.8-1.2
16Bhutan62.91.1
17Kyrgyz Republic 62.3-0.5
18Fiji62.20.2
19Samoa62.20.7
20China58.40.6
21Papua New Guinea58.42.7
22Cambodia57.8-0.9
23Tonga57.7-5.4
24Laos57.43.8
25Sri Lanka56.4-1.4
26Vanuatu56.4-13.1
27Bangladesh 55.60.5
28Tajikistan55.6-2.7
29Mongolia55.4-0.3
30Vietnam55.32.2
31India55.20.7
32Pakistan 550.6
33Solomon Islands54.6-2.9
34Nepal53.8-0.3
35Burma53.6-0.3
36Uzbekistan53.31.8
37Maldives53.22.1
38Micronesia51.9-0.4
39Afghanistan51.50.2
40Turkmenistan48.41.3
41Kiribati47.3-3.5
42Timor-Leste44.2-3.9
43North Korea5.90.1
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