It’s official: Japan is in technical recession and has just been overtaken by Germany as the world’s third economic power. The archipelago thus falls to fourth place, putting an end to nearly 60 years of uninterrupted reign on the financial podium. This downgrading symbolizes the slow sinking of a country which doubts and sinks.
An economy and demographics at half mast
With sluggish growth of 0.5% forecast for 2024, productivity at half mast and an aging population, Japan is accumulating handicaps.
Above all, the country is suffering from a demographic collapse. With one of the lowest birth rates in the world and restricted immigration, it is rapidly losing residents. As a result, labor becomes scarce, weighing on productivity and finances.
Automation and robotization are struggling to compensate for this lack of hands. As a result, many Japanese companies now prefer to invest in the more dynamic emerging economies of Asia rather than in their sluggish domestic market.
A vicious circle, this disaffection with Japanese business weighs even more on national growth. As for households, they remain reluctant to consume, faced with stagnant wages. In short, Japan is in a slow decline from a financial perspective.
Finance, towards an irreversible downgrading of Japan?
This decline relative of the archipelago could well be irreversible. Above all, Japan is paying for the emergence of new powers like India, which will soon overtake it.
The birth of the digital economy and finance has also caused the country to lose its lead in key sectors such as the automobile industry. The large Japanese groups are now lagging behind in electric vehicles compared to Tesla and the Chinese.
In addition, Japanese society remains little open to immigration, which could nevertheless boost its demographics, its economy and its finance. It is difficult in these conditions to halt the decline.
However, some economists believe that all hope is not lost if the country agrees to carry out the necessary reforms, particularly in terms of immigration. But time is running out for Japan if it wants to avoid downgrading.
Inexorable or not, Japan’s decline seems well and truly underway. Overwhelmed economically and demographically, the country risks seeing its influence diminish considerably over the coming decades. To find a new lease of life in finance, Japan will have to draw on its unsuspected resources and accept profound reforms. History may not yet be completely written for the Empire of the Rising Sun.
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