Japan is no longer the third largest economy in the world


Japan is slipping into recession. And it is losing third place in the ranking of the world’s largest economies to Germany, which is now behind the USA and China.

Japan unexpectedly slips into recession

Surprisingly, Japan has entered a technical recession, with domestic consumption remaining weak. In the time in between In October and December, GDP fell by 0.1%, compared to -0.7% in the previous quarter. and was well below analysts’ expectations, who expected an increase of 0.3%.

Year-on-year, gross domestic product fell 0.4% after contracting 3.3% in the third quarter. Here too, these figures are below market estimates, which targeted growth of 1.4%.

It is worth remembering that a country’s economy falls into recession when it contracts in two consecutive quarters.

The weakness of the yen is weighing on overtaking

There is also a currency effect behind the German overtaking maneuver that the IMF expected months ago, in this specific case a weakness of the yen against the dollar. The latest data shows that Japan’s nominal GDP (calculated in dollars) is around $4.2 trillion in 2023, while Germany’s is $4.4 trillion. If the yen rises again, the country could regain third place.

However, Japan’s GDP accelerated last year in real terms, i.e. without the influence of inflation (+1.9%, compared to 1% in 2022), while the German economy contracted by 0.3%, according to official data published in January.

Nikkei 225 heading to all-time highs

In response to the latest GDP data: the Nikkei 225 The benchmark rose 0.65% and briefly exceeded the threshold of 38,000 in the morning session (first time since 1990), as investors viewed the weak GDP reading as a sign that the Bank of Japan may delay an exit from the country’s long-standing negative interest rate policy. The Nikkei 225’s all-time high (38,915.87) was reached on December 29, 1989.

The Bank of Japan introduced negative interest rates in 2016 to stimulate spending and investment.
Negative interest rates have made the yen less attractive to global investors, which has driven down the value of the currency.

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