Examining Japan's Lost Decades

Yoichi Funabashi, Barak Kushner, Yoichi Funabashi, Barak Kushner

• Publisher: Routledge
• Year: 2015
• eBook ISBN: 9781317503354
• Edition: 1
• Topic: Social Sciences
• Subtopic: Regional Studies
• Index: Social Sciences

This book examines five features of Japan's 'Lost Decades': the speed of the economic decline in Japan compared to Japan's earlier global prowess; a rapidly declining population; considerable political instability and failed reform attempts; shifting balances of power in the region and changing relations with Asian neighbouring nations; and the lingering legacy of World War Two. Addressing the question of why the decades were lost, this book offers 15 new perspectives ranging from economics to ideology and beyond. Investigating problems such as the risk-averse behaviour of Japan's bureaucracy and the absence of strong political leadership, the authors analyse how the delay of 'loss-cutting policies' led to the 1997 financial crisis and a state of political gridlock where policymakers could not decide on firm strategies that would benefit national interests.

To discuss the rebuilding of Japan, the authors argue that it is first essential to critically examine Japan's 'Lost Decades' and this book offers a comprehensive overview of Japan's recent 20 years of crisis. The book reveals that the 'Lost Decades' is not an issue unique to the Japanese context but has global relevance, and its study can provide important insights into challenges being faced in other mature economies. With chapters written by some of the world's leading Japan specialists and chapters focusing on a variety of disciplines, this book will be of interest to students and scholars in the areas of Japan studies, Politics, International Relations, Security Studies, Government Policy and History.

1 Japan's demographic collapse

Seike Atsushi

DOI: 10.4324/9781315715223-1

Japan’s population is ageing at an unprecedented rate, both in terms of scale and speed. Around 25 percent of the population is made up of those who are sixty-five years or older, meaning that a staggering one in four are of retirement age. When we consider that in the early 1990s this figure was only one in ten, the nature of this issue comes sharply into focus. The change in demographics is perhaps best appreciated in the remarkable swiftness of the transition. The proportion rose from 7 percent of the population in 1970 to a total of 14 percent in 1994, an increase of 7 percent in just twenty-four years. This is a fraction of the time of comparable transformations in countries such as France, which experienced a similar leap over a period of more than one hundred years. The proportion of elderly people has continued to rise in Japan, from 14 percent in 1994 to 21 percent in 2007 – a further rise of 7 percent but even more quickly, in less than thirteen years. The graying of Japan’s population looks as if it knows no limits.

One major factor behind this phenomenon is the remarkable improvement in life expectancy. Simply put, many more people are living longer. At the end of World War II the average life expectancy in Japan was fifty years for men and fifty-four for women. In a few short decades Japan’s average life expectancy has risen to rank among the highest in the world, eighty and eighty-six years for men and women respectively. This rise of course stems from the combination of better nutrition, better health care, and a safer and for most people less physically demanding working life. These developments are due in no small part to Japan’s remarkable postwar economic progress, and more particularly the increase in per capita gross domestic product (GDP).

The other factor supporting the graying of Japan’s population is the decline in the birthrate. A country’s birthrate decreases when it transitions from being a developing nation, which usually means that it has a high poverty rate and high infant mortality and birth rates, to being a developed nation with low infant mortality, birth, and overall mortality rates. The decline is usually associated with economic growth. This was precisely the course that Japan followed. Immediately after World War II, Japan’s fertility rate, previously at 4.5 births per woman, declined rapidly. In the 1960s and 1970s, after a period of unprecedented high growth, Japan joined the ranks of developed nations and the birth rate fell to just above two births per woman. This level is known as the replacement rate, which is needed to maintain population equilibrium.

The problem was that this trend went too far – the fertility rate did not stop decreasing. From the mid-1970s onward, when Japan’s economy was entering its phase of greatest expansion, the fertility rate decreased to below two births per woman, which meant that Japan’s population was on track to decrease with each succeeding generation. This downturn in the fertility rate has been put down to the fact that while wages grew in line with the nation’s economic growth, the financial burden on families of having and raising children – even though the Japanese economy was on the rise – was just too great, particularly in the cities. At the end of the 1980s, Japan’s fertility rate dropped to a low of 1.57 births per woman, a figure that dipped below the sharp and temporary drop to 1.58 in 1966, a year which according to traditional beliefs and the Chinese zodiac was the “Year of the Fiery Horse.”¹ This decrease in the fertility rate continued with the collapse of the bubble economy in the early 1990s. After reaching an astounding nadir of 1.26 births per woman in 2005, it has since recovered slightly. Japan’s Ministry of Health, Labor and Welfare has reported that the rate for 2013 was at 1.43, up from 1.41 in 2012.²

Japan’s rapidly aging population is a phenomenon that is unmatched in other countries in the world and the birth rate has reached an all-time low. How could this have been allowed to happen? A nation’s population is its most fundamental base and the possibility of its collapse should be a key focus of concern for politicians and other leaders of society. When Japan’s fertility rate first dipped below two births per woman in the mid-1970s and clear predictions were made that the population would start to decline in one generation’s time, plans to counter this trend ought to have been at the forefront of social and political discussion. However, as I show below, no sense of urgency seemed to ignite political concern, with the consequence that countermeasures, when they came, were addressing a situation that had already occurred.

Figure 1.1 Trends in the fertility (birth) rate in postwar Japan (1947–2011) Source: Based on data from the Demographic Statistics Data Book (2013), National Institute of Population and Social Security Research.

Many people in Japan now fear that the downward trend in the population and the seemingly unstoppable overall ageing of the population will have deep and costly negative effects on the economy. It will cause a shrunken labor force that will limit production and will produce a smaller consumer market less able to stimulate demand. Of course, if per capita productivity and the consumption rate grow sufficiently to compensate for the population decline, the effects on the economy might not be so damaging. There is no guarantee, however, that such a scenario will be possible. A decline in population not only affects the economy but also leads to a decrease in the human resources that sustain society, such as public services and education. In short, the consequences could be considerable.

The shape of provincial Japan in the future: The Masuda Report

What shape will Japan be in demographically in thirty – or fifty – years’ time? In recent years, as the population decline has finally begun to become a matter of public debate, this is a question that increasingly preoccupies a number of population specialists, politicians, and business leaders.

The December 2013 issue of Chuo Koron, a special edition on “Disappearing Regional Cities,” carried an essay by the demography researcher Masuda Hiroya entitled “Regional Cities Will Disappear by 2040: A Polarized Society Will Emerge.”³ The author, a former governor of Iwate Prefecture for twelve years, writes with concern about the demographic crisis now confronting Japan, and particularly on how the decline of the population will affect Japan’s provincial areas. Based on his experiences of dealing with depopulation in Iwate Prefecture, in northeastern Japan, Masuda argues that Japan now faces the prospect of more and more marginalized settlements all over the country, with myriads of villages and hamlets suffering depopulation and becoming “hollowed out.”⁴

Masuda bases his analyses on reports and statistics compiled by the National Institute of Population and Social Security Research (NIPSSR), Japan’s Ministry of Health, Labor and Welfare think tank. NIPSSR publishes a report every five years, entitled Population Projection for Japan. It also publishes a more detailed report entitled Regional Population Projections for Japan, which tabulates statistics and trends for towns and villages outside the larger cities.

The Regional Population Projections for Japan: 2010–2040, compiled in March 2013, calculates that if the current situation prevails, Japan’s population of roughly 128 million in 2010 will fall to around 107 million in 2040.⁵ Long-range estimates tabulated in January 2012 project a further decline to 86 million in 2060, and roughly 42 million in 2110. The proportion of the elderly population (aged sixty-five and above) will be 36.1 percent in 2040, and 39.9 percent in 2060.⁶

It is worth noting that these median fertility scenario projections are based on several assumptions: that the proportion of people born in 1995 and now graduating from high school and who will remain unmarried has peaked; that the proportion of those who will remain single all their lives – “lifelong singles” (it is assumed that this segment will not have children) – will stay unchanged; and that the number of children born to married couples will not drop any further. Forecasts predict that Japan’s fertility rate will fall to 1.39 in 2014, then decrease further to 1.33 in 2024, and increase slightly to 1.35 by 2060.⁷ While such assumptions may hold for now, they are not necessarily applicable to those aged eighteen years or older (born in 1995 and after) and the possibility that the figures will decline, which may stimulate a further drop in the population figures, remains real.

Based on the figures gathered by NIPSSR, Masuda predicts that the changes in Japanese demography will affect different segments of the population in different ways. Dividing the period he analyzes into three stages: 2010–2040, 2040–2060, and 2060–2090, he predicts that the proportion of young people (those below fifteen years old) and the proportion of working-age population (from fifteen to sixty-five years of age), will continue to decline more or less steadily from 2010 to 2090. The proportion of the elderly population (sixty-five and above), however, will increase until 2040, and then will remain almost unchanged for the following two decades. It will eventually start to decline in 2060. As a result, Japan’s total population will decline at only a moderate rate until approximately 2040, but after that it will begin to fall rapidly.⁸

The rate of depopulation, a result of the combination of an ageing population combined with a declining birthrate, will be considerably higher in outlying regions than in the cities and also in Japan as a whole. In Iwate Prefecture, in the northeast of Japan’s main island, the population will shrink 30 percent by 2040. Projections are that the population of Wakayama Prefecture in western Japan and Kochi Prefecture in southern Shikoku island will also contract by roughly 30 percent, while that of Akita Prefecture in northeastern Japan will contract by 35 percent. The rate of depopulation will be much higher in remote towns and villages (the “marginalized settlements”) and somewhat less in towns and cities, especially those that are prefectural capitals.⁹

The potential crisis facing Japan as a result of this demographic contraction will have significant consequences. Of particular interest are the different ways that population decline may affect the different regions, and also the ways this will impact the cities. Among other things, Masuda predicts that a clear divide will appear between urban and rural areas. There will be a “polarization” between the big cities (Tokyo, Osaka, and Nagoya) and the provincial regions in Japan, with the latter marked by a disproportionate population of elderly people and extremely limited employment opportunities, if any. These areas will gradually empty out, as more and more young people migrate to a few large cities. The disappearance of young women in rural areas will only exacerbate the population decline in these places – so these regions will in the end become unsustainable and thus probably disappear. At the same time, as the growing populations in the urban areas gradually grow older, the proportion of the elderly living in the cities will increase, leading to a shortage of labor – which will only exacerbate further “population migration.” In time, the cities will become subject to a “population black hole.” This is a phenomenon where the increase in people migrating to the cities finds little support for childbirth and childcare either from families or the local community, and thus will cause an inevitable decrease in the birthrate, which will lead to a sort of collapse. All of this will only add to the overall and increasing rate of Japan’s population decline, as the population continues to plummet and one community after another becomes unsustainable. In addition, the overconcentration of people in the large cities, Masuda argues, will make the country much more vulnerable to the effects of disasters, both economic and natural.¹⁰

Masuda is particularly anxious about the loss of communities in outlying regions, as population decline makes them unsustainable. If the decline in population proceeds at the current rate, not only will regional communities cease to function properly as communities, but services indispensable to daily life, such as medical and educational services and disaster prevention, will also become impossible to maintain. This, Masuda argues, is a reality that provincial areas will confront twenty years in advance of Japan’s major metropolitan areas – indeed it is a process that is already underway in towns and villages in outlying regions. What is required, he argues, are visionary policies that are tailored to particular local circumstances, that focus on each regional area with a view to coordinated, comprehensive but localized regeneration (both economic and demographic) rather than focusing on fostering the economy, or GDP, of the nation as a whole.¹¹

In a similar vein, a 2013 study published by the Rebuild Japan Initiative Foundation titled, Japan’s Worst-case Senarios: The Nine Blind Spots, identifies nine potential crisis-management blind spots that Japan might well have to face in the near future, one of which is demographic collapse. The case study on demographics (translated in t...

Table of contents

• Cover Page
• Half-Title Page
• Series Page
• Epigraph
• Title Page
• Copyright Page
• Table Of Contents
• List of figures
• List of tables
• Preface
• Contributors
• Researchers and project office
• Introduction
• 1 Japan's demographic collapse
• 2 Monetary and fiscal policies during the lost decades
• 3 The two “lost decades” and macroeconomics: Changing economic policies
• 4 The curse of “Japan, Inc.” and Japan's microeconomic competitiveness
• 5 Making sense of the lost decades: Workplaces and schools, men and women, young and old, rich and poor
• 6 The two lost decades in education: The failure of reform
• 7 The Fukushima nuclear accident: Lost opportunities and the “safety myth”
• 8 The last two decades in Japanese politics: Lost opportunities and undesirable outcomes
• 9 The Gulf War and Japan's national security identity
• 10 Foreign economic policy strategies and economic performance
• 11 Japan's Asia/Asia-Pacific policy in flux
• 12 Okinawa bases and the U.S.-Japan alliance
• 13 Japanese historical memory
• 14 Japan's failed bid for a permanent seat on the UN Security Council
• 15 The stakeholder state: Ideology and values in Japan's search for a post–Cold War global role
• Conclusion: Something has been “lost” from our future
• Index