Macroeconomic Article

India seen overtaking Japan in nominal GDP in 2025
https://www.japantimes.co.jp/news/2024/04/28/japan/india-japan-economies/
India will overtake Japan in nominal gross domestic product in dollar terms in 2025,
according to the International Monetary Fund's estimates released this month.
Japan's nominal GDP in 2025 is forecast to reach $4.31 trillion while India's is expected at
$4.34 trillion.
The timing of India's GDP surpassing Japan's is a year earlier than the IMF projected last
October, reflecting the yen's further depreciation.
If the forecast is correct, the Japanese economy will fall to the fifth largest in the world. Only
in February, GDP data released by the Cabinet Office showed that Japan was overtaken by
Germany in 2023, falling to fourth place.
In the Cabinet Office data, the dollar's average exchange rate in 2023 was ¥140.48. But in
overseas trading on Friday, the dollar rose above ¥158 for the first time in about 34 years.
Behind the rise of India is not only the weaker yen, but also its rapid economic growth. In
2023, India's economy grew 7.8%, much faster than Japan's 1.9%.
India's economic growth is being driven by huge domestic demand, as its population is
believed to have surpassed China's in 2023 and become the largest in the world.
"India is attracting funds from advanced economies at a time when investment in China is
being held back," said Makoto Saito of NLI Research Institute.
Hideo Kumano of Dai-ichi Life Research Institute pointed out that the Japanese government
and the Bank of Japan's polices to weaken the yen should be blamed for the country's low
growth rate.
"Economic growth that depends on the yen's depreciation has its limits," Kumano said,
pointing to the need to boost productivity through energy-saving efforts and by encouraging
investment.
Japan raises interest rates for first time since 2007

https://www.theguardian.com/world/2024/mar/19/bank-of-japan-raises-interest-rates-negative-scrappe
d-borrowing-costs
Japan’s central bank has ended eight years of negative interest rates, in an overhaul of one of the
world’s most aggressive monetary easing programmes that sought to encourage bank lending and spur
demand.
In its first interest rate hike in 17 years, the Bank of Japan [BOJ] said it was lifting its short-term
policy rate from -0.1% to between zero and 0.1%, although analysts said a fragile economic recovery
meant it would continue go slow with any further rise in borrowing costs.
The shift makes the BOJ the last central bank to exit negative rates, bringing to an end an era in which
policymakers sought to prop up growth by pushing banks to lend more by charging interest on money
banks deposited at Japan’s central bank.
In a widely expected decision, the BOJ on Tuesday ditched a policy put in place in 2016, judging that
its long-held goal of stable 2% inflation was “within sight”.
Seven of the bank’s nine policy board members supported the move while two opposed it, according
to the Kyodo news agency.
Wage growth has added to confidence among BOJ board members about the probability of achieving
2% inflation after decades of deflation and stagnation.
Japan’s biggest employers agreed to a 5.28% wage increase in negotiations with unions this month –
the biggest rise since 1991 – lifting hopes for a “virtuous cycle” of pay and price increases.
“This would be the first rate hike in 17 years, so it has a lot of symbolic significance,” Izumi Devalier,
head of Japan economics at BofA Securities, said prior to the BOJ’s policy decision.
“But the actual impact on the economy is very small,” she said, noting the BOJ will probably maintain
its resolve to keep monetary conditions loose. “We would not expect a substantial rise in funding costs
or households mortgage rates.”
The BOJ is hoping that Asia’s second-biggest economy is emerging from a long period of deflationary
pressure – a trend that had put it at odds with other central banks, which have raised rates in recent
years to tackle inflation triggered by the Covid-19 pandemic, Russia’s invasion of Ukraine and supply
chain problems.
The BOJ had come under pressure to end its ultra-easy monetary policy, seen as a key factor in the
rapid decline of the yen against the dollar. The weak yen has helped exporters but placed greater
financial pressure on households.
Inflation in Japan momentarily reached its highest level in more than 40 years in 2023, forcing
households to tighten their belts and creating more headaches for the country’s embattled prime
minister, Fumio Kishida. However, that rate was still well below the levels of inflation that caused the
cost of living to spike in many countries around the world in recent years.
The US Federal Reserve and other central banks yanked up rates to rein in galloping inflation after
Russia’s 2022 invasion of Ukraine.
But haunted by the country’s “lost decades” of stagnation and deflation, the BoJ kept its main rate
negative.
Raising the rate will make loans more expensive for consumers and businesses and increase Japan’s
bill for servicing its national debt, which at about 260% of gross domestic product is among the
world’s highest.
Markets are now focusing on governor Kazuo Ueda’s post-meeting news conference for clues on the
pace of further rate hikes.
An end to the world’s last remaining provider of cheap funds could also jolt global financial markets
as Japanese investors, who amassed overseas investments in search of yields, shift money back to
their home country.
“We trust the BOJ,” the paper quoted a source close to Kishida as saying. The decision “is in their
hands”.
With Reuters and Agence France-Presse

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India seen overtaking Japan in nominal GDP in 2025

Japan raises interest rates for first time since 2007

With Reuters and Agence France-Presse

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