Image Source: Terry Feuerborn

The acceleration of Japanese population decline threatens to disrupt the country’s economic stability and social service programs. However, the possible solutions being explored by Japan may offer some hope.

By Derek Parr

Edited by Thomas Ku

In Japan, a demographic crisis has been steadily worsening, with a population loss of almost 800,000 people in 2022. While the Japanese population has been falling since around 2008, the rate of decline is accelerating as their population ages and the fertility rate decreases. With a current fertility rate of 1.367, Japan stands well below the replacement rate of 2.1 and cannot independently maintain its population level. As a result, the population of Japan is projected to decline from its current population of 123 million to 87 million by 2060.

Several factors have contributed to this low fertility rate. There is a growing subsection of the Japanese population unwilling to marry and raise families, primarily due to the additional responsibilities and work associated with family life. Surveys report that many young people in Japan cannot find the time or energy to pursue romantic relationships or start families. In addition, the high cost of raising a child coupled with a significant number of economically insecure part-time workers has further increased the burden of starting a family. The increasing participation of women in the workforce and higher education has also contributed to falling fertility rates as they seek to pursue professional goals rather than relegate themselves to housework and child-raising. 

Japan’s life expectancy of 85 years old is one of the highest in the world, and as the fertility rate declines, the proportion of elderly has increased drastically. More than 10% of Japan is above 80 years old, and more than 29% is above 65. This national aging further strains social services as a larger proportion of the population relies on healthcare, long-term care and pensions. The strain is worsened by a decline in the taxpaying labor force that finances these social services, resulting in greater national debt. The Japanese public debt currently stands at approximately $9.3 trillion USD, or 263% of GDP, the highest national debt to GDP ratio of any developed nation. As a result, Japan will likely have to adjust its fiscal or social service policies to maintain a sustainable level of debt. The decline of Japan’s working-age population may also result in labor shortages as labor supply falls faster than labor demand. Studies indicate that the transportation, agriculture, construction and healthcare industries will be particularly vulnerable to labor shortages.

Additionally, Japanese businesses that rely on domestic consumers may decline as the home market size decreases. A smaller proportion of individuals under 65 may also result in reductions to the GDP growth rate as innovation slows. This decline in economic growth may place Japan at a disadvantage in terms of geopolitical power and make it more reliant on foreign nations. Furthermore, as Japan ages, its military-age population will decrease, potentially creating greater geopolitical vulnerability. In an early 2023 speech, Japanese Prime Minister Fumio Kishida said, “Our nation is on the cusp of whether it can maintain its societal functions.” 

In an attempt to raise falling birth rates, the Japanese government has introduced payments for parents and improved childcare options. Japan aims to increase child-rearing support by about 3.5 trillion yen ($23 billion USD) annually, incentivizing childbirth with subsidized child care and direct financial payments. The government has worked to increase support for parental leave and improve work-life balance to provide more time for family and children. However, many workers are unwilling to take advantage of their parental leave out of concern that it will negatively impact their professional success. Local officials in Japan have also funded matchmaking and dating services, creating opportunities for singles to meet. To reverse population decline in especially vulnerable regions, Japan is also offering 1 million yen ($6700) per child, with an additional 3 million yen of financial support available, for families to leave Tokyo and move to declining villages around the country. 

Japan also hopes to partially counteract the negative economic effects of an aging population by keeping people in the workforce for longer. Workforce participation among those past the age of retirement in Japan has increased substantially, with 66% of those above 60 years old still working. Due to a weakened social security system and increasing labor shortages, many are choosing to work into old age. In particular, workers 65 or older account for more than 10% of those working in construction and retail. More companies are raising their retirement age from 60 to 65 to meet labor demands. According to one survey, 40% of companies in Japan hired at least one person over 70 last year. However, this high proportion of older workers requires greater safety efforts as they are more likely to be injured on the job. 

Immigration may be another possible solution to the Japanese population crisis, but there remains significant domestic opposition to the admittance of foreigners. Historically, Japan has remained relatively closed to foreigners and only began to allow a small number of foreigners to fill labor shortages in the 1980s and 1990s. However, recently, trainee programs and more liberal immigration policies have been enacted to help fill labor shortages. For example, Japan has created a program where specific foreign workers can enter and fill roles in vulnerable industries like fishing, construction, and nursing. In 2019, Japan expanded its visa program to accept at least 345,000 immigrants over the next five years. While high-skilled workers and their families can stay indefinitely, low-skilled workers can only remain for five years. Polling in response to this increased immigration has been met with conflicting reactions from the local population. In addition, there are many reports of poor treatment of migrant workers, leading to the creation of activist groups that seek to improve migrant working conditions and protections. Approximately 2.2% of people in Japan are foreign nationals; if this number rises significantly to compensate for the declining population, then there may be political backlash.

Image Source: Yuri Kageyama

With robot and artificial intelligence technology advancing rapidly, Japan may have the potential to utilize automation as a substitute for lost Japanese workers. Over the past few decades, Japanese companies have been notable investors in robotic development. In the manufacturing industry, Japan has one of the world’s highest ratios of robots relative to humans. If automation and AI continue to improve rapidly, Japan may be able to fill labor shortages in key industries. Due to its declining population and labor gaps, Japan is in a unique situation where technological developments may create economic growth without resulting in significant unemployment for Japanese workers. However, while rising automation may fill certain labor gaps, it may worsen the employment levels of certain industries. There have already been large job losses in Japanese low-skill manufacturing jobs, leading to calls for increased support for displaced workers.Japan is not the only country with potential demographic issues; about half of the world’s population lives in countries with fertility rates below the replacement level. The strategies employed by Japan in its population crisis may soon need to be considered by these other nations. East Asian countries, such as China and South Korea, face significantly declining population growth. The one-child policy and sudden urbanization have contributed to China’s now declining population. South Korea, which has the lowest fertility rate in the world, faces similar demographic challenges due to high child-raising costs and poor work-life balance. As Japan is further along in its population crisis, it serves as a potential source of information for countries with declining populations. By observing the situation in Japan, these other countries can learn how to better manage an aging population and its potential consequences.