Chinese media outlet Yicai reported on the 8th about the background of Japan's decline in the net external assets ranking.

According to data recently released by the Ministry of Finance, Japan's net external assets as of the end of 2025 reached 561.8 trillion yen, increasing by 4.4% year-on-year and updating a record high. However, according to the International Monetary Fund (IMF), Japan was overtaken by China (636.3391 trillion yen) and fell to 3rd place.

Japan's net external assets continue to increase. The Ministry of Finance cited increased direct investment by Japanese companies in countries such as the United States, and the rise in the valuation of overseas stocks and bonds held by Japanese investors as factors. According to the preliminary international balance of payments statistics released by the Ministry of Finance on May 13, profits from overseas investments in fiscal year 2025 reached 26.01 trillion yen, marking a record high. Since last year, many Japanese companies have actively expanded their investments in the U.S. to realize "the largest-ever" trade agreement between Japan and the U.S.

Regarding the reason for the drop in ranking, the Ministry of Finance cited that Germany (which holds the top spot) and others are maintaining significant current account surpluses, and these surpluses are mainly attributed to strong trade performance. On the other hand, in Japan, the Ministry of Finance indicated that the growth of net external assets was curbed because the market value of domestic assets held by foreign investors increased, particularly due to the rise in Japanese stocks, leading to an increase in external liabilities.

Regarding this, Chen Yan (Chen Yien), Executive Director of the Japan Enterprise (China) Research Institute, explained that "by the end of last year, the Nikkei 225 average rose from below 40,000 points to approximately 50,000 points, with the rate of increase reaching about 26%." He further explained, "Foreign investors hold large amounts of shares in Japanese listed companies, and with the rise in stock prices, the valuation of their holdings also significantly increased. In international balance of payments statistics, this is accounted for as an increase in Japan's external liabilities, thereby diluting the scale of net external assets."

Chen also mentioned, "Since many of Japan's net external assets are denominated in US dollars, the depreciation of the yen has led to an increase in the yen-converted value of assets on paper. In other words, the fact that Japan's actual ability to gain international profits is declining is being concealed." He pointed out, "In the past, Japan had companies that surpassed other countries in terms of technological prowess, product strength, and management capabilities. However, current Japan is increasingly generating profits through investment rather than technology exports. This trend is likely to continue, but Japan's intrinsic ability to earn profits from the international market is decreasing."

The article stated that although the Japanese government implemented successive interventions in the foreign exchange market since late April to curb the depreciation of the yen, their effects were limited. It also reported, "In Japan, in addition to the ongoing yen depreciation, the problem of import inflation is worsening due to factors such as severe fluctuations in international crude oil prices caused by the Middle East situation. Import costs have also risen sharply, and many small and medium-sized enterprises (SMEs) are unable to withstand the pressure of rising prices and are facing financial difficulties."

Furthermore, while a weaker yen should theoretically be a tailwind for export companies, the article noted that due to factors such as global demand stagnation and the relocation of production bases overseas, the economic boost from expanded exports has not been as significant as expected. It concluded that "the Japanese economy is currently in a difficult situation where the weak yen cannot stimulate the economy and inflation cannot be curbed, further increasing the uncertainty for the Japanese economy, which already lacked resilience." (Translation/Editing by Kitada)