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Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Japan, the world's third-largest economy, is highly exposed to external impacts due to its heavy reliance on exports. This vulnerability has manifested itself in recent years, as its economy has experienced periods of recession alongside the global economic slowdown. Likewise, the global economic crisis caused by the Covid-19 pandemic has had a significant impact (-4,6% in GDP growth in 2020). However, the country’s economy rebounded in 2021 (+1.7%) and 2022 (+1,7%), and is  estimated to growth 1.6% in 2023 (IMF, October 2022), on the back of strong public consumption and investment. Japan’s economy contracted slightly in Q3 2022, due mostly to a drop in net exports, raising concern that the recovery that had just begun was coming to an end. But the strength of import growth is a sign that domestic demand remains reasonably strong.
Looking ahead, real GDP growth should return to positive territory. A full unwinding of pandemic-related restrictions has unleashed pent-up demand for consumer spending. Unfortunately, high inflation is quickly eroding household purchasing power. As pent-up demand fades and the reality of weaker inflation-adjusted wages sets in, the economy will grow only modestly in 2023 (Deloitte Insights, 2023).

Japan has the highest debt-to-GDP ratio in the world: estimated at 262.5% in 2021 and 263.9% in 2022, it is expected to stabilise over the forecast horizon (261.1% in 2023 and 260.3% in 2024 according to the IMF). Public finances have been affected by the measures taken to contain the Covid-19-induced crisis (about 16% of GDP in 2020-2021), which included the Employment Adjustment Subsidy, cash benefits to SMEs and concessional loans. As a result, the general government deficit stood at 6.3% in 2021 (down from a record level of 9.2% one year earlier) and 7.3% in 2022. By the end of 2021, Kishida’s cabinet approved a larger-than-expected JPY 55.7 trillion fiscal stimulus package that includes more funding for universities and digitalization of rural areas, as well as financing to raise semiconductor manufacturing capacity, aimed at improving the country’s economic security. As the economy rebounds and the global situation normalizes, the IMF projects a deficit of 3.2% this year followed by a further decrease in 2024 (2.3%). Inflation was negative by 0.2% in 2021; nevertheless, inflationary pressures are building relatively quickly and the inflation reached 2% in 2022. The IMF expects the inflation rate to be reduced to 1.4% in 2023 and 1% in 2024.

Moving forward, budgetary consolidation will remain a key issue for the country as it tries to bring its debt levels under control. The demographic troubles faced by Japan are getting more serious. An ageing society causes a big challenge for the country, as the government’s expected spending on pensions and health care is set to keep on rising. Additionally, a declining birthrate leads to a significant decrease in the population, and as a result a decrease in the number of taxpayers. Japan’s working-age population has been declining for a few decades, but that has been offset by rising participation, helping in employment growth and maintaining a low unemployment rate. Elevated debt levels on business balance sheets could restrain employers’ ability to hire more and offer stronger wage gains. Unemployment was stable at 2.8% in 2021 but is expected to decrease marginally to 2.4% in 2023 and 2024.

In 2023, the country’s most immediate challenge will be to navigate the volatile international context, facing steep challenges against a backdrop of the persistent health and economic overhang of a global pandemic and a war in Europe, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.

Main Indicators 202020212022 (E)2023 (E)2024 (E)
GDP (billions USD) 5,048.795,005.544,233.544,409.744,526.48
GDP (Constant Prices, Annual % Change) -
GDP per Capita (USD) 40,11839,88333,82235,38536,492
General Government Balance (in % of GDP) -8.1-6.2-7.8-6.4-4.1
General Government Gross Debt (in % of GDP) 258.7255.4261.3258.2256.3
Inflation Rate (%) -0.0-
Unemployment Rate (% of the Labour Force)
Current Account (billions USD) 147.85197.3289.98131.75180.30
Current Account (in % of GDP)

Source: IMF – World Economic Outlook Database , October 2021

Country Risk

See the country risk analysis provided by La Coface.



Main Sectors of Industry

Even though Japan has some deposits of gold, magnesium, coal and silver, the country has very limited natural resources overall and, as a result, is highly dependent on imports to meet its raw material and energy needs. On the other hand, thanks to its large maritime area, the country is one of the world’s largest producers of fishing products. However, given that only 11% of Japan’s surface is suitable for cultivation, the agricultural sector is small in Japan. Tea and rice are the country’s two largest crops, though the sector as a whole is highly subsidised and protected. Agriculture contributes marginally to GDP (1%) and employs only 3% of the workforce.

The industrial sector is highly diversified, manufacturing products ranging from basic goods (such as steel and paper) to sophisticated technology. Japan dominates the automobile, robotics, biotechnology, nanotechnology and renewable energy sectors. Japan is home to several of the world's largest manufacturers of electronic products, which is why the country's industrial sector is often associated with technological sophistication. The country was the world’s third-largest producer of cars and the third-largest producer of ships in 2022. Its industrial sector represents 29% of GDP and employs nearly 25% of the workforce.

The service sector accounts for around 70% of GDP and employs over 72% of the workforce. Major services in Japan include banking, insurance, retailing, transportation and telecommunications. The country also has a significant tourism sector, which has seen substantial growth in recent years. Due to the crisis and the travel bans triggered by the Covid-19 pandemic, tourism has dropped to record levels (-87.1% y-o-y in 2020 – Japan National Tourism Organization). 2021 numbers were even lower, with only 213,063 foreign arrivals, despite the Olympic games that took place in Tokyo (where no foreign tourists were allowed to prevent the further spreading of the infection). The borders are now open and tourists are again making their way to Japan in 2023.

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook.  Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023, the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024 (International Monetary Fund - IMF, 2023). The impact of the 2022 world events appears to have affected both sides of most sectors and markets in this country for the third year in a row - demand disruptions having run up against supply problems - making the short-term outlook uncertain for agriculture, industry and service sectors.

Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 3.4 24.2 72.4
Value Added (in % of GDP) 1.0 29.0 69.5
Value Added (Annual % Change) -6.2 -4.3 -4.6

Source: World Bank - Latest available data.

Monetary Indicators 20162017201820192020
Japanese Yen (JPY) - Average Annual Exchange Rate For 1 USD 108.79112.17110.42109.00106.77

Source: World Bank - Latest available data.



Foreign Trade

Foreign trade is an essential element of the Japanese economy, but the country is not fully open and imposes extensive non-tariff barriers, especially in the agricultural sector. Japan is the world's 5th largest exporter and 4th largest importer of goods, and foreign trade accounts for 37% of the country's GDP (World Bank, 2023). Japan mainly exports motor vehicles (18% of all exports) being the second exporter of cars worldwide, machinery (19%), electrical, electronic equipment (16%), commodities (6.4%), optical, photo, technical, medical apparatus (5.7%) and iron and steel (4%). The country's main imports include Mineral fuels, petroleum oils and distillation products (20%), electrical, electronic equipment (15%), Machinery (9.2%), pharmaceutical products (4.8%) and ores, slash and gas (4.5%).

Japan’s main partners are China (23%), the United States (19%), South Korea (7.5%), Hong Kong (5%), and Thailand (4.7%). The country mainly imports from China (25%), the U.S. (11%), Australia (7.1%), South Korea (4.3%) and Saudi Arabia (3.7%). Japan is the EU’s second-biggest trading partner in Asia after China, and together they both account for about a quarter of the world's GDP. The two parties signed an Economic Partnership Agreement, which entered into force in 2019. Moreover, Japan signed the Regional Comprehensive Economic Partnership (RCEP), arguably the largest free trade agreement in history (its signatories include China, Australia, South Korea, etc., cumulating about 30% of global GDP). The RCEP agreement entered into force on 1 January 2022.

The country traditionally has a large trade surplus; however, in recent years the balance turned null. That was mainly due to plummeting shipments to China and regional markets, as the global pandemic-induced crisis took its toll on the trade-reliant economy. According to WTO, Japan's exports of goods reached USD 756 billion (+18% year-on-year) in 2021, while imports amounted to USD 769 billion (+21% y-o-y). Concerning the service sector, exports decreased 23% to USD 164 billion, whereas imports lost 10% (USD 205.2 billion).

Foreign Trade Values 20172018201920202021
Imports of Goods (million USD) 671,434748,488720,957635,460768,976
Exports of Goods (million USD) 698,367738,143705,564641,319756,032
Imports of Services (million USD) 190,822201,377204,384182,711207,337
Exports of Services (million USD) 181,599189,404202,891156,351167,851

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20172018201920202021
Foreign Trade (in % of GDP) 34.436.635.231.437.4
Trade Balance (million USD) 43,83610,5871,36126,64715,878
Trade Balance (Including Service) (million USD) 37,6361,405-8,615-7,598-22,513
Imports of Goods and Services (Annual % Change)
Exports of Goods and Services (Annual % Change) 6.63.8-1.5-11.811.8
Imports of Goods and Services (in % of GDP) 16.818.317.715.819.0
Exports of Goods and Services (in % of GDP) 17.618.317.415.618.4

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20222023 (e)2024 (e)2025 (e)2026 (e)
Volume of exports of goods and services (Annual % change)
Volume of imports of goods and services (Annual % change)

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

International Economic Cooperation
Japan is a member of the following international economic organisations: Asia-Pacific Economic Cooperation (APEC), Association of Southeast Asian Nations (dialogue partner of ASEAN Plus Three), G-5, G-7, G-8, G-10, G-20, IMF, OECD, among others. For the full list of economic and other international organisations in which participates Japan click here. International organisation membership of Japan is also outlined here.
Free Trade Agreements
Japan is a member of Regional Comprehensive Economic Partnership (RCEP) signed on 15 November 2020. The complete and up-to-date list of Free Trade Agreements signed by Japan can be consulted here.

Main Partner Countries

Main Customers
(% of Exports)
China 19.4%
United States 18.7%
South Korea 7.2%
Hong Kong SAR, China 4.4%
Thailand 4.3%
See More Countries 45.9%
Main Suppliers
(% of Imports)
China 21.0%
United States 10.1%
Australia 9.8%
United Arab Emirates 5.1%
Saudi Arabia 4.7%
See More Countries 49.2%

Source: Comtrade, Latest Available Data



Political Outline

Current Political Leaders
Emperor: Naruhito (since 1 May 2019); succeeded his father who abdicated on 30 April 2019
Prime Minister: Fumio KISHIDA (since 4 October 2021)
Next Election Dates
House of Representatives: October 2025
House of Councillors: July 2025
Current Political Context
Prime Minister Fumio Kishida of the Liberal Democratic Party (LDP) dissolved the lower house of Japan's parliament on 14 October 2021. The elections held at the end of the month saw the ruling party retaining its majority, resulting in the re-election of Kishida as Prime Minister on 10 November 2021 by the lower house with 297 votes against 108 for his opponent Yukio Edano, and in the upper house (141 vs. 60).

The Japanese government is concerned about the intensification of regional security imbalances, especially regarding China’s growing assertiveness: Japan identified the situation around Taiwan as a national security threat, with some representatives of the LDP party explicitly mentioning that a ”major incident” over Taiwan would trigger the deployment of the Self-Defense Forces (SDF).

Meanwhile, Kishida announced a series of measures under his “new capitalism” policy focusing on wealth redistribution and economic growth, as well as supporting supply chain resilience for critical goods (i.e. semiconductors and pharmaceuticals) and facilitating R&D initiatives in the technological sector.

Despite a fall in public support due to the Liberal Democratic Party's links to a religious group, the prime minister, Kishida Fumio, retains sufficient political control because of the opposition parties' weakness and a lack of challengers within the ruling party. However, he will face growing pressure to enact policies to boost wage growth and stimulate the economy in 2023. He will pursue the course originally set by Abe Shinzo with the stimulation of the economy and the adoption of a more active defence policy, including reforming the pacifist constitution. His plan includes an effort to shift income distribution in favour of middle-class households and boost investment in workers.

Facing a hostile domestic climate, Kishida heads into 2023 with diminished political capital but could be banking on a strong performance on the international stage to win support at home.

Main Political Parties
- The Liberal Democratic Party (LDP): centre-right, conservative, nationalist, liberal, populist
- The Democratic Party of Japan (CDP): centre to centre-right, liberal
- Komeito (NK): centre-right, conservative, pacifist, in coalition with the LDP
- Japanese Communist Party (JPC): left-wing to far-left, socialist; more than doubled its representation in the last election
- Japan Innovation Party (Ishin): conservative, right-wing, populist
- Democratic Party for the People (DPP): centre to centre-right
- Reiwa Shinsengumi: left-wing, populist and progressive
- Social Democratic Party (SDP): centre-left to left-wing, social-democratic
- NHK Party: populist
- Constitutional Democratic Party: centre-left to left-wing, liberal, pacifist; opposition party
- Japan Restoration Party (JRP): right-wing to far-right, nationalist, populist; third largest force, but is slowly losing representation
- Liberal Party: centre, centre-left
Executive Power
The head of State is the Emperor and the role is largely ceremonial. The leader of the majority party or leader of the majority coalition in the parliament (House of Representatives) is designated as the Prime Minister for a four-year term. The Prime Minister is the Head of the Government and enjoys executive powers, which include implementation of the law and running of day-to-day affairs. The Cabinet is appointed by the Prime Minister.
Legislative Power
The legislature in Japan is bicameral. The parliament, called National Diet, consists of the House of Councillors (the upper house) and the House of Representatives (the lower house). The House of Councillors contains 242 members, elected through a popular vote for six-year terms, with half of the membership being renewed every three years. The House of Representatives contains 465 members, elected through a popular vote for four-year terms. The Constitution of Japan states that the nation's 'highest organ of state power' is the National Diet. The executive branch of government is directly or indirectly dependent on the support of the National Diet, which is often expressed through a vote of confidence.


COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For the general overview of the key economic policy responses to the COVID-19 pandemic (fiscal, monetary and macroeconomic) undertaken by the government of Japan, please consult the country's dedicated section in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.