Forecasts show Japan trailing Taiwan and South Korea in per capita economic output as the yen’s decline against the dollar accelerates the reversal of the productivity gap.
The Japan Center for Economic Research said Wednesday that it expects Taiwan to make progress this year and South Korea in 2023—earlier than last year’s forecast for 2028 and 2027.
Nominal gross domestic product per capita is a measure of the wealth of the population. Japan’s level was $39,583 last year, 13 percent higher than South Korea’s and 22 percent higher than Taiwan’s, according to data from the International Monetary Fund and the United Nations.
Labor productivity, average working hours, and employment rates are all factors, but exchange rates are the main reason for Taiwan’s and South Korea’s progress.
The yen, gin, and New Taiwan dollar fell against the US dollar this year as the Federal Reserve raised interest rates. However, the yen fell the most, about 20%, from the end of 2021 to the end of November, while the other two currencies fell about 10%.
Japan’s setback is unlikely to be temporary. Annual GDP per capita growth in the 2020s is projected to average 6.2% in Taiwan and 4.8% in South Korea, but only 1.3% in Japan.
The previous two economies digitized faster than Japan in government and other sectors, widening the gap in labor productivity growth. Productivity is projected to add about 5 percentage points of GDP per capita to growth in South Korea and Taiwan in the 2020s, more than Japan’s 2 percentage points.
Trends leave Japan behind all four emerging Asian economies. In 2007, this GDP per capita was surpassed by Singapore, and in 2001,by Hong Kong.
The aging population of Japan, home to the largest number of retirees in the world, has weighed on the economy.
If you compare only the working age population, the 15-64 year old—Japan’s GDP per capita has outlasted Taiwan and South Korea. South Korea is projected to move ahead in 2031, while Taiwan lags behind the JCER time horizon until 2035.