The paper argues that the secret of Japanese economic stagnation in the late 1990s is the decrease of marginal TFP effect of R&D expenditure density resulting in slow TFP growth rate. The cause of marginal TFP effect of R&D expenditure is that Japan could not reform its labor and financial market according to the change of economic development and innovation pattern.From 1990s，Japan has complemented catch-up process and become an advanced economy，and it demanded Japan reform its labor and financial market structure fundamentally. In fact，in the period of 1990s and 2010s，Japan failed to reform its deep institutional structure.