Is it difficult to maintain the status of Japan's "third generation"?
According to a report by the Governor of Chang'an Street on the 25th, according to predictions from the International Monetary Fund (IMF), Japan's nominal GDP will drop from third to fourth in the world in 2023. Forecast data shows that Japan's nominal GDP in 2023 is approximately $4.23 trillion, while Germany, which is about to surpass Japan, is about $4.43 trillion. Meanwhile, the IMF predicts that India will become the world's fourth largest economy by 2026, while Japan will decline to the fifth largest economy between 2026 and 2028.
At the time of the above forecast, the US dollar/Japanese yen exchange rate was on the brink of collapse, approaching the 150 level; The euro/yen exchange rate is approaching the level of 160, and the last time it reached 160 was in August 2008. The depreciation of the Japanese yen leads to a decrease in GDP converted into US dollars. In addition, nominal GDP is affected by price fluctuations, so Germany's higher price increase than Japan is also reflected in nominal GDP. Liu Ying, a researcher at the Chongyang Institute of Finance at Renmin University of China and director of the Cooperative Research Department, believes that the background of Japan's GDP being surpassed by Germany is the overall trend of global economic growth rate "rising in the south and falling in the north" and "rising in the east and falling in the west".
In US dollars, Germany's (black line) economy will surpass Japan's (yellow line) economy this year
In fact, before the prediction that Germany's GDP exceeded Japan's this year, Japan's per capita GDP had already declined year by year. Japan's per capita GDP was originally higher than that of developed economies in the United States and Europe, but according to statistics, it is currently at the bottom of the Group of Seven, and even South Korea has surpassed Japan.
It is worth mentioning that according to the annual calculation of the national economy released by the Japanese Cabinet Office at the beginning of the year, Japan's per capita nominal GDP, which became the approximate standard of wealth, was $39803 in 2021, ranking 20th among the 38 member countries of the Organization for Economic Cooperation and Development (OECD) and surpassed by France.
Image source: Screenshot of a report by The Japan Times
The fundamental reason is not the depreciation of the yen
According to a report by the Governor of Chang'an Street on the 25th, Japanese media analysis shows that the average exchange rate of the Japanese yen against the US dollar has recently significantly depreciated to around 150 yen per dollar, while the depreciation of the euro against the US dollar is not as severe as the Japanese yen. The depreciation of the Japanese yen has led to a contraction in GDP after converting it into the US dollar; In addition, nominal GDP is influenced by price fluctuations, with Germany experiencing higher price increases than Japan, which also has an impact on rankings.
Is the Japanese economy being overtaken by Germany just a matter of yen depreciation and price fluctuations? In fact, Japanese media have also admitted that the sluggish economic growth in Japan has been a long-term phenomenon.
Liu Ying, a researcher at the Chongyang Institute of Finance at Renmin University of China and director of the Cooperative Research Department, believes that in addition to the direct factors mentioned above, the fundamental reason for Japan's GDP being surpassed by Germany is still the problems existing in the Japanese economy itself, and the most core is the lack of vitality.
Abenomics proposed the "new three arrows" of "increasing wealth by raising wages, relying on small and medium-sized enterprises to drive exports, and" wisdom "as the treasure trove of wealth creation" in an attempt to stimulate economic growth. However, despite the arrows, the Japanese economy has not truly emerged from the downturn.
In addition, Japan's lack of innovation and economic growth momentum has become a "fatal blow". The two countries with the most unicorn companies in the world are the United States and China, with few Japanese companies visible. Moreover, traditional industries in Japan have been basically overtaken, while innovative industries such as the digital economy have performed mediocrely.
Japan is currently the only country in the world to adopt unconventional monetary policies, attempting to improve its economy through extreme stimulus. However, due to insufficient economic momentum, any amount of monetary and fiscal policy stimulus may be in vain.
The Bank of Japan will hold a meeting next week, and there is speculation that the Bank of Japan may adjust its control over bond yields. However, it is widely expected that the negative interest rate policy will not end until next year. Various data also indicate that Germany's long-term growth is more stable, which has made Japanese policymakers busy considering the details of the latest economic stimulus plan.
Japanese Economy Minister Yasuo Nishimura stated on Tuesday (October 24th) when asked about the IMF's estimates& Quot; Japan's growth potential is indeed lagging behind and still sluggish, and we hope to regain what has been lost in the past 20 to 30 years. We hope to achieve this goal through measures such as the upcoming package plan
Japanese Prime Minister Fumio Kishida stated on Monday (23rd) that the economic stimulus package includes extending energy subsidies, aimed at helping alleviate the cost of living contraction caused by Japan's most severe inflation in decades. He stated that the government will also take measures to ensure that the momentum of wage increases remains unchanged, while also implementing some form of tax reduction measures.
Uncertainties persist in Japan's economic recovery
According to Xinhua News Agency on August 17th, data released by the Japanese Cabinet Office on August 15th showed that the Japanese economy has maintained positive growth for two consecutive quarters since the beginning of this year. The actual gross domestic product (GDP) in the second quarter increased by 1.5% month on month, with an annual growth rate of 6%. According to Kyodo News Agency, this is the third consecutive quarter of real GDP growth in Japan, adjusted for inflation, and the fastest growth rate since the fourth quarter of 2020 (October December). Although the data may seem bright, several economists have pointed out that due to the continued weakness of domestic demand, Japan's economic recovery still faces the problem of insufficient endogenous momentum.
Image source: Video screenshot
The decline in domestic demand has sparked widespread concern.
According to the Economic Information Daily on August 16th, Yuri Shirai, an economics professor at Keio University in Tokyo and former board member of the Bank of Japan, said that the second quarter economic data was not as strong as it appeared. The main reason for better than expected GDP growth was from external sources, while Japanese households and companies' domestic spending was weak, which actually indicates poor domestic economic performance.
The statistical results released by Japan show that due to the continuous high prices, Japan's actual wage income decreased by 1.6% year-on-year in June, marking the 15th consecutive month of year-on-year decrease; The actual household consumption expenditure decreased by 4.2% year-on-year, marking the fourth consecutive month of year-on-year decline. Experts point out that a continuous decline in real wage levels will suppress household purchasing power, affect consumption, and drag down Japan's economic recovery.
Senior Executive Economist Yoshiki Shinka from the Economic Survey Department of Japan's First Life Research Institute believes that as an important driving force for Japan's economic growth, sluggish equipment investment also brings uncertainty to future economic trends.
The New York Times analysis pointed out that part of the reason for the slowdown in Japanese corporate spending is the weak yen. Japan's food and energy are highly dependent on imports, and the depreciation of the yen has pushed up import costs, thereby exacerbating its domestic inflation level. The weak yen is a double-edged sword for the economy, although it can boost exports, it may impact consumption and spending.
In addition, against the backdrop of slowing global economic growth, overseas demand may also continue to shrink. Analysts from Kaitou Macro and the Shinkyo Bank Research Institute in Japan both stated that the momentum of export driven economic growth is unlikely to continue, and the decline in import data has also boosted Japan's GDP in the second quarter, but this does not mean a strong recovery of the Japanese economy. Yasuki Yajima, Chief Economist of the Comprehensive Policy Research Department at the Nippon Institute of Basic Research in Japan, also stated that in the current global economic context, Japan cannot be "isolated".
The mid year forecast released by the Japanese Cabinet Office recently shows that factors such as slowing exports may cause downward pressure on the economy. It is expected that Japan's actual GDP growth rate will be 1.3% in the fiscal year 2023 (April 2023 to March 2024), slightly lower than the estimated 1.5% at the beginning of the year.
Daily Economic News Comprehensive Chang'an Street Governor, Economic Reference Daily, Xinhua News Agency