Germany Surpasses Recession-Hit Japan as Third-Largest Global Economy
![Germany Surpasses Recession-Hit Japan as Third-Largest Global Economy](/content/images/size/w1200/2024/02/f258902f-5a10-44aa-88f9-2843fcd8e65c.png)
Japan's economy has contracted for the second consecutive quarter, with a 0.4 percent decrease year-on-year after adjusting for inflation, following a 2.9 percent decline in the previous quarter. This series of contractions indicates what economists often consider an early sign of recession. The economic downturn is attributed to a combination of a weak yen and a period of stagnation that began after an asset price bubble burst in the early 1990s. Despite these challenges, Japan's economy grew by 1.9 percent over the past year, with a nominal GDP of $4.2 trillion.
Amidst these developments, Japan has fallen to the fourth-largest economy globally, trailing behind Germany, and is expected to be surpassed by India by 2030. The declining yen has provided some advantages for Japan's exports but has reduced the overall GDP value when compared to Germany's $5 trillion, which is projected to grow to $7 trillion by 2030. Both nations face labor shortages due to demographic declines, with Japan having a more acute issue with low birth rates. Speculative currency movements have been cautioned against by Japanese bank officials, as they are seen to be detrimental to the national economy. In contrast, Japan's stock market has seen substantial growth, with Tokyo's benchmark index surging 28 percent since 1990.
The Bank of Japan (BOJ) is preparing to exit its negative interest rate policy this spring, a move that will likely limit its tools to fight the yen's depreciation. Former BOJ board member Sayuri Shirai has commented on the challenge facing new BOJ Governor Kazuo Ueda, who is under pressure to counteract the yen's fall amidst high U.S. interest rates and Japan's own ultra-easy monetary policy. High inflation, considered unsustainable by BOJ policymakers, has exacerbated the nation's economic troubles, weakening consumer purchasing power alongside exports. The BOJ is anticipated to make some policy adjustments, including the potential removal of negative interest rates, to mitigate adverse effects.