Economy & Tech

EDITORIAL | Japan's Nominal GDP Ranking Slips to 4th Place

Japan's large economy is its source of power. To turn around its slumping GDP, the private sector must lead in implementing several labor and financial reforms.

Published

2 months ago

February 19, 2024

Editorial Board, The Sankei Shimbun

Tokyo cityscape. In terms of GDP, Japan dropped to 4th place after being overtaken by Germany. (© Sankei by Ko Notomi)

Measured in US dollars, the 2023 gross domestic product (GDP) just announced by the government puts Japan in fourth place. By that standard, it slips below Germany.

Rapid depreciation of the yen together with appreciation of the US dollar led to a drop in Japan's GDP. Other factors include the fact that prices have been rising faster in Germany than Japan.

Nevertheless, the fact that Germany's GDP has surpassed Japan's despite that country's economic slump. It also proves just how stagnant Japan's economy remains 13 years after China overtook us as the world's second largest economy in 2010. There is no way to ignore that stark reality.

Overcoming Economic Malaise

To escape the grip of the "lost 30 years," we must revive a strong economy led by the private sector. Currently the economy stands at a crossroads that will determine whether it can at last completely escape long-lasting deflation. The question is whether Japan will prove able to boost the overall economy through corporate wage increases and structural reforms. If it does so, the question is whether it can also fulfill its role as a driver of the global economy.

Japan's nominal GDP in 2023 was ￥591,482 billion JPY, or 4.21 trillion US dollars. That is below the $4.5 trillion USD for Germany. There are fears that Japan's economy will shrink further due to population decline. In any event, it is also inevitable that it will be overtaken by India with its enormous population.

Japan is the only Asian member of the G7 group of developed countries. As such, it has achieved considerable clout in the international community. But its large economy has been the source of its national power. Now in terms of per capita GDP, Japan finds itself being challenged by South Korea and other countries. If we are to continue to exert international influence, it is imperative that we raise our economic power to a higher level.

Reaching the Next Level

To do so, we must aim for improvement in labor productivity. This has been a perennial issue, regardless of whether it is for manufacturing or non-manufacturing industries.

We should also take advantage of digital technology. That should be used to build a business structure that can generate profit even in the face of an acute labor shortage.

Labor and financial reforms should also be thoroughly implemented so that sufficient human resources and capital flow to growth fields. The key will be whether private companies can independently develop proactive management rather than relying on the government.

The real GDP figure for the October-December 2023, announced on February 15, was negative for the second consecutive quarter. It came as rising prices resulted in sluggish consumption. Among other points of concern are the impacts of the Noto Peninsula earthquake and the slowdown in the Chinese economy.

However, listed companies are expected to book record high profits in their financial results for the April-December period of 2023. There is also growing momentum for sizable wage increases during the spring labor offensive. Whether these trends develop into a virtuous economic cycle will largely determine the fortunes of the Japanese economy.

(Read the editorial in Japanese.)

Author: Editorial Board, The Sankei Shimbun