The Koizumi administration, which held office until 2006, enacted or attempted to pass (sometimes with failure) major privatization and foreign-investment laws intended to help stimulate Japan's dormant economy. Although the effectiveness of these laws is still ambiguous, the economy has begun to respond, but Japan's aging population is expected to place further strain on growth in the near future

Keynesians tend to claim that Japan's economy is far stronger than generally believed. Some mainstream economists acknowledge that Japan, which unlike most Western countries has maintained its industrial base, and has vast capital reserves, currently has a strong economic outlook.

The privatization of Japan Post, the Japanese postal system which also runs insurance and deposit-taking businesses, is a major issue. A political battle over privatization caused a political stalemate in August, 2005, and ultimately led to the dissolution of the Japanese House of Representatives. The Postal Savings deposits, which have until now been used to fund public works projects, many of which have had questionable economic value, stands in excess of 1.9 trillion U.S. dollars, and could be a major force in energizing the private sector.

The Japanese monetary authorities' continued desire to depress the price of yen relative to other key specific currencies to protect domestic business from imports may no longer be feasible. The most recent record intervention in 2003 amounted to over 17 trillion yen, more than one third of one trillion US dollars at the time and nearly 3% of Japan's 2003 GDP, being sold in favor of other non-yen denominated assets. However, since 2005, Japan has not directly intervened to buy currency, as yen carry trade has effectively carried out the same task.

Interestingly, international trade has expanded by 60% from 91.4 trillion yen to 142.6 trillion yen from 2001 to 2006. However, taking in account the economic participation rate, Japan's GDP per worker has increased steadily.

The Organization for Economic Cooperation and Development downgraded its economic forecasts on March 20, 2008 for the Japan for the first half of 2008. Japan does not have room to ease fiscal or monetary policy, the 30-nation group warned. For Japan, the OECD said the pace of underlying growth appears to be softening despite support from buoyant neighboring Asian economies. The organization expects first-quarter GDP to be up 0.3 percent and predicts a rise of 0.2 in the second quarter.

On November 17, 2008, Japanese government officials announced that the economy was in a recession.[27] It was reported that Japan's economy contracted at an annual pace of 1.8% in the third quarter of 2008. It is forecasted to have shrunk 0.8% through the fiscal year that ends March 2009. In July 2009 unemployment reached a post-war high of 5.7 per cent, according to the Japan Times.

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