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Japan’s nominal gross domestic product (GDP)–––the broadest measure of economic activity–––will slip from third to fourth in the world on a U.S. dollar basis in 2023, according to the latest projections by the International Monetary Fund (IMF).
Germany will overtake Japan, becoming the next third-largest economy in the world having a population approximately two-thirds the size of the Japanese.
The U.S. will remain at the top followed by China.
Why Japan fell
The yen’s depreciation and Germany’s higher inflation rates underpin the projected swap of positions. Japan fell from third as the yen dropped to ¥160 per euro and ¥150 per USD this month.
For monthly inflation rates, Japan’s consumer price index has generally been in the 3% range since January. Germany’s inflation rates remained higher than Japan’s throughout the year ranging between 6 and 9% from January to August. They then declined to the 4% range in September.
Japan’s nominal GDP for 2023 will decrease by 0.2% from the previous year to ¥630 trillion ($4.23 trillion USD). Meanwhile, Germany’s will increase by 8.4% to ¥666 trillion ($4.43 trillion USD), according to the IMF forecast released in this month’s World Economic Outlook.
Context
Japan’s nominal GDP overtook Germany after World War II. It remained second behind the U.S. until its bubble economy burst in 1992, the start of its prolonged period of low growth.
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In 2010, Japan slipped from second to third, ceding the position to China.
Despite the Abe administration’s declaring efforts to increase Japan’s nominal GDP in 2015, goals were not met.
Post-pandemic recovery widened the gap between Japan and other countries too. From 2019, the nominal GDP of all the top countries increased in 2023. The U.S. recorded a growth of 26%, China 23%, and Germany 14%, while Japan suffered a negative 17% growth.
Analysts weigh in
“Repeatedly introducing tax reductions and benefit payments will only accelerate the yen’s depreciation. It’s possible that (Japan) will be overtaken by the UK in thirty years.” said Hideo Kumano, chief economist at the Economic Research Department of Dai-ichi Life Research Institute.
“I think that a change in mindset is required here to take advantage of the weak yen and strengthen inbound tourism businesses and grow our advanced caregiving services an industry for exports.” said Sakai Saisuke, chief economist at Mizuho Information & Research Institute.
Weaker yen; pricier gas
Gasoline prices in Japan remain high because of surging crude oil prices and the weakening yen.
The national average of gasoline prices next week will be ¥210.5 ($1.4 USD) per liter, according to the Ministry of Economy, Trade, and Industry (METI)’s weekly report.
METI decided on a subsidy of ¥35.7 ($0.24 USD) per liter starting today to the first of November with the aim of keeping gasoline prices at ¥175 ($1.16 USD). The government will use over ¥3 billion (over $19 million USD) for subsidies by the end of this month.
This will be the 7th consecutive week in Japan that gasoline prices have jumped over ¥200 ($1.33 USD).
Yen profits from inbound tourism
“I don’t think that raising the prices as we did this time will result in a drastic decrease in users,” said JR East president Fukasawa Yuji in reference to the massive price hikes averaging 70% for inbound tourists’ purchases of the Japan Rail Pass.
Starting this month, the regular 7-day unlimited ride pass became 69% more expensive from ¥29650 ($197 USD) to ¥50,000 ($332 USD). The largest hike in price was 77% for the Green Car 7-day unlimited pass from ¥39,600 ($263 USD) to ¥70,000 ($465 USD).
Despite the significant price increase, which 72.6% of respondents in a Japan Guide survey said deters them from purchasing the pass, JR East and West have commented that the weak yen ensures that tourists will still buy the tickets.
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Sources
[1] 日本の名目GDPがドイツに抜かれ４位転落へ、コロナ禍からの回復に差…IMF予測. 読売新聞
[2] Germany set to eclipse Japan as No.3 economy in 2023, IMF says. The Japan Times
[3] IMF projects Japan’s GDP to fall to world’s 4th in 2023 after Germany. Kyodo News
[4] IMF: Japanese economy to drop to 4th in world, trail Germany. The Asahi Shimbun
[5] Germany set to overtake Japan as 3rd-largest economy. ET BFSI.com
[6] IMF projects Japan’s GDP to fall to world’s 4th in 2023 after Germany. The Mainichi
[7] ガソリン173.4円、２週間連続で目標より安く 補助金は高止まり. 朝日新聞
[8] 訪日客向け切符、初の値上げ 平均7割高く、JRは強気. 朝日新聞
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