Japan is shrinking and ageing. The population fell by 618,000 last year and Japan’s society is the oldest in the world with almost 30 per cent of the population aged over 65. In 15 years that share will be one-third. There are 80,000 centenarians and the number is growing.
Each person of working age will need to support more in society as longevity and a low birth rate continue to age Japan. That rising dependency ratio means productivity growth will become even more important to sustaining the living standards of the population.
Japanese society faces that challenge with an eye-watering government debt of 270 per cent of GDP — the highest on record, ever, for any country — compared to 137 per cent in the United States or 48 per cent for Australia, for example. Government debt continues to increase with Japan’s ‘silver democracy’ making it difficult to cut back rising healthcare, aged care and pension costs. Defence spending is rising and there are no plans in sight for chipping away at government debt.
Before COVID-19 Japan had started to unlock immigration, gradually. Even if that resumes when Japan opens up its borders, it would barely make a difference.
Maintaining living standards in Japan will depend on rapid productivity growth.
The two prime ministers who have managed to stay in office for longer than one year since the turn of the century — Junichiro Koizumi and Shinzo Abe — made some progress on reform, but a reform weary society meant progress was limited. The two steps forward from Mr Koizumi’s privatisation and deregulation in the early 2000s were met by one step backwards after he left office.
Mr Abe’s ambitious Abenomics reform package failed to fire on structural or supply side reforms that would have boosted productivity. Instead the arrows that fired were …continue reading