The recent prediction by the International Monetary Fund (IMF) suggests that India is set to surpass Japan as the world's fourth-largest economy by 2025.
As per The Indian Express, this announcement has stirred shock in Tokyo, initiating discussions among economists and strategists.
Japan, once the undisputed second-largest economy until 2010, is now facing the prospect of slipping to fifth place behind the US, China, Germany, and India.
Martin Schulz, chief policy economist for Fujitsu’s Global Market Intelligence Unit, shared deep concern over the situation, saying, "For Japan, this is a very big concern but few people are talking about it openly because it is embarrassing and very difficult to solve."
Schulz added, "The whole idea of Abenomics was to drive growth at businesses, but structural reforms were also needed to push productivity, but that is very hard to do in a country that is aging and where there is resistance to change, to digitalisation and people who have been in positions for a long time simply prefer the old ways."
Meanwhile, as per Japanese strategists, the COVID-19 pandemic and Russia’s war in Ukraine have had a similar impact on Japan’s economy that is still being felt as it is felt elsewhere. Other indicators point out a more acute problem for the Japanese economy.
According to the Organization for Economic Cooperation and Development (OECD), the global economy is expected to grow by 3.1%, up from 2.9% in the previous February report.
However, Japan's growth estimates have been reduced from 1% to just 0.5%. In contrast, the OECD predicts India's growth to be at 6.6%.
Additionally, Naomi Fink, managing director of Nikko Asset Management in Tokyo, emphasized Japan's economic struggles over the past decades, attributing some of it to slower growth typical of developed economies compared to emerging markets like India.
Fink highlighted India's investment in infrastructure and growing middle class as factors contributing to its economic rise.
She mentioned that Germany had overtaken Japan mainly because the Japanese currency, the yen, has fallen against the euro in the past 12 years. The yen's value decreased by 40%, resulting in the real exchange rate reaching a 50-year low.
While, Schulz said, "The yen is becoming a major problem and while in the past if governments did nothing it would bounce back, that is not happening this time."
