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Synopsis Japan, the second largest economy in the world, with a population of over twelve crore, faced stagnation during the decade 1992-2002, which has been described as the ‘lost decade’. Bank of Japan persued zero interest rate policy followed by quantitative easing policy to fight out the deflationary spiral. Japanese banks suffered from huge non-performing loans accumulation for about one and half decades due to excessive exposure to sensitive sectors before a turnaround during the last three years, under what is termed ‘Big Bang strategy for financial sector reforms.’ Japanese post, the world’s largest financial institution engaged in postal savings, life insurance and Mail delivery has been privatized recently, with a view to benefiting the economy as a whole. But many critics are blaming the government for not forming a clear-cut strategy to move its $3 trillion funds into general economy. Japan has been opening up its economy to attract inbound FDI substantially by formulating a robust competition policy and enforcement of a regime that would improve market access and Japan’s economic recovery. Although FDI in Japan has been increasing rapidly in recent years, its share of GDP is still extremely small, when compared to that of other major advanced nations. Japanese companies were rarely the target of mergers and acquisitions. However, in a liberalized financial environment, key economic indicators point to rise in M&A activity both within Japan and with foreign buyers. Financial system stability has been gradually improving, through enhanced value added services and establishment of attractive business models and further improvement in risk management and through corporate governance and internal control and information disclosure.