Looking forward, the IMF projections suggest a continued shift in the global economic landscape.
The International Monetary Fund (IMF) has projected that Japan is on track to drop from third to fourth place in nominal GDP in 2023, trailing Germany.
The IMF’s Future Projection
According to reports from local news media, the IMF’s forecasts suggest that Japan’s nominal GDP for 2023 will be approximately $4.23 trillion, a decrease of 0.2 percent from the previous year. In contrast, Germany’s nominal GDP is expected to reach $4.43 trillion, an 8.4 percent increase. These numbers highlight the combined effects of yen depreciation and varying inflation rates, resulting in a shift in the global rankings.
The falling value of the yen, which recently traded at around 150 yen to the dollar, has been a key factor in this change. In 2022, the yen averaged in the mid-131 yen range during Tokyo market hours. The sharp depreciation of the yen can be attributed to the growing interest rate differential between Japan and the United States.
Notably, a multitude of factors has contributed to the yen’s depreciation, with the most notable being Japan’s monetary policies and external pressures. Japan’s monetary policy has long leaned toward low-interest rates and quantitative easing to stimulate economic growth.
While these policies have had some success in combating deflation and encouraging spending, they have also put significant downward pressure on the yen’s value. As a result, the yen has weakened against other major currencies, particularly the US dollar.
In contrast, the Euro’s exchange rate against the dollar has remained relatively stable, resulting in less dramatic shifts in Germany’s nominal GDP. Germany’s population, approximately two-thirds the size of Japan’s, has been experiencing more robust economic growth, leading to the narrowing of the growth gap between the two nations.
Examining monthly inflation rates also highlights the differences between these two economic giants. Japan’s Consumer Price Index (CPI) has seen moderate inflation, with an increase of around 3 percent year-on-year. However, Germany’s inflation rate began the year at about 9 percent before gradually slowing down to the 4 percent range by September.
What Lies Ahead for Japan in GDP Terms
Looking forward, the IMF projections suggest a continued shift in the global economic landscape. India, which has recently become the world’s most populous nation with over 1.4 billion people, is expected to surpass Japan in GDP by 2026.
Japan is anticipated to remain the world’s fifth-largest economy between 2026 and 2028, while India is projected to rise to fourth place in 2026 and third place in 2027.
The changing global economic rankings serve as a reminder of the dynamic nature of the world economy. While the United States and China maintain the lead ranking, Japan’s slide from third to fourth place in nominal GDP is influenced by several factors, it highlights the importance of economic growth, inflation, and exchange rates in determining a nation’s global economic position.