New forecasts from the International Monetary Fund (IMF) indicate diverging economic trajectories for the two Asian countries, suggesting that India is likely to displace Japan and secure the fourth spot globally in terms of economic size by 2027.
The IMF predicts that Japan will maintain the fourth position in nominal GDP this year, but by 2027, India is projected to reach a GDP of $4.52 trillion, taking Japan's place. The forecast also shows that Japan will drop to sixth place, yielding to both India and the United Kingdom.
Despite global economic difficulties, India has demonstrated steady growth in recent years; this week, the IMF raised its growth projections for 2026 to 7.0 percent. In contrast, the Japanese economy faces challenges related to an aging population and other structural weaknesses, leading to stagnant growth in this Asian power.
The global economic landscape is led by the United States, followed by China and Germany. Krishna Srinivasan, Director of the IMF's Asia Region, noted during a regional economic review for the Asia-Pacific region on Thursday that India entered the current energy price shock caused by the conflict between the US and Israel in Iran from a very strong position.
He emphasized: 'India entered this with very strong fundamentals. Growth was strong, fiscal prudence was practically established, they had many reserves, and so on. And in this context, they reacted well to the shock.'
Meanwhile, growth in Japan is expected to slow to 0.7 percent in 2026. The country has been significantly affected by rising energy prices and broader inflation, forcing the Bank of Japan to raise interest rates to their highest level in three decades. The country, which has long suffered from deflation, has seen sustained consumer price increases since spring 2022, a trend exacerbated by the sharp rise in energy prices due to the Iran conflict.
The depreciation of the yen, which reached a 40-year low against the dollar in the summer, further increases import costs. Japan's aging population also negatively impacts economic activity. Srinivasan added that the Japanese economy benefits from the AI investment boom, but not to the same extent as its regional neighbors. On Thursday, the Nikkei index in Tokyo fell nearly five percent amid concerns over the profitability of the AI sector.