Japan is falling in the global hierarchy of the most powerful economies on the planet. After losing its second place (behind the United States) to China in 2010, the Japanese archipelago could no longer be on the world podium this year. According to International Monetary Fund (IMF) projections, Germany’s nominal gross domestic product (GDP) is expected to rise to $4.43 trillion this year, compared to Japan’s $4.23 trillion.
A notable result for the European country, despite a 47% smaller population (83 million compared to 122). The GDP per capita in Germany is now significantly higher than that of Japan and is expected to reach $52,824 in 2023, compared to $33,950 for the inhabitants of the archipelago.
If these predictions prove correct, this change in the world economic order would be historic. Japan became the second largest power on the planet in 1968, surpassing Germany. Having become a major financial power in the following decades, the country was even heavier in 1990 than Germany, France and the United Kingdom combined in terms of GDP.
But since then, the giant has fallen asleep and the Europeans have caught up, starting with Germany. Although Japan’s decline this year can be explained above all by monetary reasons. In fact, the Japanese yen has been at its lowest level since 2008 against the euro (one euro is worth 160 yen) and for even 33 years against the dollar. Since the IMF measures GDP in dollars, the estimate is favorable for countries with rising currencies, such as the United States and members of the eurozone.
Japan’s long slow decline
In fact, American and European central banks have significantly increased their key rates over the past 18 months to fight inflation, which has increased the value of their respective currencies. Unlike Japan, which, marked by decades of deflation, continued its internal recovery policy with lower rates than in the West. Hence the fall of the Japanese currency.
However, if Japan’s decline is cyclical, it also reflects a slow and prolonged decline in the Asian giant’s economy. Even a decade ago, currency games would not have allowed Germany to overtake Japan. Economic growth in the Land of the Rising Sun has been slowing for several decades.
Hurt by sluggish domestic demand, one of the largest aging populations in rich countries and a worrying demographic decline that has already begun, Japan remains prosperous but has lost its dynamism for more than two decades. The government has been trying for years to reactivate domestic demand in vain. Prime Minister Fumio Kishida’s future plan plans to revive growth by subsidizing the energy transition, encouraging wage increases and granting tax cuts.
Meanwhile, IMF projections show the gap could widen between the two countries. In 2025, German GDP would even be 10% higher than Japan’s ($4.960 billion versus Japan’s $4.525 billion).
Source: BFM TV
