Officially Drops into Fourth Place

The Cabinet Office announced nominal gross domestic product (GDP) in 2023 on Thursday, which confirmed Japan’s drop from the third largest economy in the world. Although the decline of GDP could be attributed to depreciation of Japanese yen, Japanese economy has been facing decades long problem of low productivity. It is estimated that Japan will be overtaken by India within a few years.

According to National Accounts of Japan released by the Cabinet Office, Japan’s nominal GDP in 2023 was ¥591 trillion, which would be equivalent to $4.21 trillion. Germany marked $4.45 trillion of GDP in the same year. It was the first case for Japan to take its position below Germany since 1967.

 

Although Japan overtook West Germany and occupied the second position, next to United States, of world economy in its high growth period called Izanagi boom fifty-seven years ago, China left Japan behind in 2010. While Japan kept its position of the third for thirteen years, its economy did not show a great boost.

 

The environment overwhelmingly affected Japan’s decline was cheap yen. Value of Japanese yen dropped from around ¥110 per dollar in 2021 to ¥140 in 2023. While US Federal Reserve Bureau and European Central Bank shifted their policy to increasing interest rate, Bank of Japan maintained its ultra-easy monetary policy trying to achieve its goal to stable rise of consumer’s price.

 

Germany has been suffering from inflation, caused by steep rise of energy price since Russia began its aggression to Ukraine in 2022. Consumer’s price in Germany last year grew 5.9 percent, higher than Japan’s 3.1 percent. With two-third of Japan’s population, Germany exceeded Japan in GDP, with stable economic growth brought by integration of European countries.

 

“Trying to secure immediate balance, companies restricted investment which is the source of wage or economic growth. As its result, consumption stagnated, consumer’s price was kept low and Japan’s economy did not make high growth,” said Chief Cabinet Secretary, Yoshimasa Hayashi. That was a general conclusion of Japanese economy of these thirty years, which is called “lost thirty years.”

 

Former Prime Minister Shinzo Abe introduced an economic policy relying on low value of Japanese yen to promote exports of Japanese products. However, that policy did not yield high growth of wage and domestic consumption did not show significant uprise. Restriction of investment by companies and low birth rate caused outflow of production and Japan’s manufacturing capacity did not improved.

 

The Cabinet Office also announced that real GDP of Japan in the last quarter of 2023 contracted 0.1 percent from the previous quarter, which marked decline for consecutive two quarters. It technically means recession. While Japanese stock market has been rallying these days, the substance of Japanese economy includes negative elements.

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