| Updated: September 12, 2025Profile of Japan’s yen – economic overview
This lesson will cover the following
- Economic overview
- Monetary policy authority
- Monetary policy tools
Economic overview
Japan is the third-largest economy in the world, with a nominal GDP of $4.9 trillion in 2013, according to the International Monetary Fund, while in terms of purchasing power parity (PPP) it is the fourth-largest economy, with a GDP of $4.7 trillion in 2013. Japan’s gross domestic product at PPP per capita was the 22nd highest in 2013, at $36,899.
The country is the third-largest automobile manufacturer worldwide, with annual production of 9.9 million vehicles in 2012. Japan was the largest car manufacturer in 2000, but its market share has fallen recently because of intense competition from countries such as South Korea and China. During the first quarter of 2008, Toyota overtook General Motors to become the world’s largest car producer.
The nation’s electronics industry is the largest in the world, despite the fact that Japanese companies have recently faced fierce competition from producers in South Korea and Taiwan. The electronics sector in Japan is renowned for a number of vital innovations – including the transistor radio and the Walkman by Sony, the VHS recorder by JVC, solar cells and LCD displays by Sharp, and the first mass-produced laptops by Toshiba.
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Japan’s highly diversified manufacturing industry is currently focused mainly on high-tech and precision products such as hybrid vehicles, optical instruments and robotics, with the sector accounting for 18% of GDP in 2012 and 24% in 2013.
The services sector accounts for almost 75% of overall output. The financial and insurance sectors contributed 5.8% to GDP in 2012, retail and wholesale trade 12.5%, while the transport and communications segment accounted for 6.8%. The Tokyo Stock Exchange is the second largest worldwide by market capitalisation. 2,292 companies were listed on it with a combined market capitalisation of $4.5 trillion in November 2013. The Tokyo Stock Exchange and the Osaka Securities Exchange merged on 1 January 2013 to form the Japan Exchange Group (JPX).
Japan has been the world’s largest creditor nation for the 22nd consecutive year as of 2013, running a considerable net international investment surplus. It is also the second largest sovereign state in the world by global private financial assets – held in currency, stocks and bonds – in 2013 (€13.991 billion), behind the United States.
Because the country lacks sufficient natural resources to support its expanding economy and large population, its exports are engineering-oriented and R&D-led, while its imports consist mainly of raw materials and petroleum. The total value of the nation’s exports was $792.9 billion in 2012, while imports totalled $856.9 billion. Generally, the country has run a consistent trade surplus, which has provided inherent demand for the national currency. According to the CIA World Factbook, in 2012 Japan’s major export partners were China (accounting for 18.1% of overall exports), the United States (17.8%), South Korea (7.7%), Thailand (5.5%) and Hong Kong (5.1%).
During the same year, Japan’s major import partners were China (21.3% of overall imports), the United States (8.8%), Australia (6.4%), Saudi Arabia (6.2%), the UAE (5.0%) and South Korea (4.6%).
Monetary policy authority – Bank of Japan
The Bank of Japan (BoJ) is Japan’s central bank and the key monetary policy making authority. In 1998 the Japanese government provided the bank with operational independence from the Ministry of Finance and complete control over monetary policy. The BoJ’s missions include the issuance and management of banknotes, the implementation of monetary policy, the provision of settlement services and the maintenance of financial stability, as well as activities in international financial markets. The bank’s Policy Board comprises the governor, two deputy governors and six other members.
The BoJ holds policy meetings twice a month, with press releases and briefings issued immediately afterwards. The bank publishes a Monthly Report and a Monthly Economic Report, which are of particular interest to investors as they provide hints about possible changes to monetary and fiscal policy.
The Ministry of Finance (MoF) and the BoJ have intervened in the foreign exchange market on numerous occasions to influence the yen’s exchange rate in favour of Japan’s economic interests. As exports are the major driving force of the national economy, both institutions prefer a weaker currency. If the yen strengthens too quickly against the US dollar, the euro or other major currencies, officials from the MoF and the BoJ are likely to voice concern about the exchange rate. Any such comments or statements can move the currency market.
A major tool the BoJ uses to implement monetary policy is its open-market operations. As the central bank has kept its benchmark interest rate close to zero for some time, it instead manipulates liquidity via open market operations. We discuss this policy tool in our Forex trading guide.