In 2023, Japan's Gross Domestic Product (GDP) was approximately $4.2 trillion, lower than Germany's $4.46 trillion, dropping Japan from third to fourth in the global rankings.
This marks the first time in over 50 years that Japan has been surpassed by Germany.
In 1979, Harvard scholar Ezra Vogel published the book "Japan as Number One."
At that time, although Japan's GDP was the second-largest in the world, its growth momentum was strong, almost on the verge of surpassing the United States.
Japan's economic vitality, technological innovation, and national confidence reached their peak.
However, Japan's GDP has now fallen to fourth place globally, behind the United States, China, and Germany.
Different data sources indicate that China surpassed Japan's GDP between 2010 and 2012, which dealt a significant blow to Japan's confidence and self-perception.
In the future, Japan might also be overtaken by India within five years.
Japan being surpassed by Germany is particularly surprising because Germany's economy actually shrank by 0.3% in 2023, earning it the nickname "the sick man of Europe."
When calculated in yen, Japan's GDP slightly increased, but due to the depreciation of the yen, the real value declined.
However, the depreciation of the yen is itself a reflection of Japan's economic difficulties.
While the current drop in GDP ranking has some element of coincidence, the long-term decline of Japan has deeper causes.
Although aging is widely discussed, it is not the main reason.
Japan's rise and decline can both be traced back to its "Leave Asia, Enter Europe" policy.
During the Meiji Restoration, Japan faced a significant gap with the West and rapidly accumulated wealth by learning from the West.
Post-war, Japan's economy continued to learn from the West while integrating its highly organized culture, emphasis on education, and elite bureaucratic system.
Coupled with the political support and strategic alliance from the United States after the war, Japan's economy grew rapidly.
In the 1970s, the U.S. economy began to feel the pressure from Japan (and then West Germany), peaking in the 1980s.
This was the period of Japan's economic prosperity, and Vogel's "Japan as Number One" was published to interpret and learn from Japan's success, helping the United States regain its advantage.
Although the United States learned some superficial aspects of Japanese management methods, it ultimately relied on suppression strategies to re-establish its dominant position.
Despite its large population, Japan's economy and development were overly reliant on foreign trade, failing to generate sufficient internal driving force.
One result of this was its high sensitivity to external pressures.
The United States suppressed Japan's economy through measures such as the Plaza Accord and "voluntary export restraints," causing Japan's economy to stagnate since then.
The Nikkei index reached its historical peak of 38,957.44 points in 1989. Recently, it "surged" to 38,188.74 points but still hasn't surpassed the highest point of 1989.
Considering inflation and global development, Japan has yet to return to the level it was over 40 years ago.
Japan has maintained its businesses and employment through low-interest and low-exchange rate policies, alleviating corporate and social pain but also leading to the long-term existence of "zombie companies."
These companies cannot effectively invest or conduct research and development, causing their products and technology to gradually lag behind.
Employee income and development opportunities are limited, ultimately dragging down the Japanese economy and affecting living standards.
Purchasing power parity (PPP) GDP is calculated by multiplying nominal GDP by the price coefficient.
Using a basket of U.S. prices as a benchmark, Japan's price coefficient is about 1.1.
This means that even if Japan wants to start an internal economic cycle, it is difficult due to insufficient private wealth.
Of course, this doesn't mean there is no money in the Japanese private sector, just that it lacks the confidence to start an internal cycle.
In terms of foreign trade, Japan's manufacturing can still cope with pressure from Taiwan and South Korea in terms of cost, manufacturing, and technology, but it struggles against strong competition from China.
Japan succeeded when developing along the Western technological trajectory, but failed more often when deviating from it.
Due to similar culture and taste, Japanese manufacturing has a large market in China.
However, the supply chain and economies of scale advantages have allowed Chinese manufacturing to rise rapidly, dominating not only the Chinese market but also gaining a competitive edge globally.
The devaluation of the yen aims to reduce the export costs of Japanese manufacturing.
However, when the yen devalues significantly and exports remain sluggish, the devaluation only reduces import purchasing power, lowers residents' real income, fails to expand consumption, and leads to continued deflation and economic vicious cycles.
External trade pressure and the "worthless yen" have both become obstacles to Japan's economic development.
Aging, corporate, and private sector debt deleveraging also impact Japan's long-term domestic demand insufficiency and development lag, but the dependence on external trade is the biggest issue.
Japan still hasn't shaken off its dependence on foreign trade, and this dependence will continue to drag down the Japanese economy.
In the future, Japan's GDP might be surpassed by the United Kingdom and France, returning to its ranking during the Meiji Restoration era.
However, the difference is that China is now ahead of Japan, and in the future, India might also surpass Japan.
After all, the Meiji Restoration was 150 years ago.
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