Sober Look: 3 key facts about Japan’s deteriorating demographics

There is an old story about boiling frogs: if you throw one in hot water, he will just jump out. Throw him in cold water instead and turn up the heat gradually. So it is with Japan’s demographic crisis, one that is slowly boiling, and whose impacts weren’t clear until I saw these charts.

Japan has lost 10% of its productive capacity in the last two decades. Nobody should now wonder the cause of the nation’s lost decade, which began in the 90’s is now stretching into its third decade. Even worse, the nation’s younger workforce are underdeveloped in professional roles and are scarcely capable of replacing those lost through retirement.

Moreover it is clear that economic growth can only be maintained through expanding the workforce, or through a drastic increase in productivity, or both. The former can be achieved by expanding participation of women (the world’s most talented), delaying retirement, expanding flexible post-retirement opportunities, and encouraging immigration. Immigration will not happen for a variety of reasons.

There isn’t much evidence that productivity will make the necessary leaps. Reform, the third leg of Abenomics appears to be stalled. The expanded use of robotics will progress but only in fits and starts and will not progress in the neat linear fashion played out by its demographics.

Therefore Abenomics is predicated on stealing from its savers in favor of incumbent business interests. Technically this is achieved by buying JGB’s in order to drive down their value, encourage speculation in equities and reduce the buying power of JPY currently held. The former President of the Bank of Japan saw and said so much.

Where does that leave Japan? In the long term the outlook is good that the nation will retain its unique identity while reducing its population density, currently 2nd behind Bengladesh. In the short term the the nation must brace for reducing its credibility and prestige throughout the world, and for scandalous maltreatment of its retired generation.