Japan loses its spot as world’s third-largest economy as it slips into recession

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Business Today Desk

Japan’s economy unexpectedly slipped into recession after shrinking for a second quarter due to anemic domestic demand, prompting some central bank watchers to push back bets on when the nation’s negative interest rate policy will end.

The country fell from the second-ranked economy behind the U.S. to the third-largest in 2010 as China’s economy grew. 

The International Monetary Fund had forecast Japan’s fall to fourth.

The comparisons among nations’ economies look at nominal GDP, which doesn’t reflect some different national conditions, and is in dollar terms. Japan’s nominal GDP totaled $4.2 trillion last year, or about 591 trillion yen. Germany’s, announced last month, was $4.4 trillion, or $4.5 trillion, depending on the currency conversion.

For the latest October-December quarter, the Japanese economy shrank at an annual rate of 0.4%, and minus 0.1% from the previous quarter, according to Cabinet Office data on real GDP. For the year, real GDP grew 1.9% from the previous year.

Real gross domestic product is a measure of the value of a nation’s products and services. The annual rate measures what would have happened if the quarterly rate lasted a year.

Both Japan and Germany built their economies through strong small and medium-size businesses with solid productivity. In contrast to Japan, Germany has shown a solid economic foundation on the back of a strong euro and inflation. The weak yen also works as a minus for Japan.

The latest data reflect the realities of a weakening Japan and will likely result in Japan’s commanding a lesser presence in the world, said Tetsuji Okazaki, professor of economics at the University of Tokyo.

“Several years ago, Japan boasted a powerful auto sector, for instance. But with the advent of electric vehicles, even that advantage is shaken,” he said.

The gap between developed countries and emerging nations is shrinking, with India certain to overtake Japan in nominal GDP in a few years, Okazaki said.

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