Japan relinquishes position as leading creditor nation for the first time in 34 years
Japan Surrenders Top Creditor Nation Position After Three Decades
In a significant shift, Japan has relinquished its standing as the world's leading creditor nation for the first time in 34 years, despite registering a record-breaking amount of overseas assets.
Japan's net external assets soared to ¥533.05 trillion (US$3.7 trillion) at the end of last year, representing an increase of approximately 13 percent from the previous year, according to data unveiled yesterday by the Japanese Ministry of Finance. Despite reaching an all-time high, Japan was overtaken by Germany, whose net external assets amassed to ¥569.7 trillion. China held onto third place with net assets of ¥516.3 trillion. Japan occupied the top spot for the first time in 1991.
The ascent of Germany can be linked to its impressive current account surplus, which climbed to 248.7 billion euros (US$282.2 billion) in 2024, driven primarily by robust trade performance. In comparison, Japan's surplus was ¥29.4 trillion, as stated by the finance ministry, which is equivalent to around €180 billion.
Last year's currency exchange rate fluctuations contributed to the divergence between the two countries' asset values. The euro rose about 5 percent against the yen, making German assets seem larger when compared to Japanese assets denominated in yen. Conversely, the weakened yen led to increases in both foreign assets and liabilities for Japan, with assets growing at a slower pace than Germany.
The title of world's foremost net-creditor nation had long been a consequence of Japan's decades-long run of current account surpluses, marked by Japanese investors and companies amassing foreign holdings. Losing this title suggests that while Japan's assets continue to grow, there has been stronger demand for real assets in other nations such as Germany and China.
A country's net foreign assets are calculated by subtracting the value of its domestic assets owned by foreigners from the value of its overseas assets, adjusted for changes in currency values. The figure essentially mirrors the cumulative change of the country's current account.
In response to this development, Japanese Minister of Finance Katsunobu Kato expressed that he was unfazed. "Given that Japan's net external assets have also been steadily increasing, the ranking alone should not be viewed as an indicator of a significant change in Japan's position," Kato stated to reporters.
The strengthening yen facilitated growth in both foreign assets and liabilities for Japan, but assets increased at a faster rate due to increased overseas business investments. Yesterday's data broadly reflect trends in foreign direct investment.
Last year, Japanese companies continued to display a strong appetite for foreign direct investment, particularly in the US and UK, as stated by the ministry. Sectors like finance, insurance, and retail received significant investments from Japanese investors.
As for the future trajectory of outbound investment, its direction may hinge on whether Japanese firms continue to expand their overseas spending, particularly in the US. Given US President Donald Trump's tariff policies, some corporations might be motivated to relocate production or transfer assets to the US to mitigate trade-related risks.
In light of the shift, it appears that the rise in Germany's net external assets, bolstered by a robust current account surplus and solid trade performance, has outpaced Japan's, causing Japan to lose its position as the world's leading creditor nation after three decades. Additionally, the title change could signal a growing demand for real assets in other nations like Germany and China, as evidenced by strong foreign investment by Japanese companies in sectors such as finance, insurance, and retail, particularly in the US and UK.
