Some good friends of mine are currently traveling in Japan. And they are doing what most people are doing in Japan – having fun, eating, instagraming and enjoying this amazing country. Japan used to be a far and expensive destination, and while the distance has not changed dramatically, the Country became much more accessible lately and the flights’ prices to Japan are much lower than they used to be. Also, Tokyo, which was considered once the most expensive city in the world, is now actually considered a very affordable place, as a new survey found that an average dinner in Tokyo would be the cheapest among 35 top destinations. So, I will use this opportunity to write about the huge challenges the economy of Japan is facing, most of them related to one very problematic inequation– the population of Japan is shrinking, but immigrants are still not welcomed.
The economy of Japan
The economy of Japan is the third-largest in the world. Japan is one of the world’s largest automobile and electronics goods manufacturer countries in the world, but its most brilliant days were in the 80’s, as after two decades of hyper-growth, Japan has become a world economic leader. Back then, some believed that Japan is on its way to surpass the U.S as the biggest economy worldwide. But then, growth slowed dramatically and Japan entered a Lost Decade after the collapse of the Japanese asset price bubble. The economy stagnated and the country entered a long period of deflation, which it has not completely overcome even today.
But Japan slowly recovered since, and the veteran president, Shinzō Abe, has been featuring his economic policy – Abenomics, which has been fairly successful achieving a sustainable and solid growth. But Japan structural problems haven’t changed, as the challenges posed by a declining population cannot be underestimated. Projections for Japan’s population suggest that it will fall from 127 million today down to below 100 million by the middle of the 21st century.
Japan is not the only country facing declining birthrate, as the phenomenon exists in most Western countries. However, most of these countries have removed barriers toward immigration, at least for young and educated foreigners, while the Japanese government has been reluctant to do so, since foreign immigration to Japan has been unpopular among citizens.
Immigration to Japan
Japan has one of the lowest immigration rates among developed countries. The country is extremely homogenous and historically the integration of foreigners in Japan was very limited. The first immigrants to Japan were Europeans who arrived in 1550 and brought some bad influence to the country, which resulted a closing of the borders for almost 300 years, until the late 19th century. Even after immigration became legal, the immigration was very limited based on geographical (being an island) and cultural reasons. The Japanese society had always been averse towards immigration, and even today, the shrinkage of the population has not necessarily changed the public opinion on the issue. But the population of Japan is aging and shrinking, and the economy will not be able to grow with a diminishing population, not only because there are less working hands, but also because the pyramid of ages will turn upside down.
Country’s population has to grow so that the population will look like a pyramid – The basis is wide, whereas the top is thin. Japan is the first (but not last) country which is starting to turn this pyramid upside down. Not many babies are born nowadays in Japan, while not many old people die, which is obviously a good thing, but also puts another burden on the economy. Japan is ranked first in the world in life expectancy, and last in childbirth. These parameters create an equation with only one answer – less working people.
Japan population pyramid looks like this:
The world pyramid of ages is extremely different:
According to the Economist, Between 2010 and 2040, the number of people aged 65 or over in metropolitan Tokyo is expected to rise from 2.7m to 4.1m. By then, one-third of Tokyo will belong to that group. And yet, the country has remained relatively closed to foreigners, who make up only 2 percent of the population of 127 million, compared with an average of 12 percent in the OECD countries.
Japan tries to find alternatives besides immigration – raising the number of women working, and encouraging Japanese workers to retire later in life, before opening the country to waves of immigrants. There are also some plans to allow immigrants with preferred skills and education to immigrant to Japan, but it sounds a little bit like too low and too late. Japan is already suffering a shortage of employees, and most immigrants are coming for short periods of time, as only very few of them become Japanese citizens.
Will the circumstances change Japan? Japan has some tough choices to make, and in order to stay on the path for growth or even economic stabilization, Japan will need to change its policy dramatically, but more importantly, change culturally. Keeping track with globalization means also keeping track with the somewhat western phenomenon of immigration, and changing the country culture to be less isolated. It’s a great challenge, but it has to be done.
Of course, easier said than done. Japan is a homogenous society as it gets. Japan has a culture of an isolated island and the integration of foreigners in Japan is complicated, but sometimes hard situations force hard resolutions. And this is the time Japan is at. Otherwise, not before late we will see the Japanese economy deteriorate quickly, and many young and educated Japanese people immigrant to other Western countries.