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Japan's Economy Fact sheet released by the Bureau of East Asian and Pacific Affairs U.S. Department of State, June 26, 2000

Japan's industrialized, free-market economy is the second largest in the world. Japan is the world's largest foreign aid donor, a major source of world capital, and a technology leader in many fields. Its economy is highly efficient and competitive in areas linked to international trade, but productivity is far lower in areas such as agriculture, distribution, and services. While the Japanese people enjoy a high standard of living, the lengthy economic slowdown in the 1990s and a rapidly aging population raise fears about future growth. Japan's nominal GDP in 1999 was $4.356 trillion (Economic Planning Agency, Japan); GDP per capita, $23,736 (1991 purchasing power parity in 1991 dollars; derived from OECD data).

With limited natural resources, Japan is highly dependent on imported raw materials, particularly petroleum and iron and aluminum ore. Less than 16% of the country's area is arable, and this land is intensively cultivated. The country's main agricultural products are rice, vegetables, fruits, milk, meat and silk. Farming comprises less than 10% of the total labor force. Japan's industries include machinery and equipment, metals and metal products, textiles, autos, chemicals and electrical and electronic equipment. Japan is a large net exporter of goods to the rest of the world; its major markets include the United States, Western Europe and other East Asian countries. While it is the largest foreign investor in Japan, the United States has had a bilateral merchandise trade deficit with Japan since the mid-1960s. The U.S. trade deficit with Japan was $73.9 billion in 1999. Strong U.S. economic growth combined with Japan's lackluster demand has led to an increase in the nominal bilateral deficit in recent years. As a percentage of U.S. GDP, however, the bilateral trade deficit peaked in the late 1980s.

The Japanese Government remains preoccupied by the country's protracted recession, the worst since World War II. After achieving one of the highest economic growth rates in the world from the 1960s through the 1980s, the Japanese economy slowed dramatically in the early 1990s, when the "bubble economy" collapsed. Although massive government fiscal stimulus spending and financial sector reforms helped revive the economy during the first half of 1999, growth tapered off during the second half of the year. For 2000, the economy is projected to grow at a rate of 0.9 percent (IMF). The U.S. continues to urge Japan to use all available tools to promote sustainable, domestic-demand led growth.

Future economic growth in Japan will be hampered by structural problems, including excessive regulation of the economy and the government's preference for market stability over competition. Japan remains a difficult market for new entrants due to government regulation, exclusionary private business practices and lax anti-trust enforcement. Many Japanese economic and business leaders have joined outsiders in calling for rapid deregulation, and deregulation initiatives have made progress in the financial, energy, distribution, and other sectors. Some Japanese politicians have recently voiced fears about deregulation's effects on employment and economic growth, however, prompting concerns about the government's commitment to long-term deregulation. Demographic trends will also complicate future economic growth, as Japan's rapidly aging population consumes an increasing share of economic output. Current projections indicate that roughly a third of the population will be 65 or over by 2020.

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