For the first time in 34 years, Japan is no longer the world's largest creditor nation. According to recent data from the Finance Ministry, Germany has now taken the top spot, marking a significant shift in the global economic landscape. While Japan's net external assets reached a record high, this increase was not enough to outpace Germany's substantial holdings. This development, announced on Tuesday, May 27, 2025, signals the end of an era and prompts a closer look at the factors behind this change.
Understanding Net External Assets
Net external assets represent the difference between a country's overseas assets (such as stocks, bonds, and direct investments) and its external liabilities (what foreigners owe to the country). A high value indicates that a nation holds more assets abroad than it owes to the rest of the world, positioning it as a net creditor. Japan had held this prestigious title for over three decades, reflecting its history of strong trade surpluses and significant overseas investments.
The Numbers Behind the Shift
At the end of 2024, Japan's gross external assets surged by 12.9% year-on-year, reaching a record 533.05 trillion yen (approximately $3.7 trillion). This surpassed the 500 trillion yen mark for the first time. However, Germany's net external assets stood even higher at 569.65 trillion yen.
Several factors contributed to this change:
- Weaker Yen: The depreciation of the Japanese yen played a role in boosting the value of Japan's foreign-currency denominated assets when converted back into yen. By the end of 2024, the US dollar was trading at 157.89 yen, an 11.7% increase from the previous year's 141.40 yen. This inflated the yen value of Japan's holdings of US dollar-denominated assets.
- German Current Account Surplus: Germany has consistently maintained a large current account surplus, meaning the value of its exports of goods and services exceeds the value of its imports. This surplus generates capital that can be invested abroad, contributing to its higher net external assets.
- Increased Japanese Investment: Despite losing the top spot, Japan's net external credit actually increased for the seventh consecutive year, reaching 1,659.02 trillion yen, an 11.4% rise. This was largely driven by direct investment in the United States by Japanese financial institutions and trading houses. However, its external liabilities also increased by 10.7% to 1,125.97 trillion yen.
Japan Still a Major Global Creditor
While Germany now holds the top position, Japan remains a significant global creditor, ranking as the second-largest holder of net external assets. China follows in third place with 516.28 trillion yen. In contrast, the United States has a net external liability of 4,109.26 trillion yen, indicating that its foreign debts significantly outweigh its overseas assets.
Implications of the Change
The shift in the world's top creditor nation, while largely symbolic, reflects evolving global economic dynamics. Germany's strong export-oriented economy has positioned it favorably in recent years. For Japan, while the title is lost, its continued growth in net external assets underscores its ongoing role as a major investor on the global stage. The weaker yen, while contributing to the increased yen value of assets, also presents challenges for import costs within Japan.
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