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Japan’s premier warns of “social dysfunction” as ageing populations challenge Western and Chinese economies

Economic growth
By Paul Hodges on 29-Jan-2023

Villages all around the Western world, and in China, are emptying as their elderly populations die off and younger people head to the cities. And only now, decades too late, are governments beginning to realise they have a problem on their hands, as Japan’s premier Fumio Kishida warned last week:

“Our nation is on the brink of being unable to maintain its societal functions.  It is now or never when it comes to policies regarding births and child-rearing – it is an issue that simply cannot wait any longer.”

But this isn’t a “black swan” that “nobody could have foreseen”. We wrote about it 10 years ago in “Boom, Gloom and the New Normal: How the Western BabyBoomers are changing Demand Patterns, Again“.

“Japan’s own ‘economic miracle’ in 1950–75 saw GDP rose 600% to reach $1.2tn. This helped to stimulate a final recovery in the number of births up until the first oil crisis in 1973. But in 1975, they dipped below 2 million for the last time. Overall, the average number of births each year fell 22% in the 1970–2000 period, versus 1946–70, and they are now running at only 1 million.”

The issue is simple as the chart shows. The spending that drives Western economies is driven by the Wealth Creators, aged 25 – 54. They are moving forward in their careers, and often settling down and having children.

But as they move into the Perennials 55+ generation, their spending naturally starts to slow. And by the time they reach the age of 70, it has fallen by a third. So countries with an ageing population inevitably see their economic growth slow. As we noted here in 2013:

“Older Japanese already have most of what they need, and so mainly buy replacement products. Equally, their incomes decline as they retire.”

This seems a very obvious conclusion. But as we found after publishing the book, the central banks didn’t agree. They were sure that their stimulus programmes could effectively “print babies” by creating new demand.

Ironically, at the time, Japan had the only central bank governor who understood the issue:

  • Masaki Shirakawa had set up a whole unit to research the impact of ageing populations on the economy
  • But he was quickly fired when premier Abe came to power in 2012
  • Abe didn’t like his warning that increasing debt levels would prove a vain attempt to restart growth

But, of course, 10 years later, it is obvious that he was right. And now Japan’s economy is moving into a major crisis:

  • Its debt is now 266% of GDP; only China has higher debt in the major economies
  • It was only around 40% of GDP in 1991, when Japan began its long experiment with easy money
  • Financial markets are now getting worried as interest rates start to rise around the world
  • The Bank of Japan is having to start raising interest rates to stop the value of the yen collapsing


As the chart shows, Japan’s population is ageing rapidly. The Perennials are the only growth segment. The Wealth Creator and Under 25 segments are both in major decline. All the stimulus has done nothing to change this basic pattern.

But its still not too late for other Western countries to realise the need for a new approach.

The key is to stop thinking of life in terms of just 5 key stages – Birth, Education, Work, Retirement and Death:

  • This made sense when life expectancy was equal to pension age
  • But it’s out-of-date today when most of us hope to live into our seventies

The key is to recognise that many people need a change when they reach their fifties. They have been working for 30+ years and need to do something different. 

So governments need to make it easy for people to learn new skills by adding a Retraining option for people at this age. This would be a ‘win-win’ as it would help to keep them active and mentally alert.

Japan has wasted trillions of yen with its failed stimulus programmes. Had it devoted even a tenth of this money to developing a proper Retraining programme for people in their 50s/60s, it wouldn’t now be facing a major debt and currency crisis. The rest of the Western world needs to rapidly learn from its mistake.