Japan IMF Projections: Updated Dec. 28, 2023.

 

IMF projects Japan's GDP to fall to world's 4th in 2023 after Germany

Article source: https://mainichi.jp/english/articles/20231024/p2g/00m/0bu/001000c

Article:

WASHINGTON (Kyodo) -- Japan's nominal gross domestic product in 2023 is expected to slip from third to fourth in the world on a U.S. dollar basis, to be overtaken by Germany, on the back of the yen's depreciation, recent International Monetary Fund projections showed.

As the nominal GDP figure is impacted by inflation, Japan's expected fall from the No. 3 spot, which it has held for more than a decade, is also believed to reflect higher price increases in Germany than in Japan.

The IMF's projections for the period through 2028 say that India, which has surpassed China to become the world's most populous nation with more than 1.4 billion people, is likely to have a larger GDP than Japan in 2026.

Ideas:

Japan for a very far time, kept the number 3 slot related to GDP, but now, maybe because of inflation and also because of the lack of wage increases, there might be less per capita consumer spending in Japan compared to Germany.

I doubt that many Japanese citizens are worried about Japan moving from 3 to 4 and maybe it doesn't really impact their daily lives. And that is the point, all of these economic indicators, while good to look and use them as needed, the average Japanese citizen could care less about indicators and they only think about their daily lives.

The prices increases might be related to the fact, that Germany is a member of the EU and as such the EU Central Bank, like the US Federal Reserve has been increasing the key rate over the past few years, which makes everything more expensive, while the Bank of Japan has not increased the rate, keeping its ultralow policy in place.

Article:

While Japan is expected to be the world's fifth-largest economy between 2026 and 2028, India's GDP is projected to rank fourth in 2026 and third in 2027.

In 1968, Japan eclipsed West Germany in terms of gross national product, also known as GNP, which was the main indicator at the time, and became the world's second-largest economy after the United States.

Japan held the position until it was overtaken by China in 2010, falling to third place.

Ideas:

Part of the challenge is Japan's low birthrate, which constrain the economy, meaning every year there is less and less economic activity, and of course Japan's ageing population, which might mean less economic activity too.

It has been suggested, that Japan actually grew too fast in the 60's, 70's and 80's and didn't really lay the ground work for solid economic growth in the future. 

The same can be said that maybe South Korea grew too fast in the 70's, 80's and 90's also didn't lay the ground work for future economic growth.

Of course Taiwan, Singapore, Thailand and South Korea all followed the Japanese model for economic growth by growing exports and market share but not really thinking about what do to after 10, 20, 30 years down the road.

Unfortunately, it seems to be inevitable that Japan is going to slip even further as it population doesn't improve and or even if Japan doesn't improve its productivity per capita.

Article:

Regardless of foreign exchange rates, which have a significant influence on GDP, Japan has seen a long period of low growth. Germany's population is about two-thirds of Japan's, but the growth gap between the two countries has been narrowing in recent years.

According to the IMF estimates, Japan's nominal GDP is set to be around $4.23 trillion in 2023, down 0.2 percent from the previous year, compared with Germany's $4.43 trillion, up 8.4 percent.

Ideas:

Unfortunately Japan per capita productivity level is one of the lowest of the advanced economies, and maybe the large Japanese companies are actually too large to innovate or change, which is actually a major challenge for any large company globally.

The low growth period, again, as suggested by some, might have been related to Japan growing too fast and didn't really paying attention to what is/was needed for 30 years down the road. 

But now, while Japan might see the problem, again, companies are reluctant to change, it costs too much, and or takes too long for any innovation or transformation.

Some might say, its OK, if we slip in the GDP race, as that its really not important to our daily lives, Maybe yes and maybe no, but GDP economic growth is still an important economic indicator to see what might be happening in an economy.

Article:

The dollar has recently traded at around 150 yen, compared with an average in the mid-131 yen range as traded during Tokyo market hours in 2022, according to Bank of Japan data. The yen's sharp fall has been driven by the prospect of a further widening in the interest rate difference between Japan and the United States.

Meanwhile, the exchange rate of the euro against the dollar has not changed as much as the yen.

Also looking at monthly inflation rates, Japan's consumer price index has generally been up by around 3 percent year-on-year. But the inflation rate in Germany was about 9 percent at the beginning of this year, before gradually slowing down and declining to the 4 percent range in September.

Ideas:

That the reason the euro against the US dollar hasn't change much, or less or no variance, is because both the US Federal Reserve and the EU central bank increased the key interest rate almost simultaneously, while the Bank of Japan has kept its key rate and zero or less, which has widened the gap between the US and the EU and the Japanese yen.

Japan's inflation rate, as suggested at 3 percent, was much less than other countries, such as the US at around 6 percent and Germany at 9 percent, so maybe because the Japan inflation rate was much lower, the Bank of Japan felt it didn't need to intervene in the Japanese economy like the US central bank did and the EU central bank did.

Some have suggested that Japan will continue to see increased inflation even in 2024 as maybe the Bank of Japan is not going to really do much about inflation and maybe even keep its ultralow rate.

If the Japanese government is smart, it will suggest to the Bank of Japan to keep the rate low and make sure the yen remains weak, as it its a major economic driver for foreign tourists entering Japan and spending a lot.

A weak yen also helps Japanese export companies as they get more for their products in overseas markets.

Have a nice day and be safe!