A respite, not a reprieve, for Japan’s demographic woes
20 Apr 2017|

Japan’s population is set to decline 31%, to 88 million people, by 2065—and that’s good news. Not because a smaller population is necessarily good—although that case can be made—but because the projected drop is an improvement over estimates of five years ago, when Japan was anticipated to have just 81 million people in 2065. Over a longer period, however the picture is grimmer, with national population projected to plummet to just 51 million by 2115, or 60% of today’s total.  It’s that trajectory, more than any other factor, that limits Japan’s future prospects.  More importantly, the evidence suggests that Japan won’t take the action required to change its fate.

Japan’s National Institute of Population and Society Security Research (NIPSSR) revealed that Japan’s population has been falling since 2008, when it peaked at 128.08 million people. Population has decreased by nearly one million in the past five years, the first decline since the census began in 1920. This decline has been accompanied by a rising portion of the elderly population (65 or older). Currently, 27.3% of Japanese are elderly, a segment projected to reach 38.4% in 50 years.

That demographic profile has powerful consequences. First, a shrinking work force must support a growing number of retirees. In 2015, 2.3 workers supported one elderly person, but in 2065, this ratio will fall to 1.3 to 1. Pension plans are already strained and social security safety nets will be torn as payments into the system are outpaced by withdrawals. The elderly, who can be counted on to vote, prioritise investment in pensions and health care. In Japan, that age cohort is especially opposed to increased defense spending. While the current government in Tokyo has won international attention for its desire to revamp security policy, Japan’s demography will make it difficult, if not impossible, to sustain that position. A shrinking youth cohort makes it more difficult to staff a military, as other sectors of the economy offers more lucrative, less risky jobs. With an unemployment rate of 3.1%, labor markets are already tight and Japanese companies already report difficulty filling vacancies. That squeeze will only get worse.

Third, there’s the reduced dynamism of an aging society. Older citizens are more conservative and less entrepreneurial. A shrinking labor pool will be absorbed by the large companies, which have traditionally appealed to Japanese workers but mightn’t have the flexibility, creativity and adaptability required to lead in the 21st century. Moreover, an aging population won’t attract the foreign investment or the energy of younger, more dynamic competitors.

Finally, there’s the literal depopulation of the countryside. A total of 39 of Japan’s 47 prefectures are shrinking in population, with rural areas experiencing severe declines. This will feed an accelerating cycle as tax revenues fall, economic opportunities are cut and growing numbers of young people leave for cities. Japan’s nine major urban areas account for 53.9% of the total population; Greater Tokyo is now home to more than a quarter (28.4%) of Japanese citizens.

In theory, those declines aren’t irreversible. The latest data suggests that some policies of the Abe government have had an impact. The rate of population decline is slowing as women in their 30s choose to have more babies, perhaps a reflection of the improving economy or the creation of day-care facilities for children. The total long-run fertility rate has inched up to 1.44 births per woman, from 1.35 births per woman five years ago.

A second way to stave off decline is for Japan to open its doors to immigrants. Currently, about 1 million foreigners live and work in Japan, a 20% increase over the previous year; net immigration is about 50,000 people a year, but most of them are students or guest workers. The NIPSSR estimates that Japan would need to boost immigration to more than 500,000 people a year—or more than 10 times current numbers—to stabilise the population at current levels. But opening the door to that many foreigners is unthinkable in today’s Japan. Robots are another way to deal with labor shortages—at least for some jobs—but they don’t address the problems of pension shortfalls or economic dynamism.

A case can be made that a smaller Japan isn’t necessarily a bad thing. There’s a longstanding current of intellectual thought within Japan that applauds a country with restrained ambitions and a diminished international profile. Japan could become a model society for tackling postmodern problems of aging and environmental stewardship. That outlook would likely prompt a new regional strategy as well, forcing Tokyo to reassess its approach to Asia.

That prospect is anathema to the current leadership in Japan, and to realists who consider themselves Japan’s friends and partners. For them, diminished horizons reek of defeatism that would strip Japan of the ability to master its destiny. That may be true, although a smart strategy that tailors national ambitions to Japan’s actual position in the world could render it more influential internationally, not less.

Ultimately, however, Japanese strategists must face a simple fact. The country’s demographic trajectory and its consequences have been evident since the 1960s. In the last two decades, the price of inaction has been obvious. Yet, despite the growing attention devoted to the problem, Japan hasn’t been able to alter the demographic curve in a meaningful way.  Neither policymakers nor the public are ready to make the hard choices to change their country’s future.

That suggests that demography is destiny—and Japan’s future has been written.