Japan boasts one of the largest economies in the world. The country continues to experience a moderate economic recovery that began in 2003, following a decade of economic stagnation. Japan’s real gross domestic product (GDP) grew by 2.5 percent in 2005 and 2.3 percent in 2004. The modest upturn over the last few years reflects higher business confidence in Japan, a surge in export demand led by exports to China, and robust consumer spending. Unemployment in Japan fell to 4.4 percent in 2005, down from an early 2003 peak of 5.5 percent.

Japan has virtually no domestic oil or natural gas reserves, and in 2005 was the second largest net importer of crude oil in the world. Despite the country’s dearth of hydrocarbon resources, Japanese companies have actively pursued upstream oil and natural gas projects overseas. Japan remains one of the major exporters of energy-sector capital equipment, and Japanese companies provide engineering, construction, and project management services for energy projects.

Japan’s National Diet (parliament) elected Shinzo Abe as the country’s new prime minister on September 26, 2006, succeeding Junichiro Koizumi, who held the position for more than five years. Both Abe and Koizumi come from the Liberal Democratic Party (LDP), which has been in power since 1955. Before coming into office, Abe held the post of Chief Cabinet Secretary under Koizumi. Many political analysts expect Abe to adopt similar economic and foreign policies to his predecessor, although this remains to be seen.