Abstract: Since the beginning of 1990s，Japanese economy has stuck in a recession，therefore the analysis of underlying causes of this long term economic recession in Japan has become a hot spot for research of the academia. Empirical analysis shows that，total factor productivity of Japan in 1990s，compared with that in 1980s，displays a descending trend. The descending of Japan’s total factor productivity attributes to the decline of microscopic production efficiency and factors allocation efficiency. The main reason of declining microscopic production efficiency is the sluggish technological progress which is caused by shortage of independent innovation capability and shrinking international market shares. It’s difficult to transform the factors from low efficient industry and enterprises to high efficient ones which is resulted by the retardation of structural adjustment，therefore factors allocation efficiency drops. Japan’s total factor productivity impacts restrictions on the growth of potential output，and the output gap is produced by the lack of demand，both of which leads to the long term economic recession in Japan. Under the background of promoting management in supply side in China，we should probe into Japan’s total factor productivity fluctuation，its causes and impacts on Japanese economy. It is of practical significance for the healthy and sustainable development of Chinese economy which is stepping into a new normal.

Key words: Japanese economy, total factor productivity, potential output, microscopic production efficiency, factors allocation efficiency