Japan is not an emerging market economy. Emerging market economies are characterized by low per capita incomes, poor infrastructure and undeveloped business climates, although these factors may be improving due to reforms, modernization and globalization. Countries with low incomes tend to have lower labor costs, creating the potential for strong export markets if workers have training, accompanied with proper infrastructure. Essentially, emerging market economies refer to countries that are on the upswing with huge portions of populations reaching the middle class.

Following World War II, Japan was certainly an emerging market economy; it had a growing population and relatively low income levels. Further, there was tremendous opportunity given the devastation wrought by the war. The United States and European countries committed to assisting in the country's recovery through providing funds and defense. It resulted in the creation of competitive export industries that propelled Japan toward becoming one of the largest economies in the world by the 1980s.

Economic Growth

It is incorrect to label Japan as an emerging market economy; it has already undergone this transition. The transition from emerging market to developed nation typically involves opening up trade, increasing per capita income and the development of a consumer-oriented market, infrastructure, education, political stability and the rule of law. Emerging market economies are at some point in this transition, whether it is countries in Africa that are in the beginning stages or countries such as India or China which are in later stages.

The major challenges of emerging market economies are generating enough economic growth to provide opportunities for the population to foster political stability. Additionally, it is necessary to develop a respect for the rule of law so markets function effectively. In many emerging markets, corruption remains a major hurdle, as bribing public officials is a necessary part of doing business.

Japan has made significant progress in all these measures and in a short period of time. Part of the reason that Japan was so successful is that it already had developed infrastructure, a strong education system and respect for the rule of law. Once trade was opened up, Japanese industry quickly adapted and became competitive with the rest of the world. At one time in the 1990s, this tiny island was the largest exporter in the word.


Another significant way in which Japan does not fit the category of an emerging market is the country's demographics. Emerging market economies tend to have young populations, which makes them appealing to investors, as it leads to higher consumption levels and lower labor costs. In contrast, Japan is rapidly aging; its population is not reproducing fast enough to maintain its population.

Additionally, immigration levels in Japan are quite low. Japan's aging population is the country's biggest challenge. This is markedly different from emerging markets, which look to attract investment to create infrastructure, create employment opportunities and implement market-oriented reforms.

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