Conventional wisdom suggests that after a spectacular economic performance during the 1970s and 1980s, Japan has endured two “lost decades” that have seen it slip from its status as a premier economy to be overtaken by China in 2010 as the world’s second largest national economy. It is useful to put such assertions into context to understand better both Japan’s economic performance and its prospects. This essay argues that Japan’s economic performance over the past two decades has, in many ways, been better than is generally recognized. At the same time, Japan will face a number of economic challenges during the coming decades. To address these challenges successfully will require a comprehensive series of policy changes.