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Japan’s Economic Fall: Should You Be Worried?

Japan’s Economic Fall: Should You Be Worried?

Japan has fallen behind Germany and become the 4th largest economy in the world, reflecting the country’s weak currency and aging demographic. 

As a business owner considering entering Japan, this might give you pause: Would Japan be the next ideal place for your business to grow? 

We’ve gathered some factors for you to consider.

Falling Behind Germany – Not the Same as China 

Japan was once almost the largest economy in the world from 1968 to 2010. 
When China surpassed Japan in terms of GDP in 2010, the public felt a sense of urgency. 

However, this time around, they’re not as worried. One reason for the relative calm is Japan had partially fallen behind due to acute currency moves. 

Germany also has a generally uninspiring state of the economy. 
The news of the economy overtaking Japan has gained almost no traction there as the German public’s discontent over economic policy simmers amid ongoing inflation, soaring energy prices, and stalling growth.

It’s All About the Weak Yen

According to International Monetary Fund data, Japan’s economy dipped to approximately $4.2 trillion in 2023 from $6.3 trillion in 2012 when measured in dollars. 

However, much of this decrease can be attributed to the significant depreciation of Japan’s currency from just below ¥80 to the dollar to approximately ¥141 last year. 

In terms of nominal yen, the economy has likely grown by over 12% during this period.

Japan isn’t ignoring the current state of the yen either. They’ve been slowly putting effort into bringing up the value of the yen. 

The stock market in Japan is rising, and the central bank decided to raise interest rates for the first time since 2007.

Surpassing China in Growth

Although Japan’s GDP slipped behind Germany, its overall growth rate has surpassed that of China for the first time since 1977, which is almost half a century. 

Japan’s economy showed nominal growth of 5.7%, while China’s grew by 4.6%. The surprising reversal took place as Japan is starting to turn inflationary, while China is experiencing deflationary pressure.

Japan’s eCommerce Landscape  

According to data published by Statista, Japan ranks 3rd in eCommerce revenue, just behind China and the United States. 

Additionally, Japanese consumers are among the top spenders globally, with an average expenditure of US$455 per item, as reported by Wunderman Thompson.

Despite economic challenges, Japan’s eCommerce sector has been steadily growing since 2019, particularly with the unique consumer preference for omnichannel commerce. With these statistics in mind, it’s clear that Japan still offers opportunities for businesses to thrive, especially with careful market research and localization efforts.

What’s the Verdict?

When considering entering Japan or any country, it is important to consider all aspects and trajectory of their economy. 

This will help give you ideas as to whether your product or service has a market or audience. With the aging population, certain products might perform or are suited better for Japanese consumers. 

Japan may be experiencing an economic downturn, but there’s still an opportunity for your business to be successful with the right support!

Ready to try the Japanese market?

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