Japan’s Population Problem Is Straining Its Economy. The World Is Watching for a Solution
When it comes to Japan’s economy, there’s actually two of them.
In Japan A, an urban-industrial corridor stretching about 300 miles from Tokyo through Osaka, you’ll find cutting-edge businesses and world-class wealth. In Japan B, which is just about everywhere else, small cities and towns are dying as people move to Japan A in search of opportunity.
While other major developed economies are headed down a similar path, Japan has a head start on them when it comes to aging and depopulation, making it a cautionary tale for policy makers across the globe.
Japan’s rural population is aging
Source: National Institute of Population and Social Security Research
The tiny Misekko Asaminai store in Akita prefecture is deep in Japan B. It’s part grocery, part gathering place for the area’s far-flung and often isolated residents, who come to buy necessities and enjoy each other’s company. On Thursdays, they sing together.
The store opened three years ago with government funds to address a growing problem in rapidly aging and depopulating rural Japan: the struggle to access such basics of modern life as health care and groceries.
It was meant to help people like 66-year old Etsuko Kudo, who works there. Like many of her generation, she dreads what she’ll do when she can no longer drive to the shops and the doctor, or to see friends. “Right now it’s fine,” Kudo says. “But I’m worried about the future.”
Japan’s rural population is expected to plunge another 17% in just 12 years, from 2018 through 2030, according to United Nations data. Further out, the decline will steepen, with the population falling by 2% per year in the 2030s.
In the U.S., the rural population will fall 7.4% between 2018 and 2030, according to UN projections, with much steeper drops in the Great Plains and corn belt. The population in rural Germany will drop 7.3% over the same time period, while Italy’s will fall 15%.
By the 2040s, rural depopulation in Japan will outpace that in every country except Bulgaria and Albania. Some predict hundreds of small cities and towns will be completely deserted over time. Many more will become unlivable by today’s standards.
Percentage change in rural population, 2018 to 2030
Source: United Nations
In fact, many of those left behind in rural areas are already struggling. More than 80% of towns that replied to an agriculture ministry survey last year said they need to take steps to help residents who find it difficult to obtain groceries, with almost all citing aging as a reason.
From 2002-2017, more than 7,000 public schools across Japan shut their doors, the majority in rural areas, as the country’s birthrate remained mired well below replacement level. As more schools close and other services disappear or become harder to access, young families will have even more reason to flock to the cities.
As a result of younger generations moving from Japan B to Japan A, household assets are also likely to flow in the same direction via inheritance. In the 20 to 25 years from 2014, two thirds of Japan’s prefectures are expected to see over 20% of household assets leave their borders because of this reason, according to Sumitomo Mitsui Trust Bank.
So far, the lesson for other nations seems to be that the flow of people and wealth into urban areas is almost impossible to halt. Some Japanese economists even say the government should stop trying and instead focus on adapting to an inevitable megatrend.
The Japanese government hasn’t given up just yet. It’s offering one-off cash payments of up to 3 million yen to anyone willing to move out of greater Tokyo to work for a small or medium-sized company or to start a business, as well as a range of subsidies for local universities and businesses. Its efforts have claimed some success, such as creating more jobs for young people. But it hasn’t changed the fundamental story.
To be sure, Prime Minister Shinzo Abe’s policies have largely focused on and benefited Japan A, in which about half of the country’s 126 million people live on just 14% of the landmass. Politically, that’s worked. Abe is set to become the nation’s longest-serving prime minister in November.
Photographer: Noriko Hayashi/Bloomberg
The world’s most ambitious monetary stimulus campaign hasn’t spurred a revival in Japan B. In fact, side effects from the Bank of Japan’s radical program have only compounded the strains. Regional banks, already struggling with untenable business models, are taking on more risk just to stay afloat as near-zero and negative interest rates make turning a profit even more challenging.
“Monetary policy’s side effects absolutely show up more in the regions,” said Mari Iwashita, chief market economist at Daiwa Securities Co. in Tokyo.
Japan will fare better in the 21st century if it reinvents itself as more of a city-state than a continental nation, said Kotaro Kuwazu, executive fellow at the Nomura Research Institute, one of Japan’s most prominent think tanks. Cities will drive the future, so to compete globally Japan should give more resources and power to Tokyo – or what will become the Tokyo megalopolis, he said.
“I believe Japan should be reconceived through the lens of the city,” Kuwazu said.
Japan’s working-age population shrinks as it ages
Source: National Institute of Population and Social Security Research
It won’t be possible, practically speaking, to keep all of Japan connected to gas and sewer lines, or to maintain ambulance services within 20 minutes of every town, so bringing people into more concentrated spaces would be safer for everyone, he said.
But some are against this argument. Former Tokyoite Ryu Yanagisawa is one of them, heading a startup that helps people and firms move to the countryside. “The 20th century was an age of competition,” said the 32-year-old. “But shouldn’t the 21st century be more about happiness.”
His firm, Dochavengers, is based in what used to be a primary school in Akita, 40 minutes by car from Kudo’s store. In the Babame area where he lives there is community, nature, and a richer way of life, Yanagisawa says.
But as the divide between the two Japans grows starker, the flow of younger people to opportunity in Japan A appears unstoppable.
Consider Sho Ohtani, 33, who moved to Tokyo from his native Gifu in western Japan when he was 21. After studying aerospace engineering at the elite University of Tokyo, he now works in artificial intelligence. He has no intention of moving back to his native prefecture.
“There’s nothing I can immediately say that’s good about Gifu,” he said.