Moderate economic growth has continued in 2005, maintaining the recovery that began in 2003, following a decade of economic stagnation. Japan's real gross domestic product (GDP) rose by 2.6 percent in 2004, and it is projected to rise by 2.3 percent in 2005. The upturn over the last three years partially reflects a surge in export demand, led by exports to China. Domestic consumer spending in Japan also has been strengthening. Unemployment has fallen to 4.3 percent, down from a high of 5.5 percent in early 2003.

Japan's Prime Minister, Junichiro Koizumi, who took office in 2001, has pressed for structural reforms in Japan's economy. In one major change, Koizumi reversed the previous policy of increasing government spending to stimulate the country's economy, and has set a deficit ceiling of 30 trillion yen ($270 billion). Spending on public works projects, which had been funded as part of previous stimulus packages, has been scaled back significantly. The Bank of Japan, however, has adopted a more expansionary monetary policy, which has provided some stimulus to the economy.

Koizumi’s Liberal Democratic Party won a strong majority of seats in the Diet (parliament) in a recent snap election held in September 2005. Koizumi is expected to step down when his current term expires in September 2006.

Japan's economic stagnation since the early 1990s led to a period of consolidation in the country's energy sector. Energy demand has been stable, and Japan's energy industries, particularly the downstream oil sector, underwent a period of downsizing and consolidation. Japan remains important to the world energy sector, though, as one of the major exporters of energy-sector capital equipment, and engineering, construction, and project management services.

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. A second basic feature has been the guarantee of lifetime employment for a substantial portion of the urban labor force. Both features are now eroding. Japan's industrial sector is heavily dependent 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 contractionary 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.

GDP (purchasing power parity): $3.914 trillion (2005 est.)

GDP (official exchange rate): $4.848 trillion (2005 est.)

GDP - real growth rate: $4.848 trillion (2005 est.)

GDP - real growth rate: 2.4% (2005 est.)

GDP - per capita (PPP): $30,700 (2005 est.)

GDP - composition by sector:
agriculture: 1.3%
industry: 25.3%
services: 73.5% (2005 est.)

Labor force: 66.4 million (2005 est.)

Labor force - by occupation: agriculture 4.6%, industry 27.8%, services 67.7% (2004)

Unemployment rate: 4.3% (2005 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: 4.8%
highest 10%: 21.7% (1993)

Distribution of family income - Gini index: 37.9 (2000)

Inflation rate (consumer prices): -0.2% (2005 est.)

Investment (gross fixed):24.4% of GDP (2005 est.)

Budget:
revenues: $1.429 trillion
expenditures: $1.775 trillion; including capital expenditures (public works only) of
about $71 billion (2005 est.)

Public debt: 170% of GDP (2005 est.)

Agriculture - products: rice, sugar beets, vegetables, fruit; pork, poultry, dairy products, eggs; fish

Industries: among world's largest and technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, processed foods

Industrial production growth rate: 1.3% (2005 est.)

Electricity - production: 1.017 trillion kWh (2003)

Electricity - consumption: 946.3 billion kWh (2003)

Electricity - exports: 0 kWh (2003)

bElectricity - imports:

Oil - production: 120,700 bbl/day (2003 est.)

Oil - consumption: 5.578 million bbl/day (2003 est.)

Oil - exports: 93,360 bbl/day (2001)

Oil - imports: 5.449 million bbl/day (2001)

Oil - proved reserves: 29.29 million bbl (1 January 2002)

Natural gas - production: 2.814 billion cu m (2003 est.)

Natural gas - consumption: 86.51 billion cu m (2003 est.)

Natural gas - exports: 0 cu m (2001 est.)

Natural gas - imports: 77.73 billion cu m (2001 est.)

Natural gas - proved reserves: 39.64 billion cu m (1 January 2002)

Current account balance: $158.3 billion (2005 est.)

Exports: $550.5 billion f.o.b. (2005 est.)

Exports - commodities: transport equipment, motor vehicles, semiconductors, electrical machinery, chemicals

Exports - partners:US 22.7%, China 13.1%, South Korea 7.8%, Taiwan 7.4%, Hong Kong 6.3% (2004)

Imports: $451.1 billion f.o.b. (2005 est.)

Imports - commodities:machinery and equipment, fuels, foodstuffs, chemicals, textiles, raw materials (2001)

Imports - partners:China 20.7%, US 14%, South Korea 4.9%, Australia 4.3%,
Indonesia 4.1%, Saudi Arabia 4.1%, UAE 4% (2004)

Reserves of foreign exchange and gold: $845 billion (2004)

Debt - external: $1.545 trillion (31 December 2004)

Economic aid - donor: ODA, $8.9 billion (2004)

Currency (code): yen (JPY)

Exchange rates: yen per US dollar - 110.22 (2005), 108.19 (2004), 115.93 (2003),
125.39 (2002), 121.53 (2001)

Fiscal year: 1 April - 31 March