Japan Shrinks Due to 'Enjo Dage'... GDP Expected to Return to 30-Year-Old Levels

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] There is a forecast that the Japanese economy will shrink to the level of 30 years ago due to the rapid impact of the weak yen. Japan's nominal gross domestic product (GDP) is expected to fall below $4 trillion (approximately 5,560 trillion won), returning to the period immediately after the collapse of the bubble economy in the 1990s, and the average wage is projected to drop to the same level as South Korea's average wage, which was twice as high just 10 years ago.

On the 19th, Japan's Nihon Keizai Shimbun reported that based on an exchange rate of 1 dollar = 140 yen, the Organization for Economic Cooperation and Development (OECD) forecast Japan's nominal GDP this year at 553 trillion yen, which converts to approximately $3.9 trillion. This is the first time in 30 years since 1992 that Japan's nominal GDP has fallen below $4 trillion. Nihon Keizai Shimbun evaluated this as meaning that the Japanese economy, when converted to dollars, has returned to the period immediately after the collapse of the bubble economy in the 1990s.

The weak yen phenomenon, which began earlier this year, has recently intensified. According to Bloomberg News, the dollar-yen exchange rate, which was 115.32 yen per dollar on January 3rd this year, reached 144.58 yen on the 13th, rapidly depreciating the yen's value. Nihon Keizai Shimbun stated, "At this point, the average dollar-yen exchange rate for this year is about 127 yen per dollar, but if the yen's weakness continues, the possibility of nominal GDP falling below $4 trillion this year or next year increases."

According to the report, the global GDP has expanded fourfold compared to the 1990s, and Japan's share in the world economy, which was over 15% at that time, has now decreased to about 4%. In 2012, Japan's nominal GDP exceeded $6 trillion and was 80% larger than Germany's, but this year it is expected to be almost the same as Germany, which ranks fourth in economic size. Yukio Noguchi, an emeritus professor at Hitotsubashi University and a Japanese economist, pointed out, "Currency depreciation lowers 'national power.' It hinders growth by making it impossible to attract talent from overseas."

The weak yen phenomenon is also impacting wages and the value of Japanese companies. When converted at 140 yen per dollar, Japan's average wage is evaluated at $30,000 per year, returning to the level around 1990. Nihon Keizai Shimbun reported, "The average wage in dollar terms is similar to that of South Korea. In 2011, there was a twofold difference." This raises concerns that foreign workers will find Japan less attractive to work in. Additionally, the Nikkei index, the benchmark of the Tokyo Stock Exchange converted into dollars used by foreigners for performance evaluation, has fallen 23% this year, marking the largest annual decline since the 42% drop during the 2008 financial crisis. Nihon Keizai Shimbun explained that from an overseas perspective, Japan's assets are seen as having sharply decreased.

Ryutaro Goto, chief economist at BNP Paribas Securities, pointed out, "If the yen does not stabilize, the number of companies that cannot survive will increase, leading to a decline in overall productivity and wage stagnation." Nihon Keizai Shimbun stated, "Japan's purchasing power and ability to attract talent are declining," and emphasized that "it is urgent to transition to an economic structure with strong currency and increased wages based on high value-added industries."

This content was produced with the assistance of AI translation services.