Japan Slips to Fourth-Largest Economy as Recession Takes Toll

Japan Slips to Fourth-Largest Economy as Recession Takes Toll

Japan Slips to Fourth-Largest Economy as Recession Takes Toll

Official data released on Thursday revealed that Germany has surpassed Japan to become the world’s third-largest economy. According to the latest figures, Germany’s nominal gross domestic product (GDP) for 2023 reached $4.5 trillion, while Japan’s stood at $4.2 trillion. Interestingly, Japan’s economy has slipped into a recession, as indicated by fresh data from Tokyo.

During the years 2022 and 2023, the yen experienced a significant decline of over 18% against the dollar. This depreciation included a 7% drop last year, which can be attributed in part to the Bank of Japan’s decision to maintain negative interest rates.

In contrast, the euro used in Germany has remained relatively stable against the dollar throughout the same period.

Read Also: Germany tests 4-day workweek amid labor shortage

India is on track to surpass both countries in the near future

India is on track to surpass both Germany and Japan in the near future. While both Germany and Japan are facing similar challenges such as labor shortages, falling birthrates, and aging populations, Japan is experiencing a more severe situation. Last year, Japan’s economy showed 1.9% overall growth but faced a technical recession, contracting for two consecutive quarters.

Famous for high-quality manufacturing, particularly in the automotive sector, Japan and Germany witnessed China surpassing Japan as the world’s second-largest economy in 2010. With a massive population, largely under 35, and robust growth rates, India is on the verge of surpassing both Germany and Japan. Experts anticipate it will become the world’s third-largest economy, trailing only the United States and China in the near future.

Read Also: Can Europe’s wealthy countries encourage more work?

Bank of Japan faces several open questions regarding its monetary policy

Bank of Japan faces uncertainties regarding its monetary policy due to the recent weak economic data. This raises doubts about the central bank’s prediction that increasing wages would boost consumption and allow them to gradually withdraw the stimulus measures.

According to Takuji Aida, the chief economist at Credit Agricole, there is a possibility of the economy shrinking again in the first quarter of the year. Factors such as slowing global growth, weak domestic demand, and the impact of the recent earthquake in western Japan contribute to this situation.

As a result, the BOJ might have to significantly revise down its optimistic GDP forecasts for 2023 and 2024, as stated by Aida.

Nevertheless, some analysts argue that Japan’s tight labor market and strong corporate spending plans still support the BOJ’s intention to eventually move away from the ultra-loose monetary policy.

Marcel Thieliant, the head of Asia-Pacific at Capital Economics, highlighted that despite the consecutive contraction in GDP during the fourth quarter, business surveys and the labor market present a different perspective. He also mentioned that sluggish growth is expected this year due to the negative household savings rate. Overall, the Bank of Japan faces open questions and uncertainties regarding its monetary policy in light of the current economic conditions and forecasts.

Leave a Reply

Your email address will not be published. Required fields are marked *