Japan’s ageing population challenges hopes of economic growth

Economic growth

SHARE THIS STORY

Japan Dec13

The blog’s new series on the likely demographic impact on the world’s Top 5 economies today moves across NEA to focus on Japan – the world’s 3rd largest economy ($6tn).   As the chart shows:

  • It has seen life expectancy (red column) increase by a third since 1950, to reach 82 years today
  • At the same time, its fertility rate (green) has collapsed by two-thirds, to average just 1.1 child per woman
  • This is the same level as in China, and occurred without any population control policies

Japan now shares with Germany the distinction of having the oldest population in the world, with a median age of 46 years.  This is even more remarkable when one remembers that Japan’s life expectancy was just 44 years only a century ago.

Data from the new OECD Pension Book highlights the key issue that arises from this:

  • Average earnings in Japan are ¥4.79m ($55k)
  • 80% of its adult population were in the Wealth Creator 25-54 age group until 1975
  • But since then, the Wealth Creator percentage has been falling whilst the percentage of New Old 55+ is rising
  • Today an astonishing one in two adults are New Olders, and 42% of the adult population are over 65

The drop in average income on retirement is stark.  The full pension is paid from 65 and is just 16% of average income after 40 years employment.  A second earnings-related pension is also available in different forms, adjusted for earnings and contribution period.  Thus the OECD calculates combined pension income totals an average of 33% of median earnings.

Clearly this drop in income on retirement makes it impossible for Japan to replicate the growth seen in its earlier ‘economic miracle’, when the population was young.  Household spending is, after all, nearly two-thirds of its GDP.  Equally, it is no surprise that Japan has seen more or less permanent deflation since 1990 as demand continues to weaken.

Only one recent Bank of Japan governor has had the courage to state the obvious conclusion.  Masaaki Shirakawa was governor until last year and argued that Japan’s “low growth was mainly attributable to demographics, or more specifically, a rapid aging of the population”.  He went on to suggest:

“The implications of population aging and decline are also very profound, as they contribute to a decline in growth potential, a deterioration in the fiscal balance, and a fall in housing prices. Given that other developed countries will face the same problems despite some differences in timing and magnitude, the economic effects of demographics deserve further study.”

The next part of this series will examine the evidence for Shirakawa-san’s conclusion as we turn to examine the position in the US, Germany and France.

PREVIOUS POST

ACS webinar on Thursday

10/12/2013

The blog’s new series on the likely demographic impact on the world’s ...

Learn more
NEXT POST

US shale revolution puts squeeze on European chemicals groups

12/12/2013

The blog’s new series on the likely demographic impact on the world’s ...

Learn more
More posts
Ageing Perennials set to negate central bank stimulus as recession approaches
10/03/2019

The world’s best leading indicator for the global economy is still firmly signalling recession...

Read
BASF prepares its UK supply chain for Brexit
24/02/2019

BASF has been working with Ready for Brexit (the online platform I co-founded last year) as part of ...

Read
Companies and investors have just 30 working days left to prepare for a No Deal Brexit
17/02/2019

Companies across the UK and EU27 are suddenly realising there are now just 30 working days until the...

Read
The BoE’s pre-emptive strike is not without risk
12/02/2019

The Financial Times has kindly printed my letter below, arguing that it seems the default answer to ...

Read
Flexible working is key to reversing today’s collapse in fertility rates
27/01/2019

Women in most parts of the world are not having enough children to replace our population. This is o...

Read
No Deal Brexit remains UK law unless MPs reverse their previous votes
20/01/2019

“That couldn’t happen” are probably the 3 most dangerous words in the English lang...

Read
CEOs need new business models amid downturn
14/01/2019

Many indicators are now pointing towards a global downturn in the economy, along with paradigm shif...

Read
Chart of the Year – China’s shadow banking collapse means deflation may be round the corner
16/12/2018

Last year it was Bitcoin, in 2016 it was the near-doubling in US 10-year interest rates, and in 2015...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more