Much apprehension is growing in Tokyo as India is poised to surpass the Japanese economy to become the 4th largest in the world. Once a global economic powerhouse, Japan is fast loosing its position in the global economy, with the Chinese and German economies having already surpassed the country and now India poised to do so as well next year in 2025.
The announcement that in 2025 India will overtake Japan in nominal gross domestic product in dollar terms has shocked Tokyo, which had until 2010 been the undisputed second-largest economy in the world but is now on the brink of slipping to fifth place.
In estimates released in late April, the International Monetary Fund (IMF) has indicated that in 2025 India will overtake Japan in nominal gross domestic product in dollar terms, shocking Tokyo, which is on the verge of slipping to the fifth place on the global economy scale. Until 2010, Japan was the unquestioned second-largest economy globally, and India’s sudden rise in economic power comes at least a year earlier than the IMF’s previous estimates.
India’s nominal GDP will cross $4.34 trillion in 2025, surpassing Japan’s nominal GDP of $4.31 trillion. This is in large part due a weak Japanese yen. Japan’s decline in the global economic standings is a very big concern for the country, which has already suffered from “lost decades” of economic growth.
Japan is in urgent need of structural economic reforms to push productivity, but with an aging population and long lasting traditions and practises that are resistant to digitalisation, it is a task which is increasingly difficult to achieve. The COVID-19 pandemic and Russia’s war in Ukraine have also impacted the Japanese economy negatively.
Meanwhile the Organization for Economic Cooperation and Development (OECD) has added new pressure on Tokyo with the release of its latest report on 2 May called ‘outlook for global economic growth’, which cut Japan’s likely growth from the 1% it had projected three months earlier to just 0.5%.
The Japanese Yen is causing a lot of problems for the economy, having lost over one third of its value over the last 3 years. In 2022 Japan spent more than $60bn of its foreign exchange reserves defending the yen and there are indicators that another such state intervention has taken place recently.
Even as Tokyo struggles with the yen, the Japanese government has taken wider policy reforms and steps to bring systematic changes in the economy, such as altering corporate governance practices, encouraging greater labor participation to reduce the pressures of shortages of skilled labor and fashioning policies to help burnish human capital; all of which may show some positive spillover into the rest of the Japanese economy in the time ahead.
