Demographic Shock Ground Zero: Japan Births Drop Below Million For The First Time On Record

While both global monetary and fiscal policies struggle to keep aggregate demand if not rising, then at least constant, demographics continues to wreak havoc on the best laid plans of central planners around the rapidly aging world. Just last week we reported that in 2016, the US population grew at the slowest pace since the Great Depression, largely driven by the collapse in household formation as the number of Millennials living at home with their parents has hit a 75 year high.

However, while the US is finally starting to feel the social, political and economic hit from an aging population, nowhere is the demographic impact more visible than in what is the epicenter of the developed world's demographic problems: Japan. It is here that according to the latest government data, the number of births in Japan is likely to fall below a million this year for the first time since data became available in 1899, reflecting a fast-ageing society and the high cost of child care.

The number of births is estimated at 981,000 this year, down from slightly more than a million last year, data from the ministry showed. Births hit a record high of 2.696 million in 1949.


Japan will also post a natural population decline this year as deaths outpace births, its 10th consecutive drop, as seen by the light blue line in the chart above.

A shrinking population of women in their 20s and 30s is a key factor in the falling number, a ministry official said. Japan's fertility rate was 1.45 in 2015, up 0.03 points from a year earlier, helped by an economic recovery, and is recovering from the record low of 1.26 hit in 2005. However, it is still far from the government's goal of 1.80.

On Thursday, Japan's cabinet approved a record $830 billion spending budget for fiscal 2017, which includes child-rearing support: at this rate, the local population may not need the free money in the not too distant future. The only hope, as in the case of many European nations, is that a surge in immigration will offset the natural decline of the domestic population whose average age has never been higher.

Meanwhile, after peaking at the start of the decade, Japan's total population of 126.92 million is back to the where it was at the start of the century and declining fast.

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Courtesy of Mizuho, here are some further observations on Japan's demographic plight, and an amusing tangent where according to the Tokyo-based bank, Japan is now also fabricating demographic data to obfuscate the full severity of the demographic situation:

Summary and macroeconomic implications:

The total population of Japan was 126.92m in December 2016 (down 160,000 or 0.13% YoY). With statistical disconnects set to continue, it appears likely that users of population data for 2010–2015 will be kept in the statistical shade (there appears to be little will to conduct statistical revisions by bureau authorities). An increase in the foreign population has been especially conspicuous in areas such as Tokyo, with such increases partially offsetting natural declines. It will be interesting to see the degree to which trends in the foreign population are reflected in new population projection released after the end of January 2017. We have already noted that the Nikkei newspaper ran an article on its front page titled “Japanese births set to drop below 1m in 2016” on 22 December, and while this is an issue we have previously discussed in our reports, we will be focusing on reactions and measures undertaken by the authorities and politicians.

Disconnect in population statistics continues: population data for 2010–2015 to be kept in the statistical shade?

According to the Ministry of Internal Affairs and Communications’ population estimates, the total population of Japan as of December 2016 was 126.92m (down 0.13%, or 160,000, YoY; see Figures 1 and 2).

Japan’s population statistics have reflected figures from the 2015 national census survey fully since October 2015, but estimates were based on figures from the 2010 national census survey in September 2015 and months prior, with this statistical disconnect to be allowed to stand without any retroactive revisions taking place. In essence, this means that the population is not falling by as much as expected and that previous population statistics can be assumed to be mistaken. According to Statistics Bureau authorities, there will be no retroactive revision of statistics and the statistical disconnect will live on in population statistics between October 2010 and September 2015.

This is a regrettable outcome both for users of the statistical data sets and policymakers involved in demographic planning. With the complementary correction value directly applicable only to the total population, we note that attribute-level data for this period have been rendered unsuitable for time series analyses. The total population on a seasonally adjusted basis (using the complementary correction value) declined 28,000 MoM in December (see Figure 5).

People aged 65 and over accounted for 27.32% of the total population in December, up 0.58ppt YoY, while the ratio of people aged 15–64 came to 60.27% (down 0.46ppt) and the ratio of people aged 0–14 came to 12.41% (down 0.11ppt)

We note that the net number of marriages (number of marriages – number of divorces) between August 2015 and July 2016 came to 413,000 (up 5,000), and while a decline in the number of divorces was the main factor here, we nevertheless note signs of a bottoming out in this data point. We will be following this as a leading indicator for the number of births moving forward.

We also note that the Tokyo Metropolitan Government released new population projection on 29 November. Tokyo’s population for 2015 was projected at 13.35m based on March 2013 population projection (according to National Institute of Population and Social Security Research), but in the event ended 150,000 above this at 13.49m. The updated stats also suggest a population of 13.98m in 2025, 800,000 above the previous projection (13.18m) (see Figure 11).

This research institute will be releasing new population projection from January 2017, but it will also be interesting to see how the “population pessimists” react thereafter. One of the main points of focus will be whether materials are updated using population data altered to reflect new estimates and statistical anomalies or whether there is a naïve ongoing use of old estimates. The upside being seen in Tokyo’s population stats has come about mainly as a result of prolonged lifespans and increases in the foreign population (which is growing at an annual rate of above 30,000) (see Figure 12).

There have been substantial net increases in the number of Chinese, Southeast Asians (especially Vietnamese), and South Asians (especially Nepalese) settling in Tokyo (see Figure 13).

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Which is good news for the millions of Middle-eastern and north-African refugees who have suddenly found themselves "undesirable" in Europe: well, if Germany won't have them, then surely Japan's PM Abe will welcome them with open arms.

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