Title page
Contents
Executive summary 9
1. Key Policy Insights 14
The pandemic set back positive structural developments 14
The policy response helped keep cases relatively low 15
The economy rebounded from the initial shock, but growth remains subdued 17
Monetary and financial policies have been accommodative 22
Fiscal policy reacted robustly 29
Securing fiscal sustainability 32
Ensuring long-run environmental sustainability 39
Preserving well-being and raising employment 45
Improving business sector productivity 49
References 55
2. Making the most of digitalisation following COVID-19 60
The impact of the pandemic on the ongoing digital transformation 61
Where does Japan stand with respect to digitalisation? 62
Promoting the government's role in the digital transformation 65
The promises of digitalisation for businesses 73
Providing the skills for the digital transformation 85
References 97
Table 1. Exports have rebounded strongly 10
Table 1.1. Macroeconomic indicators and projections 21
Table 1.2. Events that could lead to major changes in the outlook 21
Table 1.3. Chronology of major monetary policy announcements since end 2019 24
Table 1.4. Past OECD recommendations on monetary policy and the financial sector 29
Table 1.5. Fiscal policy support during the pandemic 31
Table 1.6. Delaying the consumption tax hike would affect debt sustainability significantly 36
Table 1.7. Past OECD recommendations on achieving fiscal sustainability 38
Table 1.8. Illustrative impact of proposed reforms on the budget 38
Table 1.9. Past OECD recommendations on ensuring environmental sustainability 44
Table 1.10. Past OECD recommendations on mitigating the decline in the labour force 48
Table 1.11. Potential impact of structural reforms on per capita GDP 49
Table 1.12. Past OECD recommendations on raising productivity 53
Table 2.1. Administrative procedures and applications 66
Figure 1. The recovery is relatively sluggish 10
Figure 2. Fiscal policy reacted robustly 11
Figure 3. Digital government use is limited 12
Figure 1.1. Employment and investment had been picking up 14
Figure 1.2. Infections and deaths are relatively low, but difficult to bring under control 16
Figure 1.3. While beds appeared ample, the health service struggled with infections 16
Figure 1.4. Vaccination started slowly in 2021, but has accelerated 17
Figure 1.5. Private consumption has been subdued and public spending has expanded 18
Figure 1.6. Employment dropped rapidly while unemployment rose more gradually 19
Figure 1.7. External demand and capital goods shipments bounced back 20
Figure 1.8. The Bank of Japan boosted its balance sheet 22
Figure 1.9. Inflation temporarily turned negative 23
Figure 1.10. Lending surged as cash flow dried up, backed by loan guarantees 25
Figure 1.11. The banking sector appears relatively sound 26
Figure 1.12. Some asset prices have surged 26
Figure 1.13. Large-scale fiscal support has been provided 32
Figure 1.14. Long-term economic and fiscal projections 34
Figure 1.15. Composition of government spending and revenue 35
Figure 1.16. The evolution of public debt is sensitive to interest rate assumptions 37
Figure 1.17. Emissions remain elevated due to shifts in energy supply 39
Figure 1.18. Low energy intensity and increasing renewables have helped decoupling 40
Figure 1.19. Greenhouse gas emission targets are challenging 41
Figure 1.20. Market-based instruments are relatively underused 44
Figure 1.21. Suicide rates rose as the pandemic wore on 45
Figure 1.22. Labour market reforms have helped boost participation and employment rates 46
Figure 1.23. More women are participating but large wage gaps persist 47
Figure 1.24. The number of foreign workers has increased 48
Figure 1.25. The number of bankruptcies has fallen 50
Figure 1.26. Business dynamism has remained weak 51
Figure 1.27. Regulation is relatively complex and the state is involved in business operations 51
Figure 1.28. Levels of perceived corruption are relatively low 52
Figure 2.1. Access to mobile broadband is widespread 63
Figure 2.2. Most connections are high-speed broadband 63
Figure 2.3. Online purchasing is around the OECD average 64
Figure 2.4. Japan is an important developer of emerging digital technologies 64
Figure 2.5. Some digital technologies are widely used 65
Figure 2.6. Government policy settings for data provision appear relatively good 66
Figure 2.7. Internet use for public services is limited in Japan 67
Figure 2.8. Japan has made progress in using electronic health records 70
Figure 2.9. Labour productivity is relatively weak 74
Figure 2.10. Digital-related service exports are largely intellectual property products 75
Figure 2.11. The contribution of services to manufacturing exports is low 76
Figure 2.12. Growth of the private capital stock has slowed 76
Figure 2.13. Business R&D spending is high, but not in the ICT sector 79
Figure 2.14. Public support of R&D spending is largely tax based 80
Figure 2.15. Firm entry rates are particularly weak 81
Figure 2.16. Administrative burdens for setting up a business are relatively large 82
Figure 2.17. The venture capital market is relatively small 83
Figure 2.18. Entrepreneurship in Japan is quite low 83
Figure 2.19. The share of university graduates is high, but digital skills are around average 86
Figure 2.20. Computers are comparatively less available in schools 87
Figure 2.21. ICT access is quite dependent on school type and location 88
Figure 2.22. Students in Japan spend less time on the Internet and using computers 88
Figure 2.23. Schools are not well prepared for the use of ICT tools 89
Figure 2.24. There are few STEM graduates 90
Figure 2.25. Firm-based training is comparatively underdeveloped 91
Figure 2.26. Job-to-job flows have trended up modestly 92
Figure 2.27. Firm spending on training is more generous in larger firms 93
Figure 2.28. Non-regular employment has trended up through the late 2010s 94
Boxes
Box 1.1. The promise and challenges of FinTech 27
Box 1.2. Structural priorities in the New Economic Policy Package 29
Box 1.3. Sensitivity analyses of long-term projections 36
Box 1.4. Illustrative fiscal impact of proposed reform measures 38
Box 1.5. Restructuring after the Tohoku Earthquake 40
Box 1.6. Quantification of the impact of structural reforms 49
Box 2.1. Digital information and technology during the pandemic 61
Box 2.2. Aizuwakamatsu: digitalisation in a historical city 71
Box 2.3. Business services in exports 75
Box 2.4. Fukuoka: transforming government and promoting business 77
Box 2.5. Developing business ecosystems in the Netherlands 84