Japan has slipped from being the world’s third-largest economy to the fourth, behind Germany, due to a combination of factors including a weak yen, an aging population, and economic challenges. Despite a 1.9% growth in 2023, Japan’s nominal GDP stood at $4.2tn compared to Germany’s $4.5tn. The weakening yen has impacted export profits, while Japan’s labor shortages and low birth rate pose significant hurdles. Government efforts to boost the birth rate have failed, exacerbating labor shortages. To address these challenges, Japan aims to promote structural reforms such as increasing female workforce participation and easing foreign investment barriers.

Weak consumer spending and falling real wages have contributed to Japan’s technical recession, marked by two consecutive quarters of economic contraction. Japan’s economic struggles contrast with past predictions of surpassing the US economy, with the burst of its asset-inflated bubble economy in the early 1990s leading to decades of stagnation. With India projected to overtake Japan and Germany in the coming years, Japan faces a wake-up call to accelerate economic reforms to address its demographic crisis and bolster its growth potential.

Source: https://www.theguardian.com/world/2024/feb/15/japan-recession-economy-falls-behind-germany-worlds-largest