2015 Economic Freedom of Japan

Japan’s economic freedom score is tied for the second highest it’s ever been since the Index of Economic Freedom was first published more than 20 years ago. Scoring a 73.3, Japan ranks 20th in the world for economic freedom, an improvement over the previous year’s rank of 25. It continues to rank sixth among countries in the Asia–Pacific region. Focusing on needed structural reforms will help Japan to continue on its path to economic freedom.

Abenomics

Monetary freedom, fiscal freedom, and freedom from corruption continued to weight down Japan’s score by a combined negative of 5.1 points. Over the past year, the first two arrows of Prime Minister Shinzo Abe’s three-arrow economic policy “Abenomics”—monetary and fiscal policy—enabled Japan’s debt to grow to more than double Japan’s gross domestic product. Japan’s fiscal freedom and government spending are categorized as only moderately free because they rank at 144th and 137th, respectively, in the world.

Meanwhile, Japan improved in labor, business, and trade freedom. The largest increase was in Japan’s labor freedom with a gain of more than 10 points. The third arrow of Abenomics—structural reform, including encouraging more women and immigrants to participate in the workforce—helped labor freedom to rank the ninth freest in the world. Japan currently has a tight labor market with one of the lowest rates of unemployment in the world at 3.5 percent. As Japan’s population continues to shrink, its job market continues to supply at least one job for every applicant.

Reigniting Japan’s Economy

While the government has made significant progress toward Prime Minister Abe’s planned structural reforms, there are still concerns over how far he will follow through with his commitments. Bank of Japan Governor Haruhiko Kuroda continues to purchase government bonds at an alarming rate of $70 billion to $100 billion per month, pushing up prices while devaluing the yen. Implementing monetary and fiscal policy reform has been relatively easy, but Japan needs structural reform to reignite its economy.

The 2015 Index of Economic Freedom, along with other countries’ rankings, can be found at www.heritage.org/index.