Japan’s economic freedom score is 73.3, making its economy the 20th freest in the 2015 Index. Its score has increased by 0.9 point since last year, with improvements in labor freedom, business freedom, and trade freedom outweighing modest declines in freedom from corruption, monetary freedom, and fiscal freedom. Japan is ranked 6th out of 41 countries in the Asia–Pacific region, and its overall score is above the world and regional averages.
Over the past five years, Japan’s economic freedom has experienced a turnaround, with early losses overcome by recent gains. In particular, improvements in labor and trade freedom have contributed to overall score gains.
While the government’s three arrows of reform have generated substantial enthusiasm, key structural issues continue to hold back economic freedom and growth. Government spending has been high, and deficit spending most recently has been funded by a multi-year increase in the sales tax. The financial sector is difficult for foreign investors and subject to political influence. Propelling Japan out of its decades-long malaise will require targeted reforms to improve economic freedom and remove institutional constraints.