JAPAN

J apan’s economic freedom score is 72.1, making its economy the 30th
freest in the 2019 Index. Its overall score has decreased by 0.2 point,
with a decline in scores for judicial effectiveness and trade freedom
exceeding an improvement in fiscal health. Japan is ranked 8th among
43 countries in the Asia–Pacific region, and its overall score is above the
regional and world averages.
WORLD RANK: REGIONAL RANK:

30 8 “Abenomics” has contributed to a mild economic recovery that, if main-

tained until 2020, will be Japan’s longest period of economic recovery
since the 1980s. The revitalization agenda combines bold monetary and
ECONOMIC FREEDOM STATUS:
flexible fiscal policies as well as structural reforms. Trade liberalization
MOSTLY FREE
is also a goal, but it has been overshadowed by rising tensions in global
commerce. Japan has one of the world’s heaviest government debt
burdens. Political stability and a well-maintained rule of law strengthen
its economic freedom.

ECONOMIC FREEDOM SCORE

( DOWN 0.2 POINT )

72.1
0 50 60 70 80 100

REGIONAL AVERAGE
(ASIA-PACIFIC REGION) 60.6 60.8 WORLD
AVERAGE

RELATIVE STRENGTHS: HISTORICAL INDEX SCORE CONCERNS:

Monetary Freedom and CHANGE (SINCE 1995): Government Spending and
Property Rights –2.9 Fiscal Health

FREEDOM TREND QUICK FACTS

80

73.3 73.1 POPULATION: UNEMPLOYMENT:

72.3 72.1
126.7 million 2.8%
69.6
70
GDP (PPP): INFLATION (CPI):
$5.4 trillion 0.5%
1.7% growth in 2017
FDI INFLOW:
60
5-year compound
$10.4 billion
annual growth 1.3%
$42,832 per capita PUBLIC DEBT:
236.4% of GDP
50

2015 2016 2017 2018 2019 2017 data unless otherwise noted. Data compiled as of September 2018

BACKGROUND: A longtime global economic power and Western ally, Japan has had a history of revolv-
ing-door leadership in recent years. Prime Minister Shinzo Abe, in office since 2012 and elected to a historic
third term in October 2017, has provided much-needed political stability but has been hampered by polit-
ical scandals. The public wants deeper reforms to remedy Japan’s endemic economic problems but fears
the upheaval that such measures would cause. The government’s “Abenomics” policy has made a dent in
deflation, but demographic decline caused by a low birth rate and an aging, shrinking population poses a
major long-term economic challenge. Security concerns include North Korea’s nuclear and missile threats
and China’s claims of sovereignty in the East and South China Seas.

242 2019 Index of Economic Freedom

 WORLD AVERAGE | ONE-YEAR SCORE CHANGE IN PARENTHESES

12 ECONOMIC FREEDOMS | JAPAN

RULE OF LAW GOVERNMENT SIZE
(–1.9) (–4.7) (–1.2) (+0.8) (+0.9) (+6.4)

100 100

80 80

70 70

60 60

50 50

84.1 68.5 78.0 68.2 55.0 55.7

0 0
Property Judicial Government Tax Government Fiscal
Rights Effectiveness Integrity Burden Spending Health

Japan’s judiciary is independent and fair. It enforces
contracts and provides secure protection of real and
intellectual property. Levels of corruption are low,
but close relationships among companies, politicians,
and government agencies foster an inwardly cooper-
ative business climate conducive to corruption. The
traditional practice of amakudari (granting retired
government officials top positions within Japanese
companies) is common in several sectors.
The top personal income tax rate is 40.8 percent.
The top corporate rate is 23.9 percent, which local
taxes and an enterprise tax can increase signifi-
cantly. The overall tax burden equals 30.7 percent
of total domestic income. Over the past three years,
government spending has amounted to 38.7 percent
of the country’s output (GDP), and budget deficits
have averaged 3.9 percent of GDP. Public debt is
equivalent to 236.4 percent of GDP.

REGULATORY EFFICIENCY OPEN MARKETS

(–1.2) (–0.2) (+0.5) (–2.3) (No change) (No change)

100 100

80 80

70 70

60 60

50 50

80.5 79.0 85.9 80.0 70.0 60.0

0 0
Business Labor Monetary Trade Investment Financial
Freedom Freedom Freedom Freedom Freedom Freedom

The process for establishing a business is relatively
streamlined, but bureaucracy is sometimes stifling. A
propensity for lifetime employment guarantees and
seniority-based wages impedes the development of
a dynamic and flexible labor market. Although the
government modified some energy subsidies in 2018,
heavy subsidies continue in infant care, education,
elderly care, and environmental protection.
The combined value of exports and imports is equal
to 31.3 percent of GDP. The average applied tariff
rate is 2.5 percent. As of June 30, 2018, according to
the WTO, Japan had 381 nontariff measures in force.
Japan has lagged behind other countries in pursuing
bilateral trade agreements. The government screens
foreign investment in some sectors. The financial
sector is competitive, but state involvement persists.

The Heritage Foundation | heritage.org/Index 243