What can be done?
Key point: Tokyo doesn’t have enough babies and young workers to keep up its tax income and finances. This means that, over time, Japan will have less money and fewer soldiers to defend itself with.
In the last twenty years, it has been customary to refer to Japan’s weak economic performance as a lost decade. Demographics tell us that we are moving well beyond that. Japan is looking at a lost century.
If you want to see the future of the advanced economies, Japan might be a good place to start.
Despite full employment, Japan is showing muted wage pressures, minimal GDP growth, low interest rates and continued high government deficits. How do these seemingly contradictory elements fit together? Are they unique to Japan, or symptoms of a more general malaise?
In Japan, demographics are largely responsible. The country is facing an unprecedented meltdown in population. After peaking in 2010 at 128 million, the country’s population has eased back to 126 million and will continue to decline. Its population is set to shrink by 0.4 percent annually, with the decrease expected to accelerate to 1.0 percent annually by the 2040s. By 2050, Japan will have 23 percent fewer citizens. Not since the great plagues of the Middle Ages have we seen population collapse of this magnitude. Nor does it stop in mid-century. Demographers see current trends persisting to the end of the century, when Japan’s population falls to fifty million, only 40 percent of its all time high.
In the medium term, not all age cohorts are similarly affected. Japan’s sixty-five-plus age group continues to increase, but interestingly, is already almost at steady state. (The seventy-five-plus age group continues to grow until the late 2020s.) Most affected are the fourteen-and-under and the 15–65 age groups, the latter here being treated as the potential labor force. From 2017 to 2050, the fourteen-and-under age cohort is forecast to fall by nearly 40 percent. The workforce (15–65) falls by 34 percent in the same period. Thus, not only is Japan’s population declining, its workforce is declining much faster than the population as a whole.