The Corona pandemic brought lots of changes in the world and had a negative impact on the global economy. Some countries have not recovered yet completely such as Japan and they are on the way back to the previous condition. Is it really due to Corona only? According to IMF, the ranking of GDP per capita in Japan is the lowest among G7 countries in 2023. Why has the Japanese economy’s growth rate stagnated ? Let’s take a look at the background of the economic stagnation.
Current economy situation in Japan
In terms of GDP per capita, the current position in Japan is at the bottom among the G7 countries according to the data of the IMF (International Monetary Fund). Until now, Japan has been competing with Italy for the bottom of the seven countries, however it was finally overtaken by Italy. Looking at the ranking in 2000, Japan was at the top of the G7. It can be seen that Japan’s position in the G7 has changed significantly in the past 23 years.
Compared to 2023 and 2000, the response of GDP per capita has almost doubled in countries except Japan, but only Japan has fallen. Between 2000 and 2023, GDP per capita has increased in the United States, South Korea, and Taiwan, but Japan has not increased. Actually. GDP per capita in Japan is half level of the US one in 2022.
Looking at South Korea in 2000, the GDP per capita was ¼ of Japan’s GDP per capita. However, Japan and South Korea were almost same level in 2022. The G7 is a group of developed countries. Until the 1990s, no one would have objected to the fact that Japan is representatives in Asia. However, it will be difficult to maintain the position if other countries outweigh Japan in some key factors such as policy, economy, technology, education.
The background of the stagnation of Japanese economy
Exchange rate
One reason is the exchange rate. Around 2010, GDP per capita in Japan was rising because the yen rose at this time. Current rapid growth of GDP per capita in the United States is largely due to the appreciation of USD. Therefore, the exchange rate is one of the key reasons for stagnation.
Other matters
Even if we look at it in its own currency, Japan’s growth rate is low. Some people may think that the labour force is low due to the aging population in Japan. Actually, it is true that the labour force is low and it has a big impact on the growth rate of the entire economy. However, in viewpoint of GDP per capita, the point is mitigated. The problems are deficient in technological progress, corporate reform and industrial structure reform.
According to the market capitalization ranking in 1995, two Japanese companies are listed, such as Toyota. Toyota was ranked 8th in 1995, 9th in 2005. However, there are no JP companies in the top 10 for the ranking. Currently, the top in Asia is TSMC, a semiconductor manufacturing company in Taiwan. It’s the 14th in the world. The second in Asia is Samsung Electronics in South Korea, and the 24th in the world.
According to the World competitiveness ranking by IMD (International Institute for Management Development) based in Switzerland, Japan was the top in the world in 2000. However, currently it dropped to 34th in 2022. The key reasons for the low growth rate is that it is deficient in technological progress and industrial structure reform.
What is the solutions?
For companies who run export businesses, Depreciation of JPY is a tailwind. Their profit increases automatically. In other words, it is undeniable that Japanese companies have neglected to develop technology, to transform to new business models. At the beginning of 2022, 1 USD = 105 JPY, and now it’s over 140 JPY. You can see that the current exchange rate is abnormal.
Looking at the real effective exchange rate, the current value is the same level as 1971. It is noteworthy how the Bank of Japan will deal with this problem.
Summary
Why is Japan’s economy stagnated compared to other countries in the world? Currently, GDP per capita ranking is low. Some factors can be considered for the stagnation of Japan’s economy. Exchange rate for USD is one of the reasons. Depreciation of the Yen promotes the difference of growth ratio against other countries. Even if it’s based on JP currency, the growth ratio is still low. The principal background of low economic growth is deficient technological progress and industrial structure transformation. Therefore, Practical policy, mindset and skills for the transformation are certainly required immediately.
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