Finance - Japan's economy collapses! Now 4th behind Germany!

It’s official: Japan has entered a technical recession and has been overtaken by Germany as the world’s third largest economic power. The archipelago has thus fallen to fourth place, ending nearly 60 years of uninterrupted reign on the finance podium. This demotion symbolizes the slow sinking of a country filled with doubt and decline. 

 An economy and demography in decline

With a lackluster growth of 0.5% forecast for 2024, falling productivity and an aging population, Japan is accumulating setbacks.

The country is suffering first and foremost from a demographic collapse. With one of the world’s lowest birth rates and restricted immigration, it is rapidly losing inhabitants. As a result, the workforce is becoming scarce, weighing on productivity and finance.

Automation and robotics struggle to offset this shortage of labor. Consequently, many Japanese companies now prefer to invest in the more dynamic emerging economies of Asia rather than in their own stagnant domestic market.

In a vicious cycle, this disaffection of Japanese business weighs even more on national growth. As for households, they remain reluctant to consume, faced with stagnant wages. In short, Japan is in a slow decline from a financial perspective.

Finance, heading towards an irreversible demotion for Japan?

This relative decline of the archipelago could well be irreversible. Japan is paying, above all, for the rise of new powers such as India, which is expected to overtake it soon.

The advent of the digital economy and finance has also caused the country to lose its lead in key sectors like the automotive industry. Major Japanese corporations are now lagging in electric vehicles, trailing behind Tesla and the Chinese.

Furthermore, Japanese society remains largely closed to immigration, which could otherwise energize its demography, economy, and finance. It is difficult under these conditions to halt the decline.

Some economists believe, however, that all hope is not lost if the country agrees to undertake the necessary reforms, especially regarding immigration. But time is of the essence for Japan if it wants to avoid being downgraded.

Inexorable or not, Japan’s decline seems to be well underway. Outpaced economically and demographically, the country risks seeing its influence considerably diminish over the coming decades. To find a new lease of life in finance, Japan will need to tap into its unsuspected resources and accept profound reforms. The story may not yet be completely written for the Land of the Rising Sun.