Japan

01Structure

Japan's economy is organised around a manufacturing sector that competes on process rather than on cost: automotive, precision machinery, industrial robotics, semiconductor materials and equipment. In several of those — photoresists, silicon wafers, machine-tool controllers — Japanese firms hold shares of the world market high enough that no supply chain elsewhere can route around them.

The domestic structure behind it is dense supplier networks with long relationships and cross-shareholdings, which produce reliability and slow reallocation in equal measure. Capital and labour move between firms less readily than in the United States, and the productivity gap that opens in a technological transition therefore closes more slowly.

02Trade and exposure

Japan is less trade-dependent than its reputation suggests — a large domestic market absorbs most of what it makes — but the exports it does have are concentrated in capital goods and in components that sit deep inside other countries' production, which makes them sensitive to the global investment cycle rather than to consumer demand.

The external account has a second component that matters more than the merchandise balance: decades of surpluses have accumulated into one of the world's largest net foreign asset positions, and the income from it now flows back as a substantial primary income surplus. Japan earns abroad as an investor, not only as an exporter.

03Energy and resources

Japan has essentially no domestic fossil resources and imports almost all the energy it uses. That is the oldest structural constraint on the economy, and it is what makes a rise in global energy prices an immediate deterioration in the terms of trade.

The constraint tightened after 2011, when the Fukushima accident took the nuclear fleet offline and imports of LNG and coal filled the gap. Restarts have been partial and slow, so the exposure has not returned to its pre-2011 level. Because energy is imported and priced in dollars, a weaker yen and a higher energy price compound rather than offset — which is the mechanism behind most of the inflation shown in the panel above.

04Labour and demography

Japan's working-age population peaked in 1995 at 87.3 million and had fallen to 74.5 million by 2024, a decline of nearly fifteen per cent.¹ There were 705,809 births in 2025, a record low for the tenth consecutive year.² No other economy on this site faces a demographic contraction of this size, and none has been in it as long.

The labour market response has been to raise participation rather than to admit migrants at scale: female and older-worker participation have risen substantially, and Japan now has one of the highest employment rates among people over 65 in the OECD. That channel is closer to exhausted than to open, which is why the OECD's recent surveys frame productivity and labour supply as the binding question.¹

The unemployment rate in the panel above should be read in that light. It is low and has been low for decades, and in an economy with a shrinking labour force it says less about slack than the same number would elsewhere.

05Public finances

Japanese government debt is around two hundred and thirty-seven per cent of GDP,¹ far the highest on this site and roughly four times the German ratio. It has been at extraordinary levels for two decades without a financing crisis, for a reason worth stating plainly: the debt is overwhelmingly held domestically and in yen, by institutions with yen liabilities, so the usual external refinancing channel does not apply.

What has changed is the price. Three decades of near-zero rates made a debt of this size serviceable; a policy rate off the floor and long yields well above their historic range make interest costs a growing claim on the budget at the same time as ageing raises health and long-term care spending. This is the arithmetic that makes the Japanese fiscal position a question about the next decade rather than about the current deficit.

06Money and prices

The Bank of Japan is exiting the longest experiment in unconventional monetary policy any large economy has run: zero and negative rates, quantitative easing at a scale that left it holding a large share of the government bond market, and explicit control of the yield curve. The policy rate in the panel above is the highest since the mid-1990s, which sounds dramatic and is still low by every other standard on this site.

The exit is slow by design because the stakes are asymmetric. Moving too fast raises the interest bill described in section 05 and risks re-anchoring expectations at the deflation the country spent thirty years escaping; moving too slowly leaves the yen weak and imports the energy price described in section 03 directly into consumer prices. That trade-off, not a conventional output gap, is what the rate is being set against.

07What the models expect

These are computed on this site from each series' own history, and are nobody's official projection. The bar is the range the figure lands in half the time; the dot is the central path.

Replayed from past origins on today's revised figures, the same baseline was usually off by 0.90 on consumer price inflation, 1.29 on real gdp, 0.10 on unemployment rate, 0.19 on central bank policy rate.

08Structural indicators

The figures behind the sections above. They move by a point or two a year, so each carries the year it was measured.

09Sources and method

Live figures: Statistics Bureau of Japan via DBnomics, OECD, Bank for International Settlements. Each is fetched nightly and validated before publication; the delivery report on /status/ says how old every one of them is. Profile written 2026-09-10, next review September 2027.

1. Working-age population decline, the debt ratio, and the productivity and labour-supply framing — OECD Economic Surveys: Japan 2026; OECD press release, May 2026
2. Births in 2025 — Japan 2026: after thirty years of deflation