Japan's demographic "time-bomb" has been widely documented in recent years: as we discussed most recently in February, as troubling as Japan's deflationary economic quagmire is, the biggest threat facing Japan has little to do with its balance sheet and everything to do with its demographics, for the simple reason that not only is Japan's population the oldest it has ever been, as well as the oldest on average in the entire world, but is now also officially shrinking.
Earlier this year, data released by the Ministry of Internal Affairs and Communications showed that in the latest 5 year census, Japan’s population declined last year for the first time in nearly a century. The Internal Affairs and Communications Ministry said the latest census shows that Japan’s population as of Oct. 1, 2015, was 127,110,047 - a decline of 947,305, or 0.7 percent, since the last census conducted in 2010. The number of Japanese dropped to 127.1 million in a national census for 2015, down 0.7 percent compared with five years earlier, and was the first recorded decline since the 5-year census started in 1920. As the Shimbun adds, in the 2015 census, men accounted for 61,829,237 of the population, and women 65,280,810.
The results were not surprising: Japan's ministry had estimated that the nation’s population had been declining for four straight years since 2011, but the latest results were the first official confirmation via a census that the national population has gone down; more troubling a recent IMF forecast expected the organic decline to accelerate in the coming years.
But don't count Japan out yet.
In taking a page out of Europe's playbook, where the aging population is likewise shrinking if not at such a troubling rate, over the weekend, the government reported that the net inflow of foreign residents into Japan was the largest ever during the last statistical year, as the Abe regime pushes policies to attract foreign workers to lessen the economic repercussions from a declining and graying population.
Inflows of foreign residents reached 136,000 for the October 2015-September 2016 period, according to data released Friday by the Ministry of Internal Affairs and Communications. That figure is more than 40% above the previous year's and the fourth consecutive net inflow of foreigners, as well as the largest net inflow since such records began in 1950.
According to the Nikkei, the population of foreigners living in Japan for at least three months was approximately 2.4 million, an increase of 500,000 in the last five years. The gap between the number of incoming foreigners and departing Japanese continues to widen due to the steady influx of immigrants.
With the native Japanese population of working-age people, aged 15 to 64, falling at a rapid clip, there is a growing recognition of foreigners as important workers. Policies calling for more foreign workers in medicine, education and infrastructure are likely to gain higher priority.
Behind the scenes of the influx of foreigners are expectations for Prime Minister Shinzo Abe's economic policies. As the working-age population declines, companies are becoming more active in hiring foreign workers. Based on filings by businesses employing foreigners, the number of workers from overseas as of the end of October 2016 increased 20% from a year earlier to 1.08 million, exceeding 1 million for the first time, according to the Ministry of Health, Labor and Welfare.
Where is Japan's migrant influx coming from? While the nations of origin were reporetedly diverse, Chinese immigrant lead the pack together with growing numbers from Vietnam and Nepal. The increase was not limited to workers as more spouses also immigrate to Japan, raising expectations that they will boost personal consumption.
Local retailers have been quick to jump on the bandwagon. In January, supermarket chain Life Corp. accepted 15 Thai technical interns. Summit, another supermarket chain operating in the Tokyo area, accepted 30 foreigners in fiscal 2017, more than fourfold the number from the previous year.
Meamwhile, the Abe government, sensing that the weak Yen, strong Nikkei phase of Abenomics is ending, has been pushing policies to encourage foreign workers with technological and management skills to come to Japan. The amount of time spent living in Japan required for permanent residency has been reduced. Foreign residents will also get more support in daily life through policies like greater subsidies for hospitals that hire full-time interpreters, Nikkei notes.
In addition to attracting foreign workers, effective policies dealing with the labor market, employment system and child care support are necessary. The portion of the population under 15 years of age reached a new low of 12.4%, while people over 75 make up 13.3%. This only increases the burden on the working-age population to fund pensions and medical costs. Improving medical efficiency by having the elderly pay more on their own will be unavoidable.
While the spike in immigration is a welcome offset to Japan's labor woes, the decline in the working-age population is not likely to be reversed according to a Nikkei analysis. The paper notes that "if something is not done, Japan's economic growth potential, which is hovering near zero, could decrease further. There are some home remedies. Women outnumber men in Japan by 3,402,000. The creation of a framework, centered around child care support, that encourages more women to participate in the workforce is essential."
Perhaps the solution to Japan's demographic quandary will be to adopt Merkel's "Open door" policy, and accept millions of Syrian refugees as productive members of Japanese society. In light of recent escalations in Syria, it is a certainty that a tapering of "supply" will hardly be a concern in the coming years. That said, the potentially explosive mixture of the mild mannered local population and the rather "impulsive" middle-easterners, may not be the most prudent decision Japan could make, perhaps explaining why unlike Europe, Japan - in far more dire need of immigrants - has not yet opened up its doors to this natural source of population expansion.