Japan has a population problem.
Some countries have too many people, too little space and not enough food. Japan, though, has a different kind of problem: Its population is shrinking.
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It hasn’t been that way for long. From 1950 to 2000, Japan’s population grew 53 percent. Then growth slowed… and has reversed.
Between 2000 and 2015, the number of people in Japan has grown by a microscopic 0.3 percent.
Then for the past three years, Japan has been losing an average of 263,000 people (that’s an annual decline of 0.2 percent). And it’s going to be losing three times as many people per year by 2045.
Decades of economic stagnation, worries about the future, and a different lifestyle outlook, have combined to discourage many Japanese families from having more children. Japan’s total fertility rate has fallen from 2.75 live births per 1,000 women in their child-bearing age in 1950 – to an alarmingly low 1.44.
That’s well below the 2.1 rate considered as the replacement-level fertility rate.
The impact so far? After peaking at 128.1 million in October 2010, Japan’s population has since fallen to 127.2 million… a net loss of 900,000 citizens.
Fewer people means fewer buyers… for anything
Most Japanese haven’t noticed a shrinking population, yet. And in cities like Tokyo, Osaka and Kyoto, it feels just as crowded as ever.
But from the point of view of Japan’s government and policymakers, losing 900,000 citizens in less than a decade is a nightmare scenario.
Fewer people means lower consumption. It means fewer people buying groceries at Aeon or Yokado supermarkets, and fewer customers at 7-Eleven, Family Mart and Lawton convenience stores.
Fewer people also means less demand for more tangible assets like real estate. We’ve spoken before (here) about how a large and growing middle-class is essential to the development of real estate and property prices.
Japan’s demographic crisis also means the country’s labour force is shrinking. Not enough young people are joining the ranks of the working age population to replenish those dying and going into retirement.
As we’ve mentioned previously here, demographics is one of the “big picture” themes that has a massive impact on the world’s economic growth.
For Japan, an ageing population and low fertility rate are expected to result in one-fourth (33 million) of its current population entering retirement age in the next 20 years, while only 21 million will be joining the labour force.
The International Monetary Fund now expects declining population to cut Japan’s GDP growth rate by 1 percent annually over the next 30 years.
That would be okay if Japan was growing at 4 to 5 percent annually. But it isn’t. In the first quarter of 2018, GDP actually contracted by 0.2 percent.
Work, spend, but don’t drink
Japan’s government is trying hard to address its demographic conundrum.
Since 2007, it’s been handing out cash incentives to families to have more babies. But the birthrate hasn’t increased.
In 2016, it raised the retirement age from 61 to 62, in an attempt to keep more people in the workforce. The government plans to raise the retirement age to 65 by 2025.
It’s also considering a measure to increase the optional pension age beyond 70 years, from the current 60 years. This would encourage older, but healthy, individuals to keep working in order to reap the benefits of a higher pension payout later in life.
Just last week, the National Diet – Japan’s bicameral legislature, which is like the House of Representatives and Senate in the U.S. – enacted a bill that, by 2022, lowers the minimum age required to be considered a grown-up from 20 to 18.
The new law will allow 18 year olds to get plastic cards, take out personal loans and marry without parental consent. (But they can only drink, smoke and gamble when they’re 20.)
The point here is clear. Japan wants to entice younger citizens to join the labour force and spend money like grown-ups.
You see, even though people in Japan are allowed to enter the labour force when they’re 15 years, labour participation in the 15 to 24 age group is abysmally low at just 42.5 percent – compared to 84.3 percent for the 25 to 34 age group.
For many young grown-ups, there’s little incentive to work when you can’t even apply for a plastic card – especially in Japan’s technology-savvy society, where the use of cash is becoming less common due to the spread of mobile payment methods that are usually linked to a plastic card.
This measure might entice as many as 2.4 million youngsters to get into the labour force – and start buying more goods and paying taxes – at a younger age. But it’s a one-off measure, and won’t reverse the tide.
Despite Japan’s demographic problems, there are plenty of investment opportunities in the country’s stock market.
In particular, a lot of companies in Japan are focused on next-generation technology, where innovative firms are building robots that sweep floors on their own, take care of the elderly, patrol the streets, guard warehouses and even build houses.
These innovations are outgrowths of a mega-trend, borne out of necessity to fill the gaping economic hole that’s going to be left by Japan’s shrinking population. And early investors in the right companies could make a fortune. To learn more about these innovative juggernauts blazing a trail in Japan and the rest of the world, go here.
Editor, Stansberry Churchouse Research