Japan’s economy throughout the 20th century was based on imports of raw materials and exports of increasingly advanced industrial products. With strong US support, Japan managed to re-enter the world market after the Second World War, and between 1960 and 1980, its GDP grew by 6.3 percent per year (about 10 percent per year during the 1960s), a rate of growth that highest in the world. What enabled “the Japanese wonder” was, among other things, a close collaboration between government and business, a high level of household savings, low defense costs (which facilitated extensive industrial investment and research), a well-trained workforce with high work ethic, and domestic political stability. Growth was also greatly promoted by a liberal, fast-growing world trade. The heavy industry came to play the most important role in the economy.
Economic growth continued during the 1980s at an average of 4 percent per year and with growth even during periods of economic stagnation in other industrial states. In the latter part of the 1980s, Tokyo emerged as the world’s third exchange center, alongside London and New York. At the same time, economic integration in Western Europe developed, and both there and in the United States a protectionism began to be clearly visible. In order to be able to hold their positions in the world market, Japanese large companies abroad sought with both factory facilities and other forms of investment. Of the Japanese direct investment abroad in 1986-91, almost half went to North America, just over 1/5 to Europe and only 1/8 to East and Southeast Asia. A so-called financial bubble economy was built, which erupted in 1990.
Economic growth slowed to zero in 1993, and then the recovery has been slow. During the period 2002-07, growth was steady, but it averaged only 1.8 percent per year. In 2010, employment was 70 percent in service, 21 percent in manufacturing and energy production, 5 percent in construction and 4 percent in agriculture, forestry and fishing.
Both in the financial market and in the administration, a liberalization started during the latter part of the 1990s. Furthermore, large parts of the Japanese business sector have been restructured to eliminate overcapacity and increase efficiency. Exceptions are agriculture, forestry and to some extent fishing, which has an old-fashioned structure. Production in these industries is shrinking and must be supplemented by growing imports.
During the 2000s, Japan’s role in the world market has not been as clear as before. Economic growth in several developing countries, especially in China, has benefited Japan through increased demand for, among other things. steel and heavy capital goods, but in recent years it has also become a disadvantage, as competition in the world market has intensified for many products where Japan has previously been a world leader. A significantly smaller share of Japan’s foreign trade is now taking place with the US and the EU, while East, Southeast and South Asia are becoming increasingly important markets.
For many parts of the Japanese business world, the domestic market is also reduced. An increasing proportion of the population now consists of older consumers who already have a variety of electrical and electronic aids, such as appliances, “flat-screen TVs” and mobile phones. They also have less need for many other goods than the young households, which are getting fewer every year. A cultural change has also emerged in recent years, affecting business operations. Traditional values have started to be called into question, and among the young, it is no longer as obvious as before that work requirements should be given higher priority than all individual needs.
In 2017, agriculture together with forestry and fisheries accounted for 1 percent of GDP and 4 percent of employment in Japan. Of the land area, 12 percent is permanently cultivated. The land is extremely fragmented and 85 percent of the farms comprise less than 2 ha (conditions on Hokkaido not included). The average area per farm is lowest in southern Japan and only on Hokkaido is it over 10 ha.
In 2007, only 20 percent of Japan’s 2.2 million farmers had agriculture as their main source of income. Others had it as a side job alongside industrial or service jobs. But the growers on 60 percent of farms were pensioners, a majority of whom were women, and agriculture is a near-extinct sector in Japan. It is labor intensive but not efficient and most of it is run with traditional orientation and old methods.
Nearly 90 percent of the grain harvested is rice, which can be grown throughout the country except in northeast Hokkaido. Other crops include wheat, potatoes, sugar beets, cabbage and other vegetables, citrus fruits, apples, pears, tea and tobacco. In the islands farthest south, tropical crops such as sugar cane and pineapple are grown. Silk and cotton that were once Japan’s most important export goods are no longer grown in the country. The soil is not very fertile and in order to increase the yield a lot of artificial fertilizer is added.
During the post-war period, the state has given high subsidies to rice cultivation, partly to safeguard the food supply and partly because the ruling party wanted to secure the votes in the countryside. Since 1987, rice subsidies have been reduced, but two-thirds of small farmers’ agricultural income is still expected to be subsidized.
At the same time, changing dietary habits have led to a rapidly growing demand for meat and dairy products, among other things. Cattle breeding occurs mainly on Hokkaido, while poultry and pigs are found throughout the country.
Japan was self-sufficient in food in the 1950s, but it is now only 50 percent. The cultivation of rice, vegetables and fruit mainly covers demand, while half of the demand for meat and fish was covered by imports in 2007. Most of the animal feed was also imported.
Among the major industrialized countries, Japan is the country most dependent on food imports. The government seeks to promote development towards more versatile and efficient agriculture with sustainable units, but as land prices are high, the pooling of farms is slow.
About 66 percent of Japan’s area is wooded, but large forest areas in the mountainous regions are very difficult to access. They must also be kept away from exploitation to prevent serious erosion.
To a lesser extent one can now speak of a productive forestry in Japan. The main reasons are the same as for agriculture. Nearly 3/5 of the forest area has private owners, mainly individual households, and the forest is very fragmented into small units. Old forest owners are reluctant to invest in sustainable and efficient forestry and the harvesting of a planned replanting is often not followed. Most private forest owners do not have the forest as the main source of income and they do not see the value of management measures.
Harvesting has declined very sharply since the 1950s. However, timber is still an important building material in Japan and paper consumption is increasing. Imports of wood and wood products are increasing every year and most of the pulp and paper industry’s raw material needs are now covered by imports, mainly from the US and the Russian Federation. Nearly half of the domestic timber production comes from Hokkaido and the four northernmost prefectures on Honshu.
Many forest areas play an important role as recreation areas and some also have a cultural significance by tradition. The more accessible forest areas may in the future take on a new role, such as land for the cultivation of energy forests, as Japan seeks new energy raw materials to reduce dependence on imported oil.
Traditionally, fish is of great importance in the daily diet in Japan, and only Iceland and the Faroe Islands have greater per capita fish consumption. Already during the interwar period, Japan was by far the world’s largest fishing nation. During the post-war period, the development of modern, large-scale fishing continued in the fish-rich waters of the continental shelf throughout the world.
Since 1976, most states have established fishing limits 200 nautical miles (370 km) off their coasts. In such territorial waters, Japan had previously captured 40 percent of its entire fishing catch. Now an agreement is required with each state, which has become increasingly difficult for Japan to obtain. The total catches of sea fishing during the years 1984-90 were at a steady level, about 12 million tonnes annually, but since then Japanese fishing has been reduced very sharply. Fish stocks are shrinking and most countries are increasingly safeguarding their own fish industry. In 2007, the total catch was only 4.2 million tonnes from the sea fishery and 0.8 million tonnes from the fish farms. Japan was then in sixth place among the world’s fishing nations with 3 percent of all seafood catches (China had then taken the leading position by just over 30 percent).
Japanese high sea fishing is highly mechanized and therefore employs only a small proportion of Japanese fishermen. The majority of them fish on a small scale in coastal home waters. Mainly catch sardines, tuna, cod and mackerel. Cultivation of oysters, algae, fish, etc. on the coast has become increasingly important.
Imports of fish have increased significantly since the 1980s, and more than 40 percent of the fish consumed in 2007 had come from abroad. The extensive commercial whaling was halted in 1988 after strong pressure from international opinion, but whaling for research purposes continues. Every year, about 900 whales are slaughtered in the South Arctic Ocean, and the meat is sold to restaurants and shops.
Japan’s mineral resources are consistently very small and scattered. This has meant that the extraction is largely unprofitable, and the country is now extremely dependent on mineral imports. The mining industry accounts for less than 0.1 percent of the country’s employment. Japan is self-sufficient only with limestone for cement production and with sulfur as part of the chemical industry. Virtually all iron ore is imported, mainly from Australia but also from Brazil and India. Japan no longer has any domestic copper mining, but is one of the world’s largest producers of refined copper with raw materials from mainly Chile and Indonesia. The country also imports a lot of bauxite into aluminum production. On a small scale, zinc and gold are mined inland. Recycling of iron and copper scrap has become increasingly important.
Japan needs to import more than 90 percent of energy raw materials. In 2007, oil and natural gas were the largest commodity group in Japan’s imports, accounting for nearly 19 percent of the country’s total import costs. Half of the country’s energy needs are covered by imported oil. Domestic oil extraction, on Honshus’s northwest coast, accounts for only a few percent of Japanese oil consumption. As a result of import dependency, most of the 31 oil refineries are located at the deep ports around the Inland Sea and at the Gulf of Tokyo.
Domestic coal at Kyushu and Hokkaido was of great importance to Japan’s industrialization, but assets have declined. Collages are thin, of poor quality and difficult to access, and the breaking costs are high. Of the hundreds of coal mines in operation in 1960, only two remained in 2007. At the time of the 2011 Fukushima accident, coal accounted for less than one-sixth of Japan’s energy supply and 97 percent of it was imported. Subsequently, coal and oil have had to replace nuclear energy’s contribution to the electricity supply with great costs as a result.
Natural gas, which is mostly imported in liquid form from Indonesia, meets almost one-sixth of the energy demand, while nuclear power accounts for slightly more. The importance of nuclear energy was reinforced during the 1990s and 2000s, and in 2007 it accounted for one third of electricity generation. In 2009, 53 reactors were in operation, making Japan the third largest producer of nuclear power in the world (after the US and France). Many Japanese nuclear power plants are located in areas with a high risk of earthquakes. After the Fukushima accident, all reactors were shut down for safety reasons. The first (Sendai) was restarted in 2015 after the introduction of new security routines and installations. Many of the other reactors are expected to be restarted in the coming years.
Japan’s energy policy is aimed at streamlining energy use and reducing dependence on imported oil. This is achieved through increased use of coal and natural gas in the thermal power plants, further expansion of nuclear energy and the development of alternative energy sources such as geothermal energy and solar energy (which, however, only cover a few percent of the energy demand).
Manufacturing and exporting industrial goods has been the engine of Japan’s economic development throughout the post-war period. Rising wealth in a large population has meant a growing domestic market that has been a stable foundation for most industrial sectors. More than half of all industrial production takes place in the four regions Tokyo-Yokohama, Osaka-Kobe, Nagoya and northern Kyushu.
Most Japanese companies are small and focused on the domestic market: 30 percent of all industrial employees worked in companies with less than 30 employees. There is still plenty of room for size rationalization.
An aging population with an associated saturated domestic market has in recent years resulted in subdued domestic demand, but this has been offset by the fact that Japanese companies have established themselves abroad and thereby been able to increase their operations and find new markets. A growing share of domestic demand for industrial goods is now covered by imports from foreign-located Japanese companies. This applies, for example, to semiconductors, digital cameras and televisions, and it is also beginning to become noticeable in the case of more prominent high-tech products such as computers.
Major changes have also occurred in the heavy base industry in Japan. The cost of imported oil has grown sharply and the extremely energy-consuming production of base aluminum has shrunk to a small proportion of its highest capacity. Furthermore, there are many examples of merging between rival companies in the steel, cement, paper and petrochemical industries, all very energy-intensive operations.
Until 1996, Japan was the world’s largest steel producer and a major exporter of crude steel to the USA, among others. Subsequently, Japanese steel production was greatly reduced. But in recent years, it has expanded again, mainly as a result of exceptional growth in China. This has also led to increased demand for Japanese transport equipment, construction equipment and similar products.
With a rough breakdown of Japanese industry, electrical and electronics production, including IT, emerges as the largest sector. However, this previously so expansive sector has stagnated and the future may be perceived as uncertain as competition from new industrial states in Asia has become increasingly clear. It is considered that major investments in research and development are now required.
Things have been better for the car industry. In Japan, it has always focused on the production of small cars, and in the 21st century it has models that “are right in time”. The sector has been restructured and mergers have meant that it has been possible to reduce overcapacity and meet changing competition in the world market. In 2007, Japanese car companies had a larger production abroad (mainly in the US, EU and China) than at home in Japan.
In the early 1970s, half of all newly built tonnage in the world came from Japanese shipyards. In connection with the subsequent oil crisis, the ship’s capacity was reduced by half, but demand increased again in the late 1980s. Japan has been the clear leader shipbuilding nation since 1994.
A large industrial sector that is not export-oriented at all is the food industry. It includes a large number of small, inefficient companies that have survived in a local, highly divided market. As large national transport and retail networks now emerge, these small businesses will become more competitive as their owners age.
The textile and clothing industry has lost half of its workforce over the past decade. In parallel with this, textile imports have increased. Almost all chemical industries are highly dependent on the import of raw materials. So is the pulp and paper industry, which produces almost exclusively for the domestic market.
A number of Japanese major companies are among the largest in the world and have a good reputation globally, such as Toyota and Honda car companies and electronics companies Hitachi and Toshiba. But some sectors lack world-renowned companies: the pharmaceutical, shoe, textile and fashion industries, as well as beer and soft drink manufacturing and the petrochemical industry.
In the 1950s and 1960s, Japan was newly industrialized without regard to environmental impact, and in the early 1970s, the country emerged as the most polluted in the world in terms of air and water quality. Since the mid-1970s, countermeasures have been taken, mainly to get cleaner air in the big cities. Compared to other major industrial states, Japan is far ahead with some purification measures, such as reducing emissions from gasoline engines, and Japanese car companies were early in developing hybrid and electric cars. The improvements in the environment in some respects are also due to the fact that heavy, often serious environmental disruptive industries now have less scope, while “cleaner” high-tech manufacturing has expanded.
The poisoning disaster in the Gulf of Minamata (compare Minamata disease) in the 1950s attracted the world’s attention to the growing water pollution. In Japan, the level of discharges in the metropolitan areas’ waterways was reduced by 40% during the 1980s, but water pollution is still a serious environmental problem, mainly as a result of uncleaned sewage. The waste sorting system, on the other hand, is well developed.
Since the mid-2000s, environmental-related work has been widened and environmental research has been given priority in Japan’s national research plan. It is important to generate environmentally friendly energy, for example. biomass, to reduce emissions and reuse waste, to further improve air quality and to stimulate environmental technology development. Climate-promoting measures are gaining greater acceptance in Japan as they prove to reduce costs while stimulating trade.
During the first decades of the post-war period, Japan experienced export-led economic development. Subsequently, the country has mostly exported to be able to import the raw materials needed for Japanese consumption, including energy raw materials and food. Japan is one of the world’s four largest trading nations, but foreign trade represents a smaller share of GDP than in other countries in this part of Asia.
According to Countryaah, the composition of goods in Japanese foreign trade differs considerably from the conditions of other large industrialized countries’ trade. Exports were dominated by goods from the engineering industry, while raw materials accounted for almost half the import value. The old industrialized countries of the West now play a smaller role in Japan’s export trade than before. On the import side, there have also been major changes. The US and the EU have decreased in importance, while China and other countries in East and Southeast Asia have become increasingly important partners.
The changing trade pattern is a result of the rapid economic development in this part of Asia, but it is also due to a fierce trade resistance from the US and Europe. Japan has a very large surplus in trade with these partners, while at the same time not being inclined to bring in many goods from there. In the first half of 2008, exports to 25 percent consisted of means of transport, of which 3/5 were passenger cars. Electrical and electronic equipment accounted for 19 percent, while other machines accounted for 20 percent. Chemical industry products accounted for 9.5 percent and steel for 5 percent. Less than 2 percent consisted of food, raw materials and fuels.
Previously very well-known Japanese goods are now almost completely lacking in exports. Textiles, which were the most important commodity group in the 1960s exports now constitute only 1 percent, TV and other audiovisual devices that have been prominent since the 1970s accounted in 2008 for only 3 percent of exports and cameras and other optical equipment for 2.5 percent. These goods are now imported from Japanese companies that have placed their production in low-wage countries.
Imports of mineral fuels have risen sharply in recent years and accounted for 34 percent (of which 3/4 was crude oil) of all imports during the first half of 2008. About 8 percent consisted of other raw materials and 8 percent of food. Much of the imports from East and Southeast Asia are workshop products. Electrical appliances accounted for 13% of the import value and the country has become a net importer of household electronics.
Japan has for many years had a very large surplus in its commodity trade. The current account balance shows a somewhat more balanced picture, as the country has a deficit in the international exchange of services, including related to transport services and tourism. About 8 to 9 million foreign tourists visit Japan each year, while many more million Japanese tourists go abroad each year.
Tourism and gastronomy
Japan has an extensive tourism industry. In 2015, the country was visited by 19.7 million visitors. Most come from nearby countries; South Korea, Taiwan and China account for 20 percent of each visitor. Of countries outside Asia, the US (8 percent), Australia (2 percent) and the United Kingdom (2 percent) dominate.
One of the country’s main attractions is the old imperial capital of Kyoto with its temples and pagodas. For the nature enthusiast, Japan’s dramatic scenery with high mountains and deep forested valleys offers many excursion destinations. Tokyo with attractions such as the Ginza shopping district and the Asakusa and Shinjuku entertainment districts as well as Tokyo Disneyland are also popular tourist destinations. Japanese culture, such as the classic theater form kabuki, also attracts many visitors.
Chinese cuisine has obviously influenced the Japanese, but the Portuguese also played a certain role. Already in the 1300s, the Buddhist influence made the carnivores minimized. The food was cooked or steamed (when not eaten raw), and only with the Portuguese did the technique of frying (tempura) spread. During the 19th century, carnivores increased again, but for many centuries the peasants were forced to eat what is today one of the national dishes, sukiyaki (a stew with thin beef slices served with soy and vegetables).
The basic ingredients in Japanese cuisine are soybeans, rice, fish and algae. The beans are fermented into miso (bean paste) used as a seasoning in soups and sauces, or used for tofu, cream cheese with extremely high protein content. The rice turns into wine, sake, or into the sweeter variant mirin. Soup is included in every Japanese meal, it is based on a tasty broth in which is added misopaste, pieces of meat or fish. The most popular fish are tuna, bream, bonit and octopus. The fish dishes include sashimi (mouthfuls of raw fish served with soy sauce flavored with the special green horseradish, wasabi) and maki zushi (raw fish rolled in vinegar-flavored rice, sushi, which is enclosed by a thin layer of pliers).
Dishes that are not deep-fried are usually cooked in broth, and preferably at the table. The reason for the broth important in Japanese cooking is usually a dashi, base broth, cooked on konbu (dried seaweed) or dried bonit.
Fine shredded meat or fish is also often fried at the table, teppanyaki. If the ingredients are marinated in or poured with a sauce of soy, mirin and sugar, the dish is called teriyaki.
The first vines in Japan were planted by Buddhist monks in the 7th century. The sweetest white wine was produced in the 1970s. Today, the trend is towards semi-dry and dry wines. See also Japanese food and Japanese wines.