Japan loses top creditor rank as economic troubles deepen

For the first time in more than three decades, Japan has lost its position as the world’s largest creditor nation. This resonates as a symbolic shift that reflects deeper vulnerabilities in the country’s economic foundations.

According to data released by Japan’s Ministry of Finance, the nation’s net external assets reached ¥533.05 trillion ($3.7 trillion) at the end of 2024, an all-time high, yet not enough to maintain its top ranking.

Germany has now overtaken Japan, recording net external assets of ¥569.7 trillion, buoyed by its sizeable current account surplus of €248.7 billion last year, according to Bloomberg. China retained third place with net assets of ¥516.3 trillion, according to Bloomberg.

This development marks the end of a 34-year reign for Japan, whose overseas assets have long reflected its post-war export dominance and global investment clout. The fall, though, is not due to a sudden decline in foreign investments, in fact, Japan’s assets grew by about 13 per cent year-on-year.

Rather, a combination of yen depreciation and the relatively faster accumulation of wealth abroad by competitors like Germany have tilted the balance.

A weaker yen, while enhancing the value of overseas holdings in local currency terms, also inflated Japan’s liabilities. The Ministry of Finance noted that Japanese businesses continued to invest robustly abroad, particularly in the US and UK, with sectors such as finance, insurance, and retail attracting considerable capital.

Yet this outward investment boom is doing little to shield the domestic economy from escalating global pressures.

Japan’s fragile position in a new global order

The loss of creditor status is just one sign of Japan’s broader economic fragility. Despite high overseas asset growth, the domestic economy is grappling with multiple challenges: declining consumer confidence, ageing demographics, and trade frictions that are dampening industrial momentum.

According to the International Monetary Fund (IMF), Japan’s economy grew by just 1 per cent in 2024. The IMF projects Japan’s growth to slow further in 2025, with real GDP expected to expand only 0.9 per cent, a stark contrast to its regional peers. Inflation, meanwhile, has remained persistently above the Bank of Japan’s target, averaging around 3.1 per cent in 2024, driven largely by energy prices and a weaker yen, as reported by Reuters.

This stagnation is compounded by global trade shifts. The return of Donald Trump to the US presidency has reignited protectionist policies, with renewed tariffs rattling key Japanese sectors. According to Reuters, Japanese automakers are already reeling from a 25 per cent US tariff on finished cars and car parts.

Toyota, the country’s largest company, has projected a $1.3 billion hit to its profits for April and May alone. Nissan is reportedly considering closing two domestic plants and shifting more production to the US to bypass rising trade barriers.

These developments have triggered warnings from Japanese economists and officials. The automotive industry, a cornerstone of Japan’s GDP and employment is caught in a tightening vice of tariff shocks and supply chain disruptions. Public dissatisfaction is also rising, with wage growth lagging behind inflation, squeezing household budgets.

While Japan’s economy struggles, others are rising, most notably India. According to ANI, NITI Aayog CEO BVR Subrahmanyam confirmed that India has overtaken Japan to become the world’s fourth-largest economy, citing the latest International Monetary Fund data.

The IMF’s April 2025 World Economic Outlook estimates India’s nominal GDP will reach $4.187 trillion, slightly surpassing Japan’s projected $4.186 trillion. This shift underscores Japan’s declining share in the global economy and highlights a regional power rebalancing in Asia.

Tokyo’s ¥980 billion shield to counter Trump’s tariffs

According to the New York Times, in a bid to cushion the domestic blow from rising tariffs and inflation, the Japanese government has unveiled a ¥980 billion ($6.3 billion) emergency spending package. The funds reportedly aim to subsidise energy costs for households and provide support to small and medium-sized enterprises (SMEs) struggling under new trade constraints.

Cabinet Secretary Yoshimasa Hayashi announced the package earlier this week, saying it was designed to “fully support” the population during a volatile economic phase. As per Reuters, the measures are also politically timed — the Kishida administration faces an upper house election in July, and public frustration is growing over stagnant wages and higher consumer prices.

Meanwhile, Japan’s efforts to negotiate tariff relief from the US have hit a wall. Tokyo’s top trade envoy, Ryosei Akazawa, met Trump administration officials in Washington last week, but talks reportedly stalled.

Trump officials have signalled that Japan’s primary demand an exemption from auto tariffs is currently off the table. Hopes now rest on the upcoming G7 Summit in Canada, where informal discussions may resume.

Japan’s decline in economic influence symbolised by the loss of its top creditor status and its fall behind India in GDP rankings reflects more than just statistical shifts. It signals an urgent need for economic renewal in a nation facing demographic decline, external trade pressure, and internal stagnation.

The government’s recent fiscal package offers short-term relief, but structural reforms are needed to chart a more sustainable path forward. Analysts point to innovation, productivity gains, and trade diversification as key to Japan’s future competitiveness.

As global economic power continues to shift and trade alliances reshape, Japan must adapt or risk fading further from the world’s economic centre stage.