JAPAN – ECONOMICS

On this page:

• Summary
• Economy and GDP
• Trade Policies and trade with Australia

Summary

Japan is the world’s fourth largest economy (4.232 trillion in 2022). Japan has a highly service-dominated economy, which contributes approximately 70% of GDP, with most of the remainder coming from the industrial sector. The automobile manufacturing industry, which is the second largest in the world, dominates the industrial sector, with Toyota being the world’s largest manufacturer of cars.

Japan’s economy was devastated at the end of World War II; however, recovery was relatively quick, and from the 1960s to the 1980s Japan enjoyed good economic growth. The 1990s was a period of recession known as the ‘lost decade’, following the collapse of the so-called ‘economic bubble’ of the 1980s. Since the turn of the century, Japan’s economic recovery efforts have been hampered by a global recession, an earthquake and a tsunami.

This video gives a good overview of Japan’s economy:

Economy and GDP

Following the bursting of its economic bubble in the early 1990s, Japan experienced many years of deflation and low economic growth. The second Abe administration, which took office in 2012, attempted to revive the economy through aggressive monetary policy, flexible fiscal policy and a strategy for growth − the three pillars of ‘Abenomics’.

Yet Japan’s multiple structural challenges remain. These include population decline, societal ageing, weak productivity growth and mounting public debt.

Japan’s economy bounced back well from the COVID-19 pandemic. A surge in inbound tourism has led to 6 per cent growth rates in the second half of 2023, bringing Japan’s GDP back to pre-COVID levels. However, this has masked weak domestic consumption, with households and businesses spending less.

Spending has slowed at home partly because of weakness in the yen. Japan is highly dependent on imports for food and energy, and the Japanese currency’s decades-long lows against the dollar have pushed up costs, feeding levels of inflation unseen in the country for a generation.

For more information on the Japanese economy, see the following resources:

• Videos
  1. Japan's Demographic Time Bomb  (documentary)
  2. How Can Japan Solve its Population Problem?
  3. Robots at Work: Japan's 'robot revolution'
  4. Japan's massive monetary experiment is over: now what?
• Podcast
  1. Socio-economic changes in Japan
• Articles
  1. Japan’s Economy and GDP
  2. Japan: Economic and Political Outline
  3. DFAT: Japan’s Market Insights
  4. Japan Economic Data
  5. Japan's mind-bending bento box economics
  6. How does Japan’s Aging Society Affect its Economy?
  7. Understanding the paradox of Japan's economy

Trade Policies and Trade with Australia

Japan has free trade agreements with several countries including Australia, New Zealand, Singapore, India, the UK and the EU. In early 2020, it reached a free trade agreement with the US. In 2021, Japan approved a free trade agreement between China, Australia and the Association of Southeast Asian Nations (ASEAN), the Regional Comprehensive Economic Partnership or RCEP. Japan is also a member of the Comprehensive and Progressive Trade Agreement for Trans-Pacific Partnership (CPTPP). 

Australia and Japan have had sixty years of mutually beneficial trade relationships and collaboration in mutual support to each other’s economic growth. 

The Japan-Australia Economic Partnership Agreement (JAEPA) entered into force on 15 January 2015.

The Agreement provides valuable preferential access for Australia's exporters and supports growth in two-way investment. JAEPA delivers strong outcomes for Australian businesses and is one of Australia’s most utilised agreements with two-way preference utilisation above 95 percent.

Australia and Japan are natural partners, with highly complementary economies. The Agreement brings our economies and societies even closer and underpins a strong relationship for many years to come.

Australia’s biggest exports to Japan include natural gas, coal and iron ore. Japan supports Australia in car manufacturing, science and technology. This video explains the Japan-Australia economic partnership:
 

For further information on Japan's Trade see the resources below:

• Videos
  1. Japan's exports fall for the first time since 2021
  2. Australia to sign onto a 15 nation Asia-Pacific trade deal | ABC News
  3. Japan’s top 5 exports in under 2 minutes
• Articles
  1. Regional Comprehensive Economic Partnership - DFAT
  2. Japan-Australia Economic Partnership Agreement - DFAT
  3. Trilateral Partnership for infrastructure investment in the Indo-Pacific
  4. Trade disputes Japan and South Korea
  5. Trading Economics – Japan’s Exports Value by Country
  6. Australia-Japan Trade Relationship  
  7. Australia – Japan’s Relationship in Mineral Resources and Energy

Discussion questions

1. With an ageing population and low birth rates, Japan will struggle to continue its population growth and corresponding economic growth. What options does Japan have to support continued economic growth? How might the impact the broader region? Does Australia have a role to play? 
2. With China continuing to seek to roll out its ‘Belt and Road’ initiative across the region, there is a risk that smaller nations might feel pressured into shifting strategic alliances counter to Japanese interests. What can Japan do to remain economically influential in the region?
3. Both China and Japan are two of Australia’s largest trading partners, not only regionally but globally. How would any potential conflict of interest between these two Asian nations impact our trade relationships? What should Australia do to help maintain regional harmony between Japan and China?

Last Reviewed 09/2024