After Germany overtook Germany in the global ranking of nominal gross domestic product (GDP), Japan's economy may also be hanging in the fourth place in the world.
According to the latest estimates of the International Monetary Fund (IMF), in terms of nominal GDP, India's GDP will reach $4.3398 trillion by 2025, surpassing Japan ($4.3103 trillion) and ranking fourth in the world.
The yen is tumbling
As an important indicator of the size and vitality of the economy, nominal GDP refers to the market value of all final goods and services produced by a country or region in a certain period of time, and is widely used in international comparisons and government economic decision-making. In the calculation of nominal GDP, the market value of goods and services is calculated at their prices at the time, without taking into account the effects of inflation. Therefore, nominal GDP can be considered as the total output of a country's or region's economy during the year.
In its October World Economic Outlook, the IMF projected India to become the world's fourth-largest economy by 2026 and Japan to fall to fifth-place between 2026 and 2028. In the latest forecast, India is a full year ahead of schedule to catch up with Japan in terms of GDP.
The IMF's reasoning for this is that Japan's economy has been overtaken by India one year earlier than previously predicted due to the depreciation of the yen and the shrinkage of Japan's GDP in US dollars.
Last year, contrary to the Fed's continued historic monetary tightening, the Bank of Japan (BOJ) stuck to its ultra-loose monetary policy at the time, correcting monetary policy only slightly by enhancing yield curve control (YCC) flexibility. As a result, the exchange rate of the yen against major currencies such as the US dollar has been dominated by depreciation throughout the year.
Entering 2024, the yen's decline has not improved. Even in March, after the Bank of Japan announced that it would exit negative interest rates, the yen continued to fall in the foreign exchange market. According to the data, at the beginning of April, the size of the net short position in the yen exceeded 150,000 contracts. The dollar index has risen 4.6% so far this year, but the yen has depreciated by 9.6%, which has far exceeded the appreciation of the dollar. On April 22, the yen fell to a range of 154.80 to 154.90 yen per dollar, the lowest level since July 1990, at the end of Japan's bubble economy.
For the yen's continuous "bottoming" in the foreign exchange market, Shigeto Nagai, chief economist of Oxford Economics Japan, told the first financial reporter that so far, foreign investors have interpreted a series of decisions of the Bank of Japan in March as a "dovish" statement, and the possibility of the Bank of Japan continuing to raise interest rates in the next few quarters is limited, while the interest rate differential between Japan and the United States will still exist significantly. "The dollar's position as one of the main carry currencies in the G10 will continue to consolidate in the near term, although the gap will narrow. In the medium term, he argues, there may be some room for the yen to appreciate, but it is too early to think that the yen will appreciate sharply, "which may only form after the Fed starts cutting interest rates later this year."
The fluctuation of the yen in the foreign exchange market has aroused the attention of the Japanese economic circles and society. Ken Kobayashi, director of the Japan Chamber of Commerce and Industry, said at a press conference last week that the dual effects of rising resource prices and a weaker yen were worrying, and that the "cost-push-up" inflation, which had faded recently, was likely to return. Small companies will be more severely affected by the depreciation of the yen than large firms that have benefited to a certain extent from the depreciation of the yen, which has boosted exports. At the same time, he hoped that the Government would intervene in the situation in coordination with other countries.
According to a joint statement issued after the meeting of the finance ministers of the United States, Japan and South Korea, which was also held last week, the three countries will continue to consult closely on recent foreign exchange market movements, recognizing that Japan and South Korea are seriously concerned about the rapid depreciation of the yen and the South Korean won. On April 22, Japanese Finance Minister Shunichi Suzuki said that "the government will not rule out any options for excessive volatility and will respond appropriately" in response to the continued depreciation of the yen.
It's not all about exchange rate fluctuations
Past data show that in 1968, Japan's total GDP was close to 150 billion US dollars, accounting for nearly 6% of the global total. That year, Japan surpassed the Federal Republic of Germany to become the world's second-largest economic power, after the United States. In the 30 years since, Japan's economy has ushered in a golden period of development. In 1978, Japan's GDP crossed the $1 trillion mark. At that time, the total global GDP was 8.6 trillion US dollars, and the share of Japan's economy in the world increased to about 12%. In 1995, Japan's economy reached its peak, with a total GDP of $5.5 trillion, accounting for 18% of the world's total, compared to $7.6 trillion in the United States. In 2012, Japan's economy reached another peak, with a GDP of more than $6.2 trillion, accounting for 8.34% of the world's total.
Since then, Japan's GDP has fallen at an unprecedented rate. In 2021, Japan's GDP fell below $5 trillion to $4.93 trillion. Since then, Japan's nominal GDP has hovered around $4 trillion as the domestic economy fluctuates and the yen has fallen. After being overtaken by China in 2010, Japan's economy will be the third largest in the world until 2024.
Chen Yan, executive director of the Japan Enterprise (China) Research Institute, does not agree that the change in the global order of Japan's GDP is entirely due to exchange rate fluctuations. He told the first financial reporter for example, the yen exchange rate rose from 107.77 yen to 1 dollar in 2000 to 79.79 yen in 2012, and then fell to 131.50 yen in 2022. For example, 2012 was the year when the yen exchange rate was the highest, when Japan's GDP was $6.27 trillion, accounting for 8.34% of the world's total. The total scale is higher than that in 2022, but compared with the 15.45% proportion in 1989, it is close to halving, and the weakening trend is very obvious. ”
Chen Yan believes that for Japan, the fluctuation of the exchange rate is only a symptom, and it is more of an economic stagnation that has plagued Japan for many years. "In the eighties and nineties of the last century, Japan was the world's largest exporter of household appliances, and also a very important exporter of steel, automobiles, and chemical materials; in the field of semiconductors, Japan occupied 60%~70% of the world market. At present, however, Japan's exports in these areas are not as good as before. ”
Chen Yan believes that Japan has experienced more than 40 years of economic growth since the 60s of the last century, mainly driven by technological innovation, "because the technological revolution and management revolution have stimulated the growth of Japan's economy." Today, however, the scale of Japan's technological revolution is not comparable to that of more than 40 years ago. Therefore, Chen Yan believes that the "light of hope" for Japan's economic growth lies in leading investment, consumption and exports with emerging industries, and at the same time being vigilant against the decline of domestic demand in an aging society with a low birthrate.
Japan's economic growth is expected to slow to 0.9% this year from 1.9% in 2023 and 1% in 2025 as one-off factors supporting growth in 2023 fade away from a surge in inbound tourism, the IMF said in its latest World Economic Outlook in April.
(This article is from Yicai)
![Karen Mok and his wife traveled to Saudi Arabia, and their German husband was so handsome with an inch of hair, and the two were their first love in college[fig]](data:image/gif;base64,R0lGODlhAQABAIAAAP///wAAACwAAAAAAQABAAACAkQBADs=)