Japan's Economy Falls to 4th Place Globally... Surpassed by Germany for the First Time in 55 Years

Japan's global economic ranking has been overtaken by Germany, dropping to 4th place. This marks 55 years since Japan surpassed West Germany in 1968 to become the world's second-largest economy.

Bloomberg News reported on the 13th (local time), citing International Monetary Fund (IMF) statistics, that Japan's nominal Gross Domestic Product (GDP) was surpassed by Germany last year. Germany's estimated nominal GDP for 2023 is about $4.7 trillion, ahead of Japan's estimated GDP of approximately $4.2 trillion.

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The reasons behind this reversal include the depreciation of the Japanese yen and the impact of an aging population. Hideo Kumano, Chief Economist at Dai-ichi Life Research Institute, analyzed, "The main factor in the decline of Japan's GDP is the exchange rate," adding, "The cheap currency value is further shrinking the Japanese economy." Japan's total population has been steadily decreasing since around 2010, and the chronic labor shortage is intensifying.

The news agency stated, "The GDP to be released this week will fall behind Germany," and "Within a few years, India's economy will surpass both Japan and Germany." Japan's GDP for the fourth quarter of last year will be announced on the 15th.

However, the impact of this GDP overtaking news on Japan's economic policy and public opinion is expected to be limited. Japan maintains negative interest rates, which lowers the yen's value and raises the yen-dollar exchange rate, potentially distorting GDP figures measured in dollar terms. Therefore, the perception that simply comparing the nominal GDP of Germany and Japan based on dollar measurements is not appropriate is preventing deterioration in Japanese public opinion.

The news agency analyzed that although Japan's economic size shrank from $6.3 trillion in 2012 to about $4.2 trillion in 2023, considering the yen's value plummeted from 80 yen per dollar in 2012 to 141 yen last year, the economy likely grew by more than 12%.

Japan's muted reaction to this ranking reversal is also attributed to Germany's recent sluggish economic situation. The Nikkei 225 index approaching an all-time high and the strong performance of the Japanese stock market are factors that ease concerns about Japan's economy. Additionally, the news agency mentioned Japan's stable living standards and the maintenance of per capita GDP despite population decline as further reasons why Japan is not anxious about falling in the global economic rankings. However, the Japanese government is aware of concerns related to the decline in the working-age population and is revising related systems to facilitate the influx of foreign workers.

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