Japan is on course to fall behind India as the world’s fifth-largest economy in 2026, a shift that would further dilute its influence in global economic and political affairs, Kyodo News reports. International Monetary Fund projections point to the change, driven largely by the prolonged weakness of the yen and Japan’s subdued growth outlook.

The prospect adds increased urgency to Prime Minister Sanae Takaichi’s growth strategy, due this summer, as policymakers grapple with the twin pressures of a shrinking population and stubbornly low productivity, Kyodo adds. Japan’s economy contracted in the July to September quarter for the first time in six periods, weighed down by softer exports amid higher US tariffs, although economists expect a modest recovery next year as trade uncertainty eases.

Corporate earnings are expected to remain relatively resilient, supporting investment and wage growth. The OECD forecasts expansion of just under 1% this year, but only if helped by expansionary fiscal policy and rising real household incomes.

The yen’s depreciation, partly reflecting concerns over Japan’s future fiscal trajectory, has pushed up import costs and intensified inflationary pressure. At the same time, strained relations with China risk curbing inbound tourism, threatening another key pillar of growth even with some in the country pleased on the drop off in Chinese tourist numbers.

While the expected drop in global GDP rankings reflects currency effects, economists argue it also exposes deeper structural weaknesses the report continues. Productivity gains have remained elusive despite repeated reform efforts and numerous supplementary budgets. As such, attention is now focused on whether Takaichi’s planned investment push in areas such as shipbuilding, AI and semiconductor productions can serve to restore momentum and arrest Japan’s gradual economic slide.