Abstract. The article is devoted to the problem of rising income inequality in Japan and other developed countries. The main aims are (1) to trace the changes of the last decades (2) to depict the current situation in income distribution in these states (3) to single out the causes of the described trends and (4) to forecast their possible influence on future economic development. The author examines in details the shifts of the main income inequality level indicators such as ratio of income share of the top decile to that of the bottom decile, Gini coefficient at the disposable and market income, and also some specific characteristics, for example the ratio of billionaire net wealth to GDP and 1% income share. This analysis shows that the level of income inequality is rising in all main developed countries, including Japan, primarily because of the impoverishment of a considerable part of population. In fact, the middle class’ shrinkage is statistically evidenced. Further inquiry reveals that the main causes of this trend in Japan are enduring demographic crisis, which leads to the increase of elderly population share in the society, and to a dramatic shift in the employment structure, which consist in non-regular employees share growth. Rising income inequality imposes additional burden on the taxation and social security systems, provokes additional social and political tensions and weakens the working motivation of the population. Also, it reduces the possibilities of the citizens to invest and to consume, which involves the decline in human capital and consumer demand. In the long run the observed income inequality level increase can lead to significant economic deceleration.