Economy of Japan

The Economy of Japan is a highly developed/advanced social market economy, often referred to as an East Asian model. It is the 4th-largest economy in the world by nominal GDP behind the United States, China, and Germany and the 4th-largest by purchasing power parity (PPP). According to the IMF, the country's per capita GDP (PPP) was at $54,184 (2024). The Nikkei 225 presents the monthly report of top blue chip equities on the Japan Exchange Group, which is the world's fifth-largest stock exchange by market capitalisation. In 2018, Japan was the world's fourth-largest importer and the fourth-largest exporter. It has the world's second-largest foreign-exchange reserves, worth $1.4 trillion. It ranks 5th on the Global Competitiveness Report. It ranks first in the world in the Economic Complexity Index. Japan is also the world's fourth-largest consumer market. Among OECD members, Japan has a highly efficient and strong social security system, which comprises roughly 23.5% of GDP. Japan is the world's largest creditor nation. Japan generally runs an annual trade surplus and has a considerable net international investment surplus. Japan has the third-largest financial assets in the world, valued at $12 trillion, or 8.6% of the global GDP total as of 2020. As of 2022, 47 of the Fortune Global 500 companies are based in Japan. The country is the third-largest in the world by total wealth. It spends around 3.30% of GDP on advance research and development across various sectors of the economy. Japan also had the world's second-largest economy by nominal GDP behind the United States. In 2010, it was surpassed by China. Japan is the world's 7th largest high-technology exporter. It ranks 3rd in the world by number of patent applications.

Top Sectors in Japan

Agriculture in Japan

The Japanese agricultural sector accounts for about 1.1% (2017) of the total country's GDP. Only 12% of Japan's land is suitable for cultivation. Due to this lack of arable land, a system of terraces is used to farm in small areas. This results in one of the world's highest levels of crop yields per unit area, with an overall agricultural self-sufficiency rate of about 50% on fewer than 56,000 kmÂ² (14 million acres) cultivated.

Industry in Japan

Japanese manufacturing and industry are very diversified, with a variety of advanced industries that are highly successful. Industry accounts for 30.1% (2017) of the nation's GDP. The country's manufacturing output is the third highest in the world. Japan enjoys high technological development in many fields, including consumer electronics, automobile manufacturing, semiconductor manufacturing, optical fibers, optoelectronics, optical media, facsimile and copy machines, and fermentation processes in food and biochemistry. However, many Japanese companies are facing emerging rivals from the United States, South Korea, and China.

Automobile Manufacturing in Japan

Japan is the third biggest producer of automobiles in the world. Toyota is currently the world's largest car maker, and the Japanese car makers Nissan, Honda, Suzuki, and Mazda are also among the largest car makers globally. By number, Japan is the world's largest exporter of cars as of 2021.

Mining and Petroleum Exploration in Japan

Japan's mining production has been minimal, and the country has very few mining deposits. However, massive deposits of rare earths have been found off the coast of Japan. In 2019, Japan was the 2nd largest world producer of iodine, 4th largest worldwide producer of bismuth, the world's 9th largest producer of sulfur, and the 10th largest producer of gypsum.

Tourism in Japan

In 2012, Japan was the fifth most visited country in Asia and the Pacific, with over 8.3 million tourists. In 2013, due to the weaker yen and easier visa requirements for southwest Asian countries, Japan received a record 11.25 million visitors, surpassing the government's projected goal of 10 million visitors. Some of the most popular places include the Shinjuku, Ginza, Shibuya, and Asakusa areas in Tokyo, and the cities of Osaka, Kobe, and Kyoto, as well as Himeji Castle. Hokkaido is also a popular winter destination with several ski resorts and luxury hotels. Japan's economy is less dependent on international tourism compared to other G7 countries and OECD countries in general.

Japan - Key Economic Indicators

Exports & Imports

(i) Exports: Leading exports include motor vehicles (around $200 billion USD in 2023), electronics, machinery, and chemical products (World Trade Organization). (ii) Imports: Japan relies on imports for raw materials, energy sources like oil and gas (around 60% of its energy needs), and some food products (World Trade Organization).

Infrastructure Development

Japan boasts a well-developed infrastructure network. (i) Roads: The total road length in Japan is extensive, exceeding 1.2 million kilometers as of 2023, with a mix of highways, expressways, and rural roads. (ii) Other Infrastructure: Japan also invests heavily in other infrastructure projects, including high-speed rail networks exceeding 2,700 kilometers, efficient public transportation systems in major cities, and robust telecommunications infrastructure with high internet penetration rates.

Fiscal Policy

Japan's fiscal policy aims to stimulate economic growth while managing a high public debt burden, currently around 264% of GDP. The government uses a combination of spending measures and tax adjustments to achieve these goals.

Monetary Policy

The Bank of Japan (BOJ) implements Japan's monetary policy. The BOJ recently raised interest rates for the first time in over a decade in July 2024 to combat rising inflation.

Trade Agreements

Japan actively participates in various trade agreements, expanding its export markets. Key agreements include those with the United States (estimated to be worth over $1.6 trillion USD in total trade in 2023), the European Union, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Environmental Regulations

Japan enforces strict environmental regulations to address pollution and promote sustainability. These regulations cover areas like air and water quality control (recent focus on reducing nitrogen oxide emissions), waste management (high recycling rates), and energy efficiency. Japan also aims to reduce its carbon footprint and invest in renewable energy sources, targeting a 46% reduction in greenhouse gas emissions by 2030.

Tax system

Capital gains tax: Capital gains in Japan are taxed at a rate of 20% for most assets, including stocks, bonds, and real estate.
Corporate tax rate: The national corporate tax rate in Japan is currently 23.2%, which is competitive compared to other developed nations.
Sales tax (consumption tax): Japan has a national consumption tax of 8%, with discussions ongoing about a potential increase.
Property tax: Property taxes in Japan vary depending on the location and type of property. There's an annual tax on property ownership and a separate fixed asset tax.
Payroll tax: A social security system in Japan is funded through payroll taxes. Both employers and employees contribute: (i) Employee contribution: Around 8%. (ii) Employer contribution: Around 14%.
Tax deductions and credits: Japan offers various tax deductions and credits to reduce tax liability. These can include deductions for: (i) Spousal income (ii) Medical expenses (ii) Dependent care costs (iv) Education expenses (limited).
Tax compliance: Japan boasts a high tax compliance rate due to a strict system and emphasis on social responsibility.
Tax burden: The overall tax burden in Japan is considered moderate compared to some European countries. However, a potential consumption tax hike could impact this.

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