How Japan’s Decline Will Impact Asia?

Over the last century, Japan has undeniably stood out as a powerhouse in Asia, achieving remarkable progress in politics, military strength, economic prowess, and even in the world of sports. This archipelago nation not only solidified its position as a regional leader but also emerged as a source of inspiration and a standard for other Asian countries. In a period when traditional giants in Asia, such as China, India, and Persia, were striving for  recognition, Japan assumed the role of representing Asia on the global stage.

Japan assumed a pivotal role in shaping Asia’s participation in international events, notably representing the continent in influential spectacles like the Olympics and the World Cup. During its heyday marked by creativity, unwavering quality, and an open market, Japan left an enduring imprint. This era metamorphosed into a paradigm that neighboring Asian nations aspired to emulate for their own advancement. Countries spanning the continent, including South Korea, China, and Singapore, found inspiration in Japan’s prosperity, endeavoring to adopt its model as a blueprint for their development.

Nevertheless, Japan’s once-unassailable leadership in Asia is presently undergoing a transformation. Beneath the surface, the nation grapples with profound challenges not immediately evident to external observers. The persistent struggles faced by Japan serve as harbingers of a shifting landscape, prompting inquiries about its enduring dominance in the region. As Japan contends with complexities, the dynamics of power and influence in Asia are undeniably undergoing an evolution.

As Japan’s recent decline is visible in Asia’s economic landscape, the nation finds itself relinquishing its coveted position in the top three global economies. The erstwhile standing as the world’s third-largest economy has been superseded by Germany, coupled with a slide into recession, according to recent data unveiled. The challenges faced by Japan encompass a feeble yen, compounded by the burden of an aging and diminishing population. The prevailing sentiment suggests that a resurgence is not on the horizon, with projections indicating a potential descent to the sixth or seventh position in the coming decades.

In the nominal growth realm, Japan’s economy, now the world’s fourth-largest, exhibited a modest 1.9% expansion in 2023. However, when denominated in dollars, its gross domestic product (GDP) stood at $4.2 trillion, trailing behind Germany’s $4.5 trillion. This shift, occurring more than a decade after conceding the second spot to China, is attributed to the sharp depreciation of the yen against the dollar over the past two years. The substantial decline, approximately one-fifth against the US dollar in 2022 and 2023, including a 7% dip in the previous year, erodes profits on exports when repatriated.

Compounding the economic challenges are the failures of government-led initiatives to stimulate the birthrate, exacerbating the anticipated labor shortages. Even as Japan experiences an unprecedented influx of foreign workers, the demographic trend remains a cause for concern. Yoshitaka Shindo, the Minister for Economic Revitalization, emphasized the imperative need for structural reforms, advocating for increased participation of women in full-time employment and the reduction of barriers to foreign investment.

The data underscores the economic downturn, with real GDP contracting by 0.1% in the last quarter of 2023, driven by weak spending by households and businesses. Private consumption, constituting over half of Japan’s economic activity, declined by 0.2% as households grappled with the escalating cost of living and diminishing real wages. Furthermore, a downward revision of the growth figures for the preceding quarter to -0.8% confirms Japan’s entry into a technical recession, defined by two consecutive quarters of contraction. Reflecting on the optimistic projections of the 1970s and 80s, wherein Japan’s prowess in producing affordable, high-quality exports fueled speculation of surpassing the United States as the world’s leading economy, the current economic landscape presents a stark contrast to those bygone expectations.

Rather than witnessing an anticipated resurgence, the rupture of Japan’s asset-inflated bubble economy in the early 1990s cast a shadow that extended across what has since been dubbed the “lost decades” of economic stagnation and deflation.

In 2010, China’s ascent to the position of the world’s second-largest economy prompted a bout of introspection in Japan, forcing contemplation about its capacity to keep pace with emerging economies. The recent descent to the fourth spot, attributed to significant currency fluctuations, not only marks a setback for Japan but also deals a blow to the self-esteem of the nation and its already unpopular prime minister, Fumio Kishida. Unfortunately, this downward trajectory is unlikely to find its nadir there. The International Monetary Fund projects that India, buoyed by a sizable and expanding young population, will surpass Japan in economic rankings by 2026, with Germany following suit the subsequent year.

The Nikkei, in a recent editorial, laments Japan’s failure to elevate its growth potential, a situation economists squarely attribute to the demographic crisis facing the nation. Describing this circumstance as a wake-up call, the Nikkei urges a swifter implementation of long-neglected economic reforms to address the underlying challenges. As Japan grapples with these economic shifts, the unfolding narrative suggests a critical juncture demanding renewed attention and decisive actions to navigate the turbulent waters of a changing global economic landscape.

At the political echelon, Japan’s diminishing stature heralds a reduction in its influence within the region. Historically, Japan has stood as a pivotal ally for the United States, facilitating the projection of American influence throughout the region. However, as Japan undergoes a decline, it is likely to grant the United States a more prominent role in shaping policies within Japan, potentially prompting the U.S. to seek additional robust alliances in the region.

In this geopolitical environment, China and India stand out as powerful actors, and other nations—including Russia—align themselves with one of these powerful forces. China and India are both aggressively expanding their areas of influence through international investments and infrastructure projects. What’s interesting is that these Asian superpowers seem less eager to build closer connections with the US, which could lead to the rise of a multipolar Asia.

The waning influence of Japan introduces a nuanced shift in the geopolitical dynamics, creating space for recalibrations and realignments in alliances. As the United States navigates this evolving landscape, the quest for alternative strategic partnerships becomes increasingly pertinent, highlighting the intricate interplay of power, influence, and alliances in shaping the future geopolitical contours of the Asian region.