The Shrinking Nation: Japan’s Battle with Age and Birth

Image Source: Getty

Japan, an economically advanced country, has witnessed its population decline to 120.3 million in 2024. With one of the lowest birth rates in the world, the nation faces significant challenges in both business and society, including a declining workforce and fewer customers. Additionally, the proportion of people 65 and above has hit a high. Only two prefectures—Tokyo and nearby Saitama—registered population growth, while the remaining 45 prefectures saw declines. The most noticeable decrease was in the Akita Prefecture, located in the northern region of Honshu Island. Japan's population has been continuously declining since its peak in 2008, due to a decreasing birthrate.

As the tax base reduces and age-related spending—such as healthcare and pensions—increases, the International Monetary Fund (IMF) forecasted in 2020 that "the ageing and shrinking population will strain Japan’s public finances." "Japan is standing on the verge of whether we can continue to function as a society," former Prime Minister (PM) Fumio Kishida stated in January 2023, citing the country's twin concerns of declining birth rates and an ageing population. Nearly half of Japanese businesses relied on employees over 70 in 2022. According to the 2023 World Economic Forum Future of Jobs Report, only 35 percent of enterprises worldwide give preference to employees over the age of 55.

With China and India among its relatively young and growing neighbours, Japan faces the prospect of weakening clout in regional and global politics.

Japan's fertility rate dropped below replacement level during the 1973 oil crisis. Beyond the short-term economic and social repercussions, persistently low birth rates and ageing populations represent a significant and long-term national security concern. A falling birthrate also results in fewer young people eligible for military service, potentially undermining the size and readiness of Japan’s Self-Defence Forces. With China and India among its relatively young and growing neighbours, Japan faces the prospect of weakening clout in regional and global politics. The impact of rural depopulation on infrastructure and emergency preparedness can be significant in large areas of the country. A country with an older demographic may struggle to mobilise a response to a natural calamity or crisis.

Urbanisation, which often lowers birth rates, is the primary driver of Japan's population reduction. Several economists argue that an uneven old-age dependency ratio—where there are significantly more elderly people than working-age individuals—leads to a population decline. This, in turn, contributes to a shrinking economy and slower economic growth. A nation's population expansion significantly impacts its long-term economic growth rate and productivity, which gauges worker efficiency. Arguably, a country's social security system may be under strain because of a declining population, which includes more elderly people and a smaller labour force. This is because a smaller workforce results in lower income tax revenue, while public spending on health care, pensions, and senior care increases along with the demand for health care workers.

In addition to worsening labour shortages, the declining working-age population also lowers economic productivity and tax receipts. According to the IMF, demography alone will cause Japan's economic growth to slow by an average of 0.8 percentage points per year over the next 40 years. Defence budgets are being pressured by economic repercussions, and healthcare and pension expenditures are expected to increase. Furthermore, Japan’s declining population has reduced the pool of recruits for the Self-Defence Forces (SDF), potentially weakening its military capabilities and constraining its foreign policy ambitions. However, transitioning Japan to a military doctrine and grand strategy that enables power projection—even as the nation loses its primary tax base and working-age population—has become a growing concern for many of its lawmakers.. To maintain the regional balance of power despite Japan's ageing population, these worries are pushing Tokyo to build stronger regional relationships with allies and shift to a more high-technology, low-personnel military.

Japan’s declining population has reduced the pool of recruits for the Self-Defence Forces (SDF), potentially weakening its military capabilities and constraining its foreign policy ambitions.

If the proper adjustments are made, an ageing Japan might have as much influence or even more than Japan of 20 years ago, in various areas. Countries such as India—with a median age under 30—are experiencing the opposite demographic trend: India adds over 10 million people to its working-age population each year. However, due to structural underemployment and skills mismatches, India faces challenges absorbing this workforce domestically. This creates a natural opportunity as India has labour to export and Japan has demand. India and Japan might look for a new kind of human resource mobilisation agreement that involves institutionalising remote working options or facilitating seamless labour movement. For Japan, this kind of agreement with India would help ease labour shortages, especially in caregiving, construction, hospitality, and IT and would further boost domestic consumption through stable population inflows.

In June 2023, PM Fumio Kishida's administration developed the ‘Direction on Strategy for Children's Future’ to halt the birth rate decrease. Since the high expense of having children is one of the biggest barriers for potential parents, the accelerated plan offers young couples financial aid for childrearing. Proposals include raising the child allowance and increasing financial assistance for childbirth and higher education. The strategy also calls for actions such as enhancing the quality of nurseries and working conditions to lessen the strain of childrearing. Nonetheless, there is still a severe lack of childcare services in urban areas, and the number of children on waiting lists has increased despite the number of daycare centres and enrolled children having increased since 2000.

Japan can work towards raising its retirement age, where companies can set the retirement age between 60 and 70. Furthermore, companies must be encouraged to include the elderly in the workforce to boost manpower and workforce numbers. Female participation in the workforce should be given priority, which will also lead to gender equality. Moreover, Japan can encourage population dispersal by making rural areas more attractive through infrastructure, digital connectivity, and remote work incentives. The government can offer financial support to people relocating to underpopulated towns.

Japan can work towards raising its retirement age, where companies can set the retirement age between 60 and 70.

During a recent briefing, Chief Cabinet Secretary Yoshimasa Hayashi stated that the Japanese government has been attempting to assist young prospective parents who believe their financial situation prevents them from starting a family. Japan has resorted to hiring young foreigners, but the government has maintained a stringent immigration policy that only permits temporary foreign employment. Rather than embracing full-scale immigration, Japan has developed programmes that allow foreign workers to enter the country temporarily, such as the Technical Intern Training Programme (TITP), introduced in the 1990s. This programme ostensibly provides skills training to workers from developing countries and Specified Skilled Worker (SSW) Visas, which were introduced in 2019. In certain labour-shortage sectors, these visas allow foreign workers to stay up to five years. A Japan-India collaboration in the labour market could also bring a specialised workforce from India to temporarily work in Japan, which would help the Japanese economy improve labour productivity.

Long life expectancy combined with a decreased birth rate and population has contributed to an ageing population. Japan’s ageing crisis and low fertility rates are more than a demographic issue. It is a test of how societies adapt to profound social change. The outcome will shape not only Japan’s future but also serve as a model or warning for other ageing nations.

Simran Walia is a Research Analyst at Manohar Parrikar Institute of Defence Studies and Analyses (MP-IDSA). 

• International Affairs
• The Pacific, East and Southeast Asia
• ageing crisis in japan
• birth rate in Japan
• birthrate decline in japan
• fertility rate in Japan
• lower birth rate in Japan
• population decline in japan

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.

PREV NEXT