Japan and the Republic of Korea (hereafter Korea) face many similar challenges, reflecting similar economic structures, social traditions, demographic trends and geographical closeness. The dramatic rise of the People's Republic of China (hereafter PRC) as both competitor and trading partner provides many challenges and opportunities for both economies. Japan has led Korea in terms of both economic development and demographic maturation, and may therefore provide a possible guide to future developments in Korea, as well as other Asian economies facing similar trends. The biggest challenge for both is to secure sustainable growth by implementing structural reforms to raise productivity and improve social safety nets while keeping fiscal policy on a sustainable path.

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