Japan lost its 42-year ranking as the world’s second-biggest economy to China last year, with data out yesterday showing a contraction in the last quarter due to weak consumer spending and a strong yen.
While Japan was expected to fall behind a surging China last year, the data underlined the weak state of a Japanese economy burdened by deflation, soft domestic demand and pressured by the industrialized world’s biggest debt.
“It is difficult for the deflation-plagued Japanese economy to achieve self-sustained growth,” said Naoki Murakami, chief -economist at Monex Securities.
While China’s leap forward reflects a shift in economic power as the country transforms itself from poverty-hit communist state to global heavyweight, it highlights the need for shrinking Japan to energize its economy, analysts said.
Japan’s post-war “economic miracle” put it at No. 2 behind the US for more than four decades, but stagnation after the Japanese property bubble burst in the 1990s helped put China on course to supplant its neighbor.
However, Japan remains about 10 times richer on a per-capita basis, top government spokesman Yukio Edano said. GDP per head in Japan is about US$42,000, economists say. Predictions vary as to when China may overtake the US as the No. 1 economy, but it should happen by 2025, according to estimates by the World Bank, Goldman Sachs and others.
Japan’s real GDP slipped by an annualized 1.1 percent in the October-December quarter as the expiration of auto subsidies hit car sales, a new tobacco tax sapped cigarette demand and a strong yen hurt exports.
In contrast, China grew nearly 10 percent in the same period. While Japan’s first contraction in five quarters was not as severe as forecasts of a 2.4 percent slide, the data is subject to constant revision.
The economy grew 3.9 percent last year, its first annual growth in three years, but this was not enough to keep it ahead of surging China.
Nominal GDP of US$5.474 trillion last year put Japan behind China’s US$5.879 trillion, the data showed. China first eclipsed Japan in the second quarter. Despite Japan crawling out of a severe year-long recession in 2009, its recovery remains fragile with deflation, high public debt, an ageing population and a strong yen all concerns for policymakers.
Pressure is on Japanese Prime Minister Naoto Kan, who has seen his approval ratings tumble as his government looks to boost the economy without deepening the debt amid a legislative impasse over a US$1.1 trillion budget for next fiscal year.
Last month Standard & Poor’s cut Japan’s credit rating one notch to AA- from AA, saying the government lacked a “coherent strategy” to ease a debt running near 200 percent of GDP, the highest of any developed nation.
Nearly a third of government spending is being swallowed up by a social security system catering to a rapidly graying society, Standard & Poor’s said, with that ratio set to rise without reforms as Japan continues to age.
Kan’s center-left government has prioritized social security -reform and a tax system overhaul, but the opposition has so far refused to begin talks on the issue.
Private consumption, accounting for about 60 percent of Japan’s GDP, slid by 0.7 percent quarter-on-quarter in October-December as subsidies for green car purchases expired and as cigarette sales were dented by Japan’s biggest ever tobacco tax hike.
Exports slipped in the quarter as the yen surged to 15-year highs against the US dollar, making Japanese goods more expensive overseas and eroding repatriated profits.
However, many analysts expect the economy to rebound this quarter as the rising tide of global recovery lifts Japan, amid a recent pick-up in corporate spending and exports.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to