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Sun descends for Japan as it loses title of ‘third largest economy’

Friday, 16 February 2024 9:39 AM [ Last Update: Friday, 16 February 2024 9:39 AM ]

A banknote of Japanese yen is seen in this illustration picture taken June 15, 2022. (Photo by Reuters)

Japan has been overtaken by Germany as the world’s third-largest economy, after the Asian country slipped into recession, according to released data, while battling against a weak yen and an aging shrinking population.

On Thursday, Japan lost its title as the world’s third-largest economy, owing to its weak performance, hence depreciating to the fourth rank and raising uncertainty about the central bank’s plans to exit its ultra-easy policy sometime this year.

Tokyo’s Gross Domestic Product (GDP), which stood at $4.2tn in 2023 compared with $4.5tn for Germany, fell an annualized 0.4% in the October-December period after a 3.3% slump in the previous quarter, government data indicated.

Data showed that Japan’s economy slipped into a recession as it unexpectedly shrank for two straight quarters on weak domestic demand.

The Bank of Japan's optimistic forecast of rising wages supporting consumption may be called into question due to the weak data, which could provide justification for gradually reducing its extensive monetary stimulus.

According to analysts, the figures underscore the gradual decline in competitiveness and productivity of the Japanese economy, coinciding with a shrinking population due to the aging of Japanese citizens and declining birth rates.

Japan eyes hiking optional pension age beyond 70

Japan has okayed plans to let people choose to start drawing their state pensions beyond the age of 70 as it grapples with economic issues.

The fall, which comes more than a decade after it lost its second place to China in 2010, is also being attributed to Yen’s sharp fall against the dollar over the past two years.

Yoshitaka Shindo, the economy revitalization minister, told reporters that the fall has made it necessary for Japan to show it was “imperative” to promote structural reforms, including getting more women into full-time work and lowering the barriers to foreign investment.

“We will deploy all policy steps to support pay rises” to encourage demand-driven growth," Shindo said, according to the Kyodo news agency.

Also known as the land of the rising sun, it was predicted earlier for Japan in the 1970s and 80s that it would overtake the US economy and become the world’s largest economy, owing to its cheap goods with high quality and durability.

“Several years ago, Japan boasted a powerful auto sector, for instance. But with the advent of electric vehicles, even that advantage has been shaken,” Tetsuji Okazaki, a professor of economics at the University of Tokyo told The Guardian.

Meanwhile, the International Monetary Fund has predicted that India’s economy is projected to overtake Japan in 2026 and Germany the following year.

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