The Japanese economy is now going downhill mainly due to a handful of negative factors, including rapid population aging, an increase in financial deficits and a decline in growth potential. The ratio of national debts to GDP is over 180%, more than two-fold higher than 70%-75% of western industrialized countries. The ratio of financial deficits to GDP stands at 3.4%, the worst among industrialized countries. The share of the Japanese economy in the global economy nearly halved today from 18% in 1995. If this trend continues, the Japanese economy will be overtaken by the Chinese economy in 2011. This report aims to offer an in-depth analysis of the problems and challenges facing the Japanese economy.