On October 4th, in the center of Tokyo, pedestrians walked past an electronic display board displaying data from the Tokyo Stock Exchange and the Japanese yen. Source: The AFP International Monetary Fund predicts that Germany will replace Japan as the world's third largest economy by 2023. Image source: kyodonews
The significant depreciation of the yen and the lack of motivation for Japan's economic growth are the main reasons. If Japan fails to improve in the future, the ranking will further decline.
Can't you keep the position of the third person? After being overtaken by China to become the third largest economy in the world in 2010, Japan is about to be overtaken by Germany this time, and with the boost of India's economy, Japan's GDP seems to be approaching its fifth percentile.
The International Monetary Fund predicts that Germany will replace Japan as the world's third largest economy by 2023, while Japan will fall to fourth place. In 2023, Japan's nominal GDP was about $4.23 trillion, while Germany, which is about to surpass Japan, is about $4.43 trillion.
Chen Zilei, a professor at Shanghai University of International Business and Economics and director of the Japan Economic Research Center, believes that the significant depreciation of the yen and the lack of momentum for Japan's economic growth are the main reasons. If Japan fails to improve in the future, the ranking will further decline.
International ranking has been declining all the way down
According to data analysis from the Bank of Japan, the interest rate gap between the Japanese yen and the US dollar continues to widen, and the average exchange rate of the Japanese yen against the US dollar has recently depreciated to about 150 yen per dollar. The forecast of the World Monetary Fund is based on the US dollar, and the significant depreciation of the Japanese yen causes GDP to shrink when converted into US dollars.
At the same time, the exchange rate change between the euro and the US dollar is not as significant as the Japanese yen. In addition, nominal GDP is influenced by price fluctuations, with Germany experiencing higher price increases than Japan, which also has an impact on rankings.
Regarding the precarious status of the "third generation", Japan's Minister of Economy and Industry, Yasuo Nishimura, admitted on the 24th that Japan's economic growth potential has indeed fallen behind and remains sluggish.
In recent years, the international rankings of various economic indicators in Japan have been declining. Japanese economist and Honorary Professor Yukio Noguchi of Ichibashi University stated that in 2012, Japan's economy ranked among the top G7 countries. However, in the past decade, Japan's per capita GDP has been surpassed by the UK, Germany, and France. Now, based on purchasing power parity, Japan's per capita GDP is close to the last place in the G7 and on the brink of graduating from the ranks of developed countries.
In the last century, Japan's economy also had a glorious time. According to reports, in 1968, Japan's Gross Domestic Product (also known as GNP) surpassed that of former West Germany, becoming the world's second largest economy after the United States. Afterwards, Japan maintained this position for a long time until it was surpassed by China in 2010. In recent years, the economic growth gap between Japan and Germany has been narrowing.
Lack of motivation for economic growth
In addition to the impact of the depreciation of the Japanese yen, the lack of endogenous power in the Japanese economy is also one of the reasons for its economic downturn.
Chen Zilei stated that currently, the year-on-year increase in profits of major Japanese companies is mainly affected by factors such as increased revenue from overseas subsidiaries and the depreciation of the Japanese yen against the US dollar. In the long run, people are not optimistic about the prospects of expanding domestic demand in Japan. In the context of Japan's society with fewer children and aging population, Japan's economic growth lacks momentum.
The Japanese government is also trying to find ways to cope with the persistently sluggish economy.
Japanese Prime Minister Fumio Kishida said on the 23rd that he hopes to help alleviate the cost of living crisis for Japanese people through measures such as the upcoming package plan. The economic stimulus plan includes extending energy subsidies.
However, the Japanese people do not seem to buy into this. The recent poll results show that the support rate of the Kishida Cabinet is only 32.3%, setting a new low since the formation of the cabinet in October 2021. The response to the government's upcoming economic measures, which is "not expected," is as high as 58.6%.
In response, Chen Zilei stated that due to the impact of imported inflation, the cost of living of Japanese people has increased, and the income gap among various sectors in the country is also widening. People have low expectations for the effectiveness of economic stimulus measures such as tax cuts. In the future, if Japan cannot control the further depreciation of the yen, its global economic ranking may further decline.
And this' future 'may be within the next five years.
According to the International Monetary Fund's forecast, Japan will decline to the world's fifth largest economy between 2026 and 2028. India's GDP may surpass Japan to become fourth in 2026 and become the "third" in 2027, three years ahead of the previous estimates of 2030 by analysts from institutions such as Standard&Poor's and Morgan Stanley.
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