JAPAN

Economic Freedom Score

50
25 75
Least Most
free 0 100 free
World Rank: 22 Regional Rank: 6 73.1

Trulehesocial
Japanese economy benefits from political and
stability and efficiently run institutions. The
of law is firmly respected and supported by an effec-
Freedom Trend
75

tive judicial framework and a relatively low level of per-

74
ceived corruption. The need for economic reforms is
apparent following decades of stagnation and despite
relatively high levels of income. 73

ECONOMIC FREEDOM SNAPSHOT

72
2016 Economic Freedom Score: 73.1 (down 0.2 point)
Economic Freedom Status: Mostly Free
Global Ranking: 22nd 71
Regional Ranking: 6th in the AsiaPacific Region
Notable Successes: Rule of Law and Trade Freedom 70
Concerns: Management of Public Finance and Financial Freedom 2012 2013 2014 2015 2016
Overall Score Change Since 2012: +1.5
A monetary policy aimed at preserving low interest rates Country Comparisons
has reduced any acute concern over Japans large debt
burden, but it has also limited the political motivation to
Country 73.1
implement urgently needed fiscal reform. Privatization
of Japan Post, the countrys largest financial institution World
by assets, has moved forward with an initial public offer- Average 60.7
ing made in 2015.
Regional
Average 59.0
BACKGROUND: Prime Minister Shinz Abes Liberal Demo-
Free
cratic Party has reversed a 13-year trend of steadily decreas- Economies 83.9
ing defense spending, has pushed forward on collective
0 20 40 60 80 100
self-defense, and has made an issue of Chinese assertiveness
near the Japanese-controlled Senkaku Islands. However, Abe
has failed to generate the international confidence necessary
to win support for defense reforms that would allow Japan a
Quick Facts
larger regional role. Abe has taken preliminary steps toward Population: 127.1 million
structural economic reform as part of his Abenomics plan GDP (PPP): $4.8 trillion
to pull Japan from a two-decade economic slump, but he faces 0.1% growth in 2014
significant resistance from entrenched special interests. 5-year compound annual growth 1.5%
$37,390 per capita
Unemployment: 3.7%
Inflation (CPI): 2.7%
FDI Inflow: $2.1 billion
Public Debt: 246.4% of GDP
How Do We Measure Economic Freedom?
See page 467 for an explanation of the methodology 2014 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2015.
251
JAPAN (continued)
THE TEN ECONOMIC FREEDOMS
1Year
Score Country World Average Rank Change

RULE OF Property Rights 80.0 20th 0

LAW Freedom from Corruption 76.0 15th +2.0
0 20 40 60 80 100
The direct exchange of cash for favors from government officials in Japan is extremely rare.
A web of close relationships among companies, politicians, government agencies, and other
groups fosters an inwardly cooperative business climate conducive to corruption, most often
seen in the rigging of bids on government public works projects. The judiciary is independent
and provides secure protection of real and intellectual property.

GOVERNMENT Fiscal Freedom 68.5 146th 0.2

SIZE Government Spending 46.2 143rd 0.9
0 20 40 60 80 100
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 significantly. Other taxes include a value-added
tax and an estate tax. The overall tax burden equals 30.3 percent of total domestic income. Gov-
ernment spending amounts to 42.3 percent of GDP, and budget deficits are around 8 percent
of GDP. Public debt is over twice the size of the economy.

REGULATORY Business Freedom 82.5 19th 1.6

EFFICIENCY Labor Freedom 83.9 9th 6.3
Monetary Freedom 81.2 52nd 5.5
0 20 40 60 80 100
With no minimum capital required, business formation takes less than 10 procedures, but
dynamic entrepreneurial growth is discouraged by lingering regulatory rigidities. A propen-
sity for lifetime-employment guarantees and seniority-based wages hurts productivity and
impedes development of a more flexible labor market. A government effort to scale back insti-
tutionalized farm subsidies has encountered stiff political resistance.

OPEN Trade Freedom 82.6 67th 0

MARKETS Investment Freedom 70.0 50th 0
Financial Freedom 60.0 38th +10.0
0 20 40 60 80 100
Japan has a 1.2 percent average tariff rate. Imports of many agricultural products are restricted.
The government screens investments in several sectors of the economy, including agriculture
and telecommunications. The banking sector is competitive but lacks dynamic growth. Japan
Post (the holding company for the post office, postal bank, and postal-insurance company) has
distorted the financial sector.

Long-Term Score Change (since 1995)

GOVERNMENT REGULATORY
RULE OF LAW SIZE EFFICIENCY OPEN MARKETS

Property Rights 10.0 Fiscal Freedom +14.9 Business Freedom 2.5 Trade Freedom +0.6
Freedom from 14.0 Government 21.5 Labor Freedom +0.6 Investment Freedom +20.0
Corruption Spending Monetary Freedom 5.8 Financial Freedom 10.0

252 2016 Index of Economic Freedom