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Demographic Shock Ground Zero: Japan's Population Drops At Fastest Pace On Record

Japan's demographic timebomb is hardly new, although over the past year it has encountered several notable milestones. Last December, we wrote that for the first time on record, Japan's births dropped below a million. This is what we said at the time:

While the US is finally starting to feel the social, political and economic hit from an aging population, nowhere is the demographic impact more visible than in what is the epicenter of the developed world's demographic problems: Japan. It is here that according to the latest government data, the number of births in Japan is likely to fall below a million this year for the first time since data became available in 1899, reflecting a fast-ageing society and the high cost of child care. The number of births is estimated at 981,000 this year, down from slightly more than a million last year, data from the ministry showed. Births hit a record high of 2.696 million in 1949.

It was also obvious that Japan would also post yet another natural population decline this year as deaths outpace births by a record margin, as seen by the light blue line in the chart above.

Today, Japan's Ministry of Internal Affairs and Communications confirmed just that, when it reported that Japan's population has declined for an 8th straight year. More concerning than the ongoing decline, however, was the pace and as the Ministry added, Japan's population fell at the fastest pace on record going back to 1968 when record-keeping began.

As of January 1, the number of Japanese people (excluding resident foreigners) dropped by a record 308,084 from a year earlier to 125,583,658, despite the country's ongoing efforts to tackle the rapid graying of the society.

Last year, Japan's cabinet approved a record $830 billion spending budget for fiscal 2017, which includes child-rearing support: however, at this rate, the local population may not need the free money in the not too distant future. The only hope, as in the case of many European nations, is that a surge in immigration will offset the natural decline of the domestic population whose average age has never been higher.

As we previously reported, the number of births stood at 981,202 - the lowest number on record -  while that of deaths hit a record-high 1,309,515. The "natural population loss" - calculated by subtracting deaths from births - therefore came to 328,313. The ministry also reported that the number of Japanese people slid in 41 of the nation's 47 prefectures amid a continued influx into the capital and its vicinities. Tokyo was the biggest gainer among the six prefectures with population growth, with an increase of 77,400; the capital marked its 21st straight year of increase, to about 13 million. Increases were also observed in the prefectures of Kanagawa, Saitama, Chiba, Aichi and Okinawa prefectures. Of those six, only Okinawa saw the number of births exceed the number of deaths, while population growth among the other five prefectures was the result of more people moving in than moving out. Populations were down from the previous year in the remaining 41 of Japan's 47 prefectures.

The age split was just as drastice: people 65 years old or older accounted for a record-high 27.17% of the country's population while the proportion of those aged 14 or younger continued its declining trend to hit 12.69% in the latest survey.

With the nation's population fast declining and aging, an expert quoted by Mainichi said Japan needs to redesign its social system on the premise that its population will continue to decline for some time.

"The latest announcement shows a continuation of the current trend and is therefore no big surprise," said Masakazu Yamauchi, an associate professor of population geography at Waseda University.

"In order to create and maintain a better society for the next generation, we should place importance on developing an environment that allows people to have families and make their living wherever they live, by improving employment situations and child-rearing support," Yamauchi said. Unfortunately, so far PM Abe's entire policy has been focused on keep the Yen low and keeping Japanese stocks high, while largely ignoring Japan's biggest problem: its demographics.

Numerous economists have call the unsustainable situation a "demographic time bomb," given the vicious cycle that has formed between low fertility rates and declining consumer spending. Similar to other developed nations, the demographic conflict lies in the tension between Japan's traditional work culture, which emphasizes the role of men as primary breadwinners, and younger generations' desire to have flexibility in their personal and professional lives.

One potential solution is to import more foreigners, or accept more refugees, although the latter may be problematic in the culturally homogeneous society that is Japan.

Japan's foreign population stood at about 2.32 million, up about 150,000. The growth is the largest since relevant record-keeping began in 2013. The foreign nationals had visas that were valid for more than 3 months and were registered as residents. As we reported last year, There have been substantial net increases in the number of Chinese, Southeast Asians (especially Vietnamese), and South Asians (especially Nepalese) settling in Tokyo.

Hoping to boost its population at any cost, the government has been increasing its efforts to attract students and high-skilled workers from overseas. Saga Prefecture in southwestern Japan saw the fastest increase of such residents at 13.21 percent as it accepted more students from overseas and offered more foreigners training for technical skills.

Still, even this plan may be insufficient to offset the natural attrition of the domestic population: Japan's overall population, which combines both Japanese and resident foreigners, fell by 159,125 or 0.1% from a year ago to 127,907,086.

What is most troubling, is that the US is no longer than far behind Japan. Last December we reported that in 2016, the US population grew at the slowest pace since the Great Depression...

... largely driven by the collapse in household formation as the number of Millennials living at home with their parents has hit a 75 year high.