Japan Drops Down to 4th Largest Economy

International Monetary Fund released a forecast that Japan would be overtaken by Germany this year as the world’s third largest economy. According to the forecast, Japan’s nominal GDP will decrease 0.2% from the previous year to $4.23 trillion, while Germany’s will increase 8.4% to $4.43 trillion. There is the current trend of weak yen in the background, but the slipping down from the world top three economies shocked the Japanese citizens who had been proud of being one of the economic giants. Regretful enough, there is no sign of re-boost for Japan.

Nominal GDP is the total value of all goods and services produced in a given time period, being evaluated at current market prices. Although it is impacted by inflation, nominal GDP indicates how well the economy is doing. Japan’s decline is apparently affected by current depreciation of Japanese yen against US dollar or European euro. High inflation rate in Germany has also influenced to the replacement in the ranking. But in fact, Japan has actually seen a long period of low growth.

 

Other countries showed other kinds of trend than Japan. United States is expected to increase 5.8% to $26.95 trillion in 2023 and China will be marking 1.0% of decrease to $17.70 trillion. While Japan is expected to be the world’s fifth-largest economy between 2026 and 2028, India’s GDP is projected to rank fourth in 2026 and third in 2027.

 

It was in 1968 when Japan eclipsed West Germany in terms of gross national products, or GNP, and became the second largest economy after United States. Japan held that position until it was overtaken by China in 2010. Although Japan kept its position for thirteen years, China have gone too far for Japan to catch up again.

 

According to a report of Nikkei Shimbun, Japan’s GDP in 2000 was 2.5 times greater than Germany and 4.1 times greater than China. But in 2023, China’s GDP will become 4.2 times bigger than Japan. In terms of nominal GDP per capita, Japan marks $33.9 thousand in 2023 and is going to be ranked at 34th position among 190 countries and regions. Luxemburg tops with $135.6 thousand.

 

Japan has been trying to maintain its status as an economic giant even after Japan was left behind China. Prime Minister Shinzo Abe called Japan “the state blooming at the center of the world.” He introduced a unique economic policy called Abenomics, which tried to keep Japan’s position in the world economy with bold monetary policy, fiscal mobilization and growth strategy. Those policies, focusing on supporting major industries with depreciated Japanese yen, resulted in stagnation of real wage and Japan could not get rid of deflation.

 

Current administration led by Prime Minister Fumio Kishida still suffers from the negative impact of Abenomics. Even how Kishida reiterates the necessity of raising wage, it cannot catch up with the rise of prices. Kishida’s attempt of tax cut should have been considered when Abenomics had certain achievement in economic growth. Along with depreciated Japanese yen, long-term interest rate is in the trend of increase. It is unignorable that the government of Japan possesses huge amount of debt.

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