In today’s Finshots, we explain why Japan lost its crown as the world’s top creditor and how Germany took its spot.

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The Story

For the past 34 years, Japan held a pretty impressive title. It was the world’s top creditor country. In simple terms, that means Japan had lent more money to the world than it borrowed or owned more assets in other countries than foreigners owned in Japan.

See, countries, just like people, can invest abroad. They can lend money, buy foreign government bonds, snap up overseas companies or own property in other nations. All of this is part of what's called “net external assets”. Basically, what a country owns abroad minus what others own within its borders.

And for over three decades, Japan had the biggest net positive balance. The rest of the world owed Japan the most.

But a few days ago, that long-standing record was broken. Germany quietly climbed to the top of the ladder, pushing Japan down to second place.

Now, here’s the thing though. Japan’s net external assets actually hit an all-time high in 2024. They reached a whopping ¥533 trillion (about $3.7 trillion), which was up 13% from the year before. But Germany outpaced that, clocking in at ¥569 trillion (around $3.9 trillion). So even though Japan grew, Germany just grew faster.

So how did that happen, you ask?

For starters, exports had a lot to do with it. In 2024, Germany recorded a current account surplus of around €240 billion (about $250 billion), which was roughly 9% higher than the previous year. If you're wondering what a current account surplus is, it's when a country exports more than it imports. And that’s exactly what Germany did.

Although, strangely enough, Germany’s exports weren’t actually booming. They dropped by 1% compared to 2023. But its imports dropped even more — by 3%. So even though both exports and imports fell, the gap between them widened. And that gap, the surplus, is what matters. More surplus means more money to invest overseas, and more overseas investments mean more net external assets.

Japan, on the other hand, also posted a strong current account surplus — around ¥30 trillion (or about €180 billion). That was actually its highest since 1985. But it still fell short of Germany’s, and that brings us to the second factor: currency movements.

See, Germany’s currency, the euro, isn’t just influenced by what’s happening in Germany. It’s tied to the entire Eurozone. And in 2024, the euro strengthened against the yen by about 5%. That means one euro could now buy more yen than before.

So when Japan’s net external assets were calculated in yen, the value of Germany’s euro-denominated assets looked bigger, simply because of the currency effect. It exaggerated Germany’s position in yen terms, even if the real difference wasn’t that dramatic.

In short, Japan didn’t fall behind because it was doing badly. It’s just that exchange rate maths played in Germany’s favour.

And if you’re wondering why the euro gained strength against the yen, it was the result of a mix of things happening all at once.

One big driver was interest rates. For instance, Japan and the US had very different approaches to interest rates. While the US kept interest rates high to fight inflation, Japan stuck to near-zero or even negative rates. That made Japanese investments less attractive to global investors. People started moving their money elsewhere in search of better returns, and that put downward pressure on the yen.

Japan’s own economy wasn’t helping either. In 2024, growth was sluggish, household spending stayed weak, and domestic demand didn’t really pick up. All of this made Japan a less appealing place to invest, especially compared to countries like the US, where consumer spending kept the economy buzzing.

There’s also a deeper structural issue — Japan’s ageing population. With more retirees and fewer young workers, the country has high savings but not many places to invest it productively at home. So Japanese institutions, think banks, pension funds, insurance companies, send that money abroad. But they often do so in very cautious ways, like buying US government bonds. These are low-risk investments, but they also bring low returns.

On the flip side, Japanese firms have been shifting more money into direct investments — buying companies or setting up businesses overseas, rather than into easily tradable securities like stocks or bonds. Unlike German investors, who hold more liquid foreign assets, Japanese acquisitions are harder to sell quickly. That limits flexibility, especially during economic shocks.

So, is there a chance Japan could reclaim the top spot?

If you ask Japan’s Finance Minister Katsunobu Kato, he doesn’t seem too bothered by the slip to second place. His take is that Japan’s overseas assets are still climbing steadily and have actually hit a record high. So ranking second doesn’t mean Japan’s financial health or global clout is under threat. As long as the numbers are growing, he believes that Japan is doing just fine.

But here’s the catch. Climbing back to the top might not be that easy.

For starters, Japanese companies have been under pressure to shift production to the US. Thanks to the tariff war that Trump has waged. And when a company sets up shop abroad, it often leads to higher liabilities for its home country. That’s because the money flowing out is considered Japan’s investment in a foreign entity or an increase in its assets. But it does not automatically increase what foreigners own in Japan. Besides, if Japanese companies borrow money from foreign banks or investors to build those factories, that borrowing would increase Japan’s liabilities.

Germany, meanwhile, may not face the same heat, being sheltered under the EU’s broader trade umbrella, giving it a smoother ride to the top.

That said, Germany isn’t completely in the clear either. If the US decides to slap tariffs on German cars next, its export-driven model could take a hit as the US is the biggest export market for German carmakers, Volkswagen, BMW and Mercedes. And that could slow down its asset accumulation too.

Still, Japan has a few things going for it.

Take the Shunto wage hikes, for example. Every spring, Japanese unions sit down with employers to negotiate salary bumps. And in 2025, this could translate into an average increase of 5.4% in wages. Now that’s a decent jump.

More money in people’s pockets could mean more spending and more saving. And here’s where it gets interesting. Some of that savings might find its way into overseas investments. Thanks to a government-backed programme called NISA (Nippon Individual Savings Account), everyday folks are being nudged to invest in foreign stocks and funds. If that catches on, it could help boost Japan’s net external assets once again.

But there’s another twist.

The Bank of Japan (BoJ) has decided to go slow on rate hikes this year. Initially, there were expectations of gradual increases, which would have made the yen a little stronger and foreign acquisitions a bit cheaper for Japanese investors. But with the uncertainty around another Trump presidency and looming tariff wars, the BoJ is treading carefully. They’ve paused most hikes for now. Only a modest 0.25% increase is expected by year-end.

So, yeah, it’s all a bit up in the air. For now, the world’s top creditor crown sits on Germany’s head.

And whether Japan makes a comeback, or settles comfortably into second place, we’ll just have to wait and see.

Until then…

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