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The next Economic Survey of Japan will be prepared for 2011.
An Economic Survey is published every 1½-2 years for each OECD country. Read more about how Surveys are prepared.
The OECD assessment and recommendations on the main economic challenges faced by Japan are available by clicking on each chapter heading below.
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Chapter 1. Overcoming the global crisis: the need for a new growth model
Despite its limited direct exposure to the global financial crisis, Japan’s export-dependent economy has fallen into its deepest recession of the post-war era. Prompt actions to stabilise financial markets, provide a large fiscal stimulus and cut interest rates are projected to lead to positive output growth in the second half of 2009. However, the pace is projected to remain sluggish at less than 1% in the context of a protracted recovery in world trade that will limit Japanese export growth. Meanwhile, fiscal consolidation will become a priority as the gross public debt is projected to reach 200% of GDP by 2010. Sustaining output growth must depend increasingly on boosting private domestic demand, requiring economic reforms, particularly in the labour market and the non-manufacturing sector. The key objectives should be to stem labour market dualism, which puts downward pressure on wages, and to pursue regulatory reform, particularly in services, to increase productivity.
Chapter 2. Financial stability: overcoming the crisis and improving the efficiency of the banking sector
Japanese banks largely avoided the direct impact from the global financial crisis thanks to their limited exposure to foreign toxic assets, the regulatory framework in Japan and the small role of securitisation. However, the sharp contraction in output and plunge in equity prices did have adverse impacts on the banking sector. The authorities responded with measures to stabilise the financial market, inject capital in depository institutions and sustain lending to small companies. These emergency measures should be phased out to limit distortions once a recovery is in place. It is essential to upgrade the regulatory framework by improving the transparency of securitised products, credit rating agencies and capital adequacy regulations. It is also important to address chronic problems, including low profitability, particularly in regional banks, and increase the efficiency of the financial sector. This requires a number of steps, including privatising public financial institutions, enhancing the efficiency of banking services and expanding the range and quality of financial products.
Chapter 3. The fiscal policy response to the crisis and achieving fiscal sustainability
The top priority at present is to achieve a sustained economic recovery. However, a credible fiscal consolidation plan is important to maintain public confidence in Japan’s fiscal sustainability as the budget deficit is set to approach 10% of GDP in 2010 and gross public debt nears 200%. Although the goal of a primary budget surplus by FY 2011 is no longer feasible, the government should move promptly once a recovery is in place, to implement tax increases and spending reductions, notably in public investment and government wages. While the plan of the previous government to allocate all consumption tax revenue to social security may make it politically easier to raise the consumption tax rate, it could also limit flexibility in spending. A broad-based tax reform, including improvements in direct taxes, is essential to boost revenue and support growth, which is also important to reduce the public debt ratio.
Chapter 4. Health-care reform in Japan: controlling costs, improving quality and ensuring equity
Japan’s health-care system has provided universal access to care and contributed to the outstanding health status of the Japanese. Public spending has been kept below the OECD average through high co payment rates and reductions in medical fees. However, with continued upward pressure on expenditure, in part due to rapid population ageing, reforms are needed to limit spending increases through greater efficiency, while improving quality. It is essential to shift long-term care out of hospitals, reform the pricing mechanism away from pay-for-visit, increase the use of generic drugs, encourage healthy ageing and promote restructuring in the hospital sector. Quality should be improved by increasing the availability of effective new drugs and medical devices. In funding spending increases, it is important to limit the share borne by employees to avoid negative effects on the labour market. Japan may need to allow more mixed billing to enhance access to some advanced medical treatments.
Chapter 5. Improving the policy framework in Japan to address climate change
Japan, a relatively energy-efficient country, has been active in combating climate change. Under the Kyoto Protocol, Japan is committed to reducing greenhouse gas emissions by 6% relative to 1990 over the period 2008 12. As of 2007, however, its emissions were up by 9%. Japan has relied primarily on voluntary measures, which are monitored by the government, without binding commitments or price signals on carbon. It is essential to improve the policy framework to achieve its ambitious longer-term target of a 60% to 80% emission reduction by 2050 in a cost-effective manner. Japan should shift from voluntary measures to market-based instruments, notably a mandatory and comprehensive emission trading scheme, supplemented if necessary, by carbon taxes in areas not covered by trading, which minimise abatement costs and promote innovation to reduce emissions. Trading schemes should be linked to those in other countries, while expanding Japan’s use of a well-functioning Clean Development Mechanism. Continued public support for R&D in emission reduction technology, particularly in basic research, is important.
How to obtain this publication
The complete edition of the Economic Survey of Japan is available from:
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations. To see the Japanese version, please click here.
For further information please contact the Japan Desk at the OECD Economics Department at firstname.lastname@example.org.
The OECD Secretariat's report was prepared by Randall Jones, Byungseo Yoo and Masahiko Tsutsumi under the supervision of Vincent Koen. Research assistance was provided by Lutécia Daniel.