The purpose of this paper is to clarify the characteristics and current issues of the Japanese educational system by examining the relationship between income distribution and education. This relationship is not simply a one-way effect of education on income distribution, but an interaction between the two. Thus, we must consider the reverse effect of income level and equality on educational demand. This paper examines survey data from studies on education's effect on income distribution. The major focus is placed on an economic analysis of educational systems in Japan rather than an analysis of factors determining income distribution. The structure is as follows: the first section gives a brief description of recent trends in the distribution of income by time series data. The second section discusses possible factors determining these trends and points out the characteristics of income distribution within the framework of human capital theory. The third section is a discussion of measuring the internal rate of return to education and an economic analysis of educational demand. An attempt was made to clarify the economic structure underlying Japan's high level of education. These results were used to point out the need for a more serious consideration of the influence of the income factor on the educational system in addition to examining education's effect on income. The fourth section considers the income redistribution effects of educational finance systems and proposes criteria for sharing the cost of education and the subsidizing of private universities. The final section consists of a summary and conclusions. The role of educational planning in addressing the current debate on educational reform in Japan is discussed. Numerous tables are provided. (BZ)