This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.The economic situation and policies of Japan were reviewed by the Committee on 8 and 9 September 2021. The draft report was then revised in light of the discussions and given final approval as the agreed report of the whole Committee on 15 October 2021.The Secretariat’s draft report was prepared for the Committee by Douglas Sutherland, Kei Oguro and Patrizio Sicari, under the supervision of Vincent Koen. Research assistance was provided by Natia Mosiashvili, and editorial support by Sisse Nielsen and Gemma Martinez.The previous Survey of Japan was issued in April 2019.Information about the latest as well as previous Surveys and more details about how Surveys are prepared is available at www.oecd.org/eco/surveys

The COVID-19 pandemic hit the economy hard, provoking a marked downturn. The economy is recovering, supported by macroeconomic policies and progress in addressing infections.

While Japan has successfully contained the number of infections, the pandemic has proved difficult to bring under control. Successive waves of infections induced the government to introduce states of emergencies, which became more targeted over time. Confinement measures and behavioural changes kept transmission rates relatively muted, but at some near-term cost to the economy. After the initial shock, the economy has struggled to regain its footing, even though fiscal and monetary policy reacted quickly and robustly to offset the impact on households and businesses.

New digital technologies and big data have created opportunities to address persistently sluggish productivity growth and mitigate the effect of an ageing and shrinking population on the economy amongst other challenges. The Japanese government has embarked on an ambitious plan of digital transformation and businesses are often at the forefront of new technologies. The pandemic accelerated the digital transformation as households, businesses and government switched to new technologies and ways of organising themselves in order to minimise health risks. But the pandemic also exposed shortcomings. Many were underprepared having not made needed investments to exploit these new technologies. While government is pursuing initiatives across a number of areas, weaknesses in linking databases hindered its ability to target support for those most affected by the pandemic. Investment by business is concentrated in larger firms and the dynamism offered by new firms entering the market is limited. Students and workers, while highly trained, can lack the skills needed to exploit fully new digital tools.