Germany is projected to dislodge Japan as the world’s third-largest economy this year, helped by a slide in the yen against the US dollar and the euro.
The IMF’s latest projections estimate Germany’s nominal GDP at US$4.43 trillion this year, compared with US$4.23 trillion for Japan.
The projections came as the yen teeters close to ￥160 against the euro and remains within striking distance of the 33-year low against the US dollar that sparked a second round of currency intervention in October last year. The euro last reached ￥160 in August 2008.
Photo: Bloomberg
The yen weakness has largely been caused by fundamental differences in monetary policy. The US Federal Reserve and the European Central Bank (ECB) have raised interest rates from COVID-19 pandemic lows to tackle inflation, while the Bank of Japan has stayed in stimulus mode as it looks to nurture price growth after years of deflation.
While the Fed and ECB are expected to keep rates unchanged at their upcoming meetings, expectations that borrowing costs would stay higher for longer are likely to maintain pressure on the yen.
The Bank of Japan meets next week amid speculation of possible tweak to its control of bond yields, but the ending of its negative interest rate is not widely expected to come until next year.
Still, the figures also point to steadier long-term growth in Germany that would concern policymakers in Japan as they mull the details of their latest economic package.
“It’s true that Japan’s growth potential has fallen behind and remains sluggish,” Japanese Minister of Economy, Trade and Industry Yasutoshi Nishimura said yesterday when asked about the IMF projections. “We’d like to regain the ground lost over the past 20 or 30 years. We want to achieve that through measures such as our upcoming package.”
Japanese Prime Minister Fumio Kishida on Monday said that the economic stimulus package includes an extension of energy subsidies, a measure aimed at helping ease the cost-of-living crunch caused by Japan’s strongest inflation in decades.
He said there would also be steps to ensure upward momentum in wages stays in place along with some form of tax reduction.
The IMF figures show that Germans are likely feeling a lot better off than Japanese, too. Average GDP per person in Germany is projected at US$52,824, compared with US$33,950 in Japan.
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