DIJ Director Franz Waldenberger has contributed the chapter “The Japanese Economy” to the recently published Routledge Handbook of Contemporary Japan, edited by Hiroko Takeda and Mark Williams. The chapter analyzes the development of the Japanese economy over the last 40 years. It covers the advantages of Japan’s institutional set-up in the 1980s, the burst of Japan’s ‘bubble economy’, the  so-called ‘lost decades’ of low growth and recession as well as recent government initiatives to stimulate productivity growth with corporate governance and ‘work-style’ reforms. The chapter also contains an outlook on future developments. In addition to the challenges posed by the global pandemic, climate change, and digital transformation, they are characterized by unprecedented demographic change, a deflationary environment and huge government debt supported by an extreme expansion of the monetary base.