How Japan's Fukushima disaster may exacerbate population woes

This week Japan announced that its population has fallen for the second year in a row, which – along with a shrinking workforce – will pose huge challenges for its economy and society.

While these trends were set before the triad of disasters began with the March 11 earthquake, the Fukushima Daiichi nuclear power plant disaster may exacerbate them.

“Unless the Japanese workforce makes some huge gains in productivity – and Japanese workers are already very productive – there are no prospects for growth in the domestic economy,” says Jo McBride, head of the Japanese Pension Industry Database.

The population fell by 122,679 to 126,230,625 people in the year to March 31, according to the Ministry of Internal Affairs and Communications. The number of deaths last year numbered 1,212,094, while births totaled 1,065,909.

The figures were not updated for Iwate, Miyagi, and Fukushima prefectures, as those areas hardest-hit by the March disasters weren’t surveyed. When the 22,000-some deaths from the earthquake and tsunami are factored in, the actual decline will be larger.

Struggling with the demographic shift

Japanese have the best longevity and oldest population in the world, combined with a low birthrate. At this rate, the population will drop from 126 million to 90 million by 2050, and Japan is already beginning to struggle with the implications of this demographic shift.

The Japanese workforce peaked back in 1995 at 87 million, and has been falling since, to about 50 percent of the population this year. This shrinking workforce will almost inevitably lead to a contracting domestic market, and be forced to support a growing elderly population.

“Once upon a time many young workers paid into the pension system, but now that pyramid has been turned upside down,” says Hiroshi Udo, director of the Dai Ichi Life Research Institute in 2009.

Though the strain on the public and private pension system is already showing, it is only one of the problems that a declining population is creating.

While Japanese companies are already expanding more aggressively abroad due to the state of the domestic market, that won’t solve the vicious cycle back home that the shrinking population is causing. Fewer people mean weak consumer demand, which is helping to fuel deflation; this in turn is both bad for the domestic economy and strengthens the yen, making exports – the only hope for growth – less competitive.

Other advanced industrial nations have mitigated the problems of an aging population with large-scale immigration – an option that Japan has steadfastly refused to support.

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