Japan Slips to Third-Largest Global Creditor Despite Record Assets
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
japan-economyglobal-creditor
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Japan’s net external assets rose 4.4% year-on-year to a record 561.75 trillion yen ($3.53 trillion) in 2025, marking the eighth consecutive annual increase, according to data released by the Japanese Finance Ministry on May 25, 2026. The growth was fueled by vigorous overseas investment from Japanese firms and valuation gains on foreign securities. Despite this new high, Japan was overtaken by China, slipping to third place in the global rankings of net creditor nations, with Germany retaining the top position.
Japan’s descent in the creditor rankings underscores a long-term rebalancing of global economic power. The country held the title of the world’s largest creditor for 34 consecutive years before losing the top spot to Germany in 2024. This latest drop to third place indicates that accumulating foreign assets alone is insufficient to maintain leadership if peer economies are expanding their financial footprints at a faster pace. The global macro backdrop is characterized by divergent monetary policies and shifting trade patterns.
The catalyst for Japan’s relative decline is twofold. Sustained trade surpluses in Germany and China have consistently boosted their net international investment positions. Meanwhile, Japan’s own position has been constrained by a significant rise in external liabilities, which includes foreign investment into Japanese assets. This reflects increasing global interest in Japanese equities and real estate as the Bank of Japan normalizes its monetary policy. The rankings are based on IMF data methodology, allowing for direct comparison of national accounts.
Japan’s net external asset position reached 561.75 trillion yen in 2025. Germany leads with a position of 675.5 trillion yen, while China holds 636.3 trillion yen. Japan’s 4.4% annual growth was outpaced by the expansion of its rivals. The increase was primarily driven by Japanese companies' overseas mergers and acquisitions and strong performance in foreign securities portfolios held by residents.
A comparison of net external asset positions (in trillion yen) illustrates the shift:
| Nation | 2025 Position | Global Rank |
|---|---|---|
| Germany | 675.5 | 1 |
| China | 636.3 | 2 |
| Japan | 561.75 | 3 |
The yen's average exchange rate of approximately 159 against the U.S. dollar in 2025 also played a role in the yen-denominated valuation of these overseas holdings. The data confirms a trend where Japan’s external liabilities are growing nearly as fast as its assets, tempering the net growth figure.
The repositioning has tangible second-order effects for asset allocators. Japanese financial institutions with large overseas portfolios, such as Nippon Life Insurance and Japan Post Insurance, benefit from the continued growth of external assets through higher investment income. This supports profitability for life insurers and asset managers. Exporters like Toyota Motor Corp. and Sony Group may face nuanced pressures; a strong creditor nation status can historically correlate with a stronger currency, but Japan’s slip in ranking could alleviate some upward pressure on the yen, potentially aiding export competitiveness.
A key risk to this analysis is that Japan’s high level of external liabilities, primarily foreign ownership of Japanese government bonds (JGBs), could lead to capital flight if global risk sentiment sours or yield differentials narrow. This introduces volatility into the yen and JGB markets. Current positioning data shows institutional investors increasing allocations to overseas equities and direct investment, a flow that is likely to continue given the search for yield outside Japan’s low-growth domestic environment.
The next key catalyst for Japan’s external position will be the Bank of Japan’s policy meeting on June 17, 2026. Any further guidance on interest rate hikes will influence the yen’s value and the attractiveness of foreign-denominated assets for Japanese investors. The Q2 2026 Tankan survey, released on July 1, will provide critical data on Japanese corporations' capital expenditure plans, both domestically and overseas.
Market participants should monitor the USD/JPY exchange rate for a sustained break above 165 or below 155, as these levels would significantly impact valuation gains on external assets. The release of China’s State Administration of Foreign Exchange data in late July will offer a timely update on the gap between the world’s second and third largest creditors. The German Bundesbank’s annual financial account report, due in August, will provide further context for Europe’s leading position.
Net external assets represent the difference between a country’s external financial assets (what it owns abroad) and its external liabilities (what it owes to foreign entities). A positive figure, like Japan’s 561.75 trillion yen, means the nation is a net creditor to the rest of the world. This position is built over decades through consistent current account surpluses, largely from trade and investment income.
For Japanese citizens, the nation’s creditor status indirectly supports economic stability and funds public services. The investment income earned from these vast overseas assets—such as dividends from foreign stocks and interest from bonds—flows back into Japan, contributing to the national income. This helps to offset a aging population and modest domestic growth, providing a crucial source of revenue that supports the national budget and social security system.
China overtook Japan because its net external assets grew at a faster absolute rate, fueled by massive and sustained trade surpluses over many years. While Japan’s assets hit a record, its external liabilities—foreign investment into Japan—also increased significantly. China’s larger economic scale and relentless export machine have allowed it to accumulate foreign wealth more rapidly, even as Japan continues to build its own overseas portfolio.
Japan’s rising external assets are eclipsed by faster growth from competitors, signaling a shift in global capital influence.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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