Japan’s economy is now the world’s fourth-largest after it contracted in the last quarter of 2023 and fell behind Germany.

The government reported the economy shrank at an annual rate of 0.4% in October to December, according to cabinet office data on real GDP (dross domestic product) released on Thursday, though it grew 1.9% for all of 2023.

It contracted 2.9% in July-September. Two straight quarters of contraction are considered an indicator an economy is in a technical recession.

Japan’s economy was the second largest until 2010, when it was overtaken by China’s.

Japan’s nominal GDP totalled 4.2 trillion US dollars (£3,35 trillion) last year, while Germany’s was 4.4 trillion dollars (£3.51 trillion).

A weaker Japanese yen was a key factor in the drop to fourth place, since comparisons of nominal GDP are in dollar terms.

But Japan’s relative weakness also reflects a decline in its population and lagging productivity and competitiveness, economists say.

Real gross domestic product is a measure of the value of a nation’s products and services.

The annual rate measures what would have happened if the quarterly rate lasted a year.

Japan was historically touted as “an economic miracle,” rising from the ashes of the Second World War to become the second largest economy after the US.

It kept that going through the 1970s and 1980s.

But for most of the past 30 years the economy has grown only moderately at times, mainly remaining in the doldrums after the collapse of its financial bubble began in 1990.

Both the Japanese and German economies are powered by strong small and medium-size businesses with solid productivity.

As an island nation with relatively few foreign residents, Japan’s population has been shrinking and aging for years, while Germany’s has grown to nearly 85 million, as immigration helped to make up for a low birth rate.

The latest data reflect the realities of a weakening Japan and will likely result in Japan’s commanding a lesser presence in the world, said Tetsuji Okazaki, professor of economics at the University of Tokyo.

The US remains the world’s largest economy by far, with GDP at 27.94 trillion dollars (£22.27 trillion) in 2023, while China’s was 17.5 trillion dollars (£13.95 trillion). India’s is about 3.7 trillion dollars (£2.95 trillion) but growing at a sizzling rate of around 7%.