Japan Drops To No. 3 World Economy, Thanks To Dismal 4th Quarter Performance

China is now the world’s second biggest economy after the U.S., as fourth-quarter economic and political problems took their toll on former No. 2 Japan's year-long performance: a strong yen dampened exports; real gross domestic product slid by 1.1 percent; car purchases dropped with the end of government subsidies; and cigarette sales were bashed by a new tax on tobacco. Adding to the pressure on the Japanese government were a huge public debt, protracted deflation and low approval ratings. China’s economy has overtaken Japan’s several times during individual quarters, but this is the first time it has jumped ahead based on full-year performance. Despite the poor showing in the fourth quarter, Japan’s real GDP actually expanded by 3.9 percent for the year.