Japan's shrinking population has become an 'invisible killer' of economic growth

According to recent data from the Japanese Ministry of Internal Affairs and Communications, the total population of Japan is about 120.65 million, which has been decreasing for 16 consecutive years, and the population decline has exceeded 900000 for the first time in a year, reaching a new high since statistics began in 1968. This data not only reveals a profound crisis in Japan's population structure, but also indicates that its long-term economic growth potential is facing systemic challenges. The chain reaction of population decline, from shrinking consumer markets to labor shortages, from increasing fiscal burdens to declining innovation momentum, is reshaping the underlying logic of the Japanese economy.

The most direct impact of population decline is reflected in the consumer market. In 2024, the number of newborns in Japan fell below 700000 for the first time, while the death toll was nearly 1.6 million, resulting in a natural decrease of over 900000 population. The dual pressure of "birth collapse" and "death peak" has led to a continuous contraction of domestic market capacity. According to estimates, household consumption expenditure in Japan accounts for over 50% of GDP, but the decrease in population has led to an average annual contraction of about 0.5% in the consumer market. The transmission effect of consumption contraction is significant: enterprises reduce investment due to bleak market prospects, forming a vicious cycle of "low expectations low investment low growth". Japanese retail giant AEON Group has closed some remote stores and shifted its focus to urban areas; Home appliance giant Panasonic has shifted its strategic focus to overseas markets, with local production capacity accounting for 40% by 2025, down from 65% in 2010. This' contractionary strategy 'further weakens the supporting role of domestic demand in the economy.

Labor supply is one of the core elements of economic growth. Currently, the proportion of Japan's working age population aged 15-64 has dropped to 59%, a decrease of 12 percentage points from 1990, while the proportion of elderly population aged 65 and above has reached a historical high of 29.6%. This "inverted pyramid" structure leads to an imbalance between supply and demand in the labor market: key sectors such as manufacturing and nursing have a labor shortage rate of over 30%, and by 2024, 51% of companies in the entire industry will have limited production capacity due to "no one available". In order to alleviate the shortage, the Japanese government was forced to relax the employment policy for foreigners, and the number of foreign workers exceeded 3.67 million. However, this "catch up" measure is difficult to eradicate the deep contradictions. On the one hand, foreign workers are mostly concentrated in low skilled positions, making it difficult to fill the talent gap in high-end manufacturing and research and development fields; On the other hand, Japan's unique employment system (such as informal employees accounting for over 37%) has led to a "dualization" of the labor market, where companies control costs by lowering the wages of informal employees, which in turn suppresses consumption and innovation capabilities.

The combination of aging population and low birth rate has led to a "rigid growth" in Japan's social security expenditure. At present, Japan's social security expenditures such as healthcare and elderly care account for over 12% of GDP, and every 2.1 workers need to "support" one elderly person. With the concentration of the "cluster generation" (born between 1947 and 1949) entering the age of 75 and above, the number of elderly people aged 75 and above in Japan is expected to reach 20.76 million by 2025, accounting for more than half of the elderly population. The surge in demand for healthcare and nursing among this group is expected to push up social security spending to over 15% of GDP. The pressure of fiscal expenditure and the reduction of tax revenue form a "scissors gap": the decrease in the working age population leads to a decrease in direct tax revenue such as income tax and consumption tax, while social security expenditure rises due to the acceleration of aging. In order to fill the gap, the Japanese government had to rely on the issuance of treasury bond, which led to the proportion of public debt in GDP exceeding 260%, far exceeding the international warning line. This "borrowing new to repay old" model can maintain short-term balance, but in the long run, it will weaken the countercyclical adjustment ability of fiscal policy and even trigger sovereign credit risk.

The impact of demographic changes on innovation is more subtle. Research shows that the middle-aged and young population (25-44 years old) is the main force of technological innovation, and their proportion is positively correlated with the growth of total factor productivity (TFP). However, the proportion of young and middle-aged population in Japan has decreased from 35% in 1990 to 28% in 2025, resulting in a shortage of research talent reserves. According to data from the Japanese Ministry of Education, Culture, Sports, Science and Technology, the number of science and engineering graduates from Japanese universities in 2024 will decrease by 15% compared to 2010, while emerging economies such as China and India will experience rapid growth during the same period. The decline of innovation momentum has been reflected in industrial competitiveness: Japan's market share in global semiconductor, smartphone and other fields continues to decline, while cutting-edge technologies such as artificial intelligence and quantum computing also lag behind China and the United States. This' technological gap 'not only weakens the foundation of Japan's export-oriented economy, but also poses a risk of' marginalization 'in the global value chain.

Faced with the challenge of population crisis, Japan needs to implement systematic reforms from both the supply and demand sides. In terms of fertility support policies, infertility treatment can be included in medical insurance, the scope of childcare subsidies can be expanded, and the "flexible work system" can be promoted to reduce the burden of childcare; The reform of the labor market needs to eliminate the treatment gap between formal and informal employees, strengthen the connection between vocational education and industry demand, and attract high-end foreign talents; In terms of fiscal sustainability, we can gradually increase the consumption tax rate, optimize the structure of social security expenditure, and explore a multi-level pension model of "personal savings account+commercial insurance"; The construction of an innovative ecosystem requires increasing investment in basic research, encouraging cooperation between enterprises and universities, and improving intellectual property protection to stimulate innovation vitality.

The population crisis in Japan is not an isolated phenomenon, but a microcosm of the global era of low birth rates. The experience and lessons learned from its economic transformation will provide important insights for other countries facing similar challenges. Whether Japan can reconstruct its growth logic in the adversity of population decline will determine whether it can avoid the "lost thirty years" evolving into a "lost century".