Summary of Key Points
Although Japan's total overseas net assets have reached a record high of 561.8 trillion yen, its global ranking has dropped from second to third, behind Germany (first) and China (second). The reasons include: the faster growth of external liabilities compared to assets (increased foreign ownership of Japanese stocks leading to higher debt levels), and countries like Germany having larger current account surpluses. A deeper issue is that the appreciation of the yen has masked a decline in actual profitability. Japan's economy is facing difficulties in boosting exports due to the weakening yen and controlling inflation, making it unlikely to regain its top position in the short term.
1. Why did Japan's ranking drop despite record-high net assets? — "Others are growing faster than us"
Net assets are calculated as "external assets minus external liabilities." In 2025, Japan's external assets increased by 8.5% to 1805.63 trillion yen, but its external liabilities increased even more by 10.5% to 1243.88 trillion yen. As a result, although net assets reached a new high, the growth was limited. Germany and China have larger net asset volumes due to their strong trade surpluses (earning more from selling goods than buying them), and China continues to accumulate assets, pushing Japan to third place.
2. How do foreign investments in Japanese stocks increase Japan's liabilities? — "Assets held by others are counted as our liabilities"
External liabilities refer to assets owned by foreigners in Japan (such as stocks and bonds). For example, if foreigners buy Japanese stocks, the ownership of these assets belongs to them, which means Japan is "owing" the value of those assets to foreigners (as they can sell them at any time to withdraw their money). In 2025, the Nikkei index rose by 26% and has now exceeded 65,000 points, causing the market value of foreign-held Japanese stocks to soar and directly increasing Japan's external liabilities, thereby diluting its net assets.
3. The yen's depreciation: More on paper, less in reality? — "Good numbers, but declining strength"
Most of Japan's overseas assets are denominated in US dollars. When the yen depreciates, these dollar assets increase in value when converted back to yen (for example, $100 used to exchange for 10,000 yen now exchanges for 16,000 yen). This appears as an increase in net assets on paper, but it reflects a decline in Japan's actual profitability. In the past, Japan earned profits through its technology and products (such as automobiles and electronics); now, it relies on investments (buying overseas stocks and bonds), indicating a weakening of its industrial competitiveness.
4. Japan's economic dilemma: The yen's depreciation fails to boost exports, and inflation is difficult to control — "A tough situation"
The depreciation of the yen should have made Japanese products cheaper abroad, which would be beneficial for exports. However, global demand is weak, and many Japanese companies have moved their factories overseas (diverting the industrial chain), resulting in no improvement in exports. On the other hand, imports of oil and food have become more expensive (since these are priced in dollars), leading to soaring domestic prices and putting pressure on small and medium-sized businesses. Government intervention in the exchange rate is ineffective, leaving the economy in a difficult position where depreciation does not help and inflation is hard to curb, making recovery even more challenging.
5. Can Japan regain its top ranking in the future? — "Very unlikely in the short term"
The yen continues to depreciate (currently around 160 yen per dollar), and the market value of foreign-held Japanese stocks is still rising, leading to further increases in liabilities. Given Japan's economic dilemmas, the Oxford Economics Institute predicts that the yen will remain weak in 2026. Therefore, it is unlikely for Japan to overtake Germany and China and regain its position as the country with the highest net assets in the short term.
This news analysis essentially highlights Japan's "puffy" economy: the figures look good on paper, but its core competitiveness is declining, and the economy is stuck in a structural predicament. In simple terms, it's like a person who has more savings, but owes more money, and its ability to earn income has shifted from through skills to through financial management. Additionally, Japan is facing rising prices and difficulty in increasing incomes, making life challenging for ordinary citizens.