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Japan

Economics

Economic Overview

The world’s third-largest national economy, and an enduring technological power, Japan has suffered from persistent deflationary pressures and demographic decline for more than two decades. It has the world’s largest stock of government debt as a percent of gross domestic product and a central bank that pioneered unconventional monetary policies through asset purchases, a combination that has remained tenable despite skepticism that goes back to the 1990s. That it is also the world’s largest net external creditor likely helps explains this. In 2012, the late PM Shinzo Abe launched initiatives to lower debt ratios, ease monetary policy, and push structural reforms. The first failed, the second succeeded, and the third has had spotty returns overall but delivered easier immigration and a big increase in labor force participation.

Japan

Real Gross Domestic Product

Real Chained Gross Domestic Product, Quarterly Annualized Change, %, NSA, Updates Quarterly

Real Gross Domestic Product measures the change in the inflation-adjusted value of all goods and services produced in the economy. It comprises private consumption and investment, inventory buildup, government spending and net exports. Markets watch this indicator to gauge the strength and composition of growth.

Japan

Unemployment Rate

Unemployment Rate, All Persons, Total Labour Force, %, SA, Updates Monthly

The Unemployment Rate measures the percentage of the labor force currently not working but actively seeking employment. Markets monitor the unemployment rate to assess the cyclical health of the economy and the likelihood that wage demands may increase inflationary pressures.

Japan

Consumer Prices

All Items, Core (All Items Excluding Fresh Food), Core-Core (All Items Excluding Food and Energy), Annual Change, %, SA

The Consumer Price Index is a measure of the change over time in the average prices paid by consumers for a market basket of consumer goods and services. As the most widely used measure of inflation, changes in the index are closely followed by policymakers, financial markets, businesses, and consumers. Statistics Japan reports an 'All Items' number that includes all categories in the calculation basket, a 'Core' number that strips out highly volatile fresh food prices, and a 'Core-Core' measure that removes fresh food and energy prices.

Japan

Policy Rate

Uncollateralised Overnight Call Rate (pre-1998: Official Discount Rate), %

The Bank of Japan Policy Rate refers to the base rate used by the central bank to implement or signal its monetary policy stance. It is currently represented by the “uncollateralised overnight call rate” charged when financial institutions lend and borrow short-term funds in the call markets, where financial institutions lend and borrow short-term funds, but previously referred to the interest rate charged on excess reserves. The Bank targets this rate to influence monetary variables in the economy, including consumer prices, exchange rates, and credit growth. The rate is reassessed on eight fixed dates each year.

Japan

Money Supply

M2 Money Supply, Annual Change, %, SA

M2 Money Supply is a measure of currency that includes cash, checking deposits, and non-cash assets that can easily be converted into cash. Markets don’t typically respond directly to changes in M2, but growth in the money supply can influence inflation, interest rates, and exchange rates over longer time horizons.

Japan

Central Bank Assets

Bank of Japan Total Assets, Trillions JPY, Updates Monthly

The Bank of Japan’s Balance Sheet is a financial statement that shows what the central bank owes and owns. The Bank’s assets consist primarily of Government of Japan and corporate bonds. Its liabilities are mostly currency in circulation, commercial bank reserves, and collateralized reverse repurchase agreements. The balance sheet is used to influence interest rates – when officials want to stimulate the economy, it expands, and when they wish to tighten financial conditions, it shrinks.

Japan

Debt Ratios

Credit to General Government, Non-Financial Corporate, and Household Sectors, % of Gross Domestic Product at Market Value, Updates Quarterly

Aggregate Debt Ratios measure the total borrowing of the general government, non-financial corporate, and household sectors, expressed as a share of gross domestic product. Total debt is followed by investors as a gauge of the vulnerability of an economy to financial shocks. An overly fast pace of debt growth is also frequently associated with a buildup of unproductive investment and excessively high asset valuations.

Japan

Net International Investment Position

Net International Investment Position, Millions USD, Updates Annually

The Net International Investment Position is the difference between the external financial assets and liabilities of a nation. A nation with a positive position is a creditor nation and is generally considered a safe haven in financial markets. A nation with a negative position is a debtor nation, with deeper balance of payments vulnerabilities.

Japan

Currency Reserves

Official Reserve Assets, Foreign Currency Reserves (in Convertible Foreign Currencies), Billions USD, Updates Monthly

Currency Reserves show external holdings that are freely usable for settlement of international transactions, and are readily available to and controlled by monetary authorities for meeting balance of payments financing needs, for intervention in currency markets to affect exchange rates, and for other related purposes. Developed markets with widely used, freely tradeable international currencies typically provide reserve assets rather than engaging in reserve accumulation.