Japan Economy

Government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (1% of GDP) helped Japan advance with extraordinary rapidity to the rank of second most technologically powerful economy in the world after the US and the third-largest economy in the world after the US and China, measured on a purchasing power parity (PPP) basis.

One notable characteristic of the economy is how manufacturers, suppliers, and distributors work together in closely-knit groups called keiretsu. Another remarkable feature is the lifetime employment guarantee for a considerable portion of the urban labor force. However, both these features are now eroding.

Japan's industrial sector depends heavily on imported raw materials and fuels.The tiny agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. Usually self sufficient in rice, Japan must import about 60% of its food on a caloric basis. Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global catch. For three decades, overall real economic growth had been spectacular - a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s.

Growth slowed markedly in the 1990s, averaging just 1.7%, largely because of the after effects of overinvestment during the late 1980s and contradictory domestic policies intended to wring speculative excesses from the stock and real estate markets and to force a restructuring of the economy.

From 2000 to 2003, government efforts to revive economic growth met with little success and were further hampered by the slowing of the US, European, and Asian economies.

In 2004 and 2005, growth improved and the lingering fears of deflation in prices and economic activity lessened. Japan's huge government debt, which totals 170% of GDP, and the aging of the population are two major long-run problems. Some fear that a rise in taxes could endanger the current economic recovery.

Internal conflict over the proper way to reform the financial system will continue as Japan Post's banking, insurance, and delivery services undergo privatization between 2007 and 2017.