China overtakes Japan, becomes world's no. 2 economy

Export slump, depressed auto sales hurting Japanese market

Japan lost its spot as the world’s second-largest economy to China. Hit by an export slump, depressed auto sales, and falling cigarette purchases due to a new tobacco tax, the Japanese economy contracted in the last four months of 2010, ceding its 42-year reign as the world economy’s number 2 to the People’s Republic. Pressure is mounting on Japanese Prime Minister Naoto Kan to restart economic growth, but the government is struggling with persistent deflation, staggering public debt, and low approval ratings among Japanese voters.

Wall Street Journal

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