Japan has lost its position as the world’s third-largest economy to Germany and has slipped into a recession. This development comes as Japan grapples with weak domestic consumption.
Japan’s economy, now the world’s fourth-biggest, grew 1.9% in 2023 in nominal terms, meaning it is not adjusted for inflation, but in dollar terms its gross domestic product (GDP) stood at $4.2tn compared with $4.5tn for Germany.
The, occurs over a decade after Japan relinquished its second-place position to China and is greatly attributed to the significant depreciation of the yen against the dollar in the past two years.
Devaluation adversely affects export earnings when they are repatriated to Japan, with the yen witnessing a nearly 20% decline against the US dollar between 2022 and 2023, including a 7% decrease last year.
Another major contributor is the country’s ageing population that is heavily dependent on exports. The failure of government-led attempts to boost the birth-rate means chronic labour shortages are expected to worsen, even as the country welcomes a record number of foreign workers.
Yoshitaka Shindo, the Minister for Economic Revitalization, emphasized the importance of promoting structural reforms in response to Germany surpassing Japan in the global economy.
He highlighted the necessity of measures such as increasing the participation of women in full-time employment and reducing obstacles to foreign investment.
According to the International Monetary Fund, India’s economy, buttressed by a large and growing young population, is projected to overtake Japan in 2026 and Germany the following year.
