2021 Index of Economic Freedom

Japan

OVERALL SCORE74.1
WORLD RANK23
Rule of Law

Property Rights87.8

Judicial Effectiveness75.5

Government Integrity82.0

Government Size

Tax Burden67.8

Government Spending57.8

Fiscal Health67.5

Regulatory Efficiency

Business Freedom85.9

Labor Freedom79.0

Monetary Freedom85.1

Open Markets

Trade Freedom80.4

Investment Freedom60.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 126.3 million
  • GDP (PPP):
    • $5.7 trillion
    • 0.7% growth
    • 1.0% 5-year compound annual growth
    • $43,236 per capita
  • Unemployment:
    • 2.3%
  • Inflation (CPI):
    • 0.5%
  • FDI Inflow:
    • $14.6 billion

Japan’s economic freedom score is 74.1, making its economy the 23rd freest in the 2021 Index. Its overall score has increased by 0.8 point, primarily because of an improvement in fiscal health. Japan is ranked 6th among 40 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

Japan’s economy again occupies a perch in the middle ranks of the mostly free category. As has been the case since the inception of the Index in 1995, the main indicator holding the country back from greater economic freedom is government spending. Unfortunately, spending climbed once again (by more than 1 percent) in the 2020 budget.

IMPACT OF COVID-19: As of December 1, 2020, 2,109 deaths had been attributed to the pandemic in Japan, and the economy was forecast to contract by 5.3 percent for the year.

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Background

Japan has long been a global economic power. In September 2020, Shinzo Abe resigned as prime minister, having set a record as the longest-serving Japanese leader. Former Chief Cabinet Secretary Yoshihide Suga was elected to succeed Abe and serve the remainder of his term. Japan was scheduled to hold a general election in or before October 2021. Suga campaigned on maintaining Abe’s policies, including his signature “Abenomics” of progressive fiscal policy, loose monetary policy, and a variety of structural reforms. Suga’s economic priority will be mitigating the economic costs of the COVID-19 crisis. The public wants deeper reforms to remedy Japan’s endemic economic problems but fears the upheaval that such measures could cause.

Rule of LawView Methodology

Property Rights 87.8 Create a Graph using this measurement

Judicial Effectiveness 75.5 Create a Graph using this measurement

Government Integrity 82.0 Create a Graph using this measurement

Japan’s judiciary is independent and fair, enforces contracts effectively, and provides protection for 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 favoritism. The traditional practice of amakudari (granting retired government officials top positions within Japanese companies) is common in some sectors.

Government SizeView Methodology

The top individual income tax rate is 40.8 percent, and the top corporate tax rate is 23.9 percent, which local taxes and an enterprise tax can increase significantly. The overall tax burden equals 31.4 percent of total domestic income. Government spending has amounted to 37.5 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.8 percent of GDP. Public debt is equivalent to 237.4 percent of GDP.

Regulatory EfficiencyView Methodology

Dealing with construction permits and getting electricity are now less time-consuming. Legislation has revised the Women’s Empowerment Law, expanded reporting requirements, and added required disclosures. In 2019, government agriculture subsidies reached almost $48 billion; the state also funds many subsidies, tax credits, and other incentives to attract foreign investment.

Open MarketsView Methodology

Japan has 17 preferential trade agreements in force. The trade-weighted average tariff rate is 2.3 percent, and 393 nontariff measures are in effect. The government screens foreign investment in some sectors. The financial sector is competitive, but state involvement persists. The government has expanded the volume of concessional loans, which are interest free without collateral, primarily for small and medium-size firms affected by the pandemic.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Singapore89.70.3
2New Zealand83.9-0.2
3Australia82.4-0.2
4Taiwan78.61.5
5Malaysia74.4-0.3
6Japan74.10.8
7South Korea740.0
8Kazakhstan71.11.5
9Thailand69.70.3
10Indonesia66.9-0.3
11Brunei Darussalam66.60.0
12Philippines64.1-0.4
13Kyrgyz Republic63.70.8
14Mongolia62.46.5
15Fiji62.2-1.2
16Samoa61.9-0.2
17Vietnam61.72.9
18Vanuatu60.5-0.2
19Papua New Guinea58.90.5
20China58.4-1.1
21Uzbekistan58.31.1
22Bhutan58.3-3.8
23Tonga57.5-1.3
24Cambodia57.30.0
25Bangladesh 56.50.1
26India56.50.0
27Solomon Islands56.53.6
28Sri Lanka55.7-1.7
29Tajikistan55.23.0
30Burma55.21.2
31Maldives55.2-1.3
32Laos53.9-1.6
33Afghanistan53-1.7
34Pakistan51.7-3.1
35Nepal50.7-3.5
36Micronesia50.4-1.6
37Turkmenistan47.40.9
38Timor-Leste44.7-1.2
39Kiribati44.4-0.8
40North Korea5.21.0
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