With a population that is among the world’s longest lived and least fertile, Japan has long been seen by analysts as a leading case study in the disaster that supposedly awaits advanced nations with aging populations. That is, the economy will slow to a best-case steady state with no growth; the state will totter fiscally as the burden of retirees overwhelms the productivity of working-age people; and the culture will be challenged as the government encourages hard-to-integrate immigrants to take up the slack. For a long time, observers believed that the Japanese had only one solution to this problem, robots — because their political culture is not generally enthusiastic about immigration.
It turns out that particularly since 2012, the Japanese have been attacking their demographic problems quite successfully in some unexpected ways. This suggests that demographic doom may be further away for advanced industrialized countries than some analysts believe.
Japan’s approach under the Abe administration has been threefold: encouraging both men and women to work longer before retiring, or to return to work if they had already retired; encouraging women to stay in the workforce during their childbearing years; and quietly permitting more immigration in low-wage industries by granting work visas while keeping citizenship difficult to achieve.
After more than a decade of gradual changes, the implementation of which predate Shinzo Abe’s government, benefits are appearing. Japanese men now routinely work into their 70s. Programs to encourage companies to hire former retirees have been very successful; anecdotally, companies report very positive experiences with older workers, who they say are more punctual, more disciplined, and more content than younger workers. The central government offers special programs to help employers attract and retain former retirees.
Similar programs have brought women’s workforce participation to a level of 69%, significantly above the average level for the world’s major economies and much higher than it was a decade ago. Part of this is driven by the recruitment of older women, but the government has also mandated that women caring for children must be permitted to work six-hour days if they request it. In other sign of change, 5.2% of men are now taking advantage of paternity leave to help care for newborns. Socially conservative though Japan may be in some ways, it is not immune to the changes occurring in the wider world.
Finally, Japan has also quietly begun admitting more “guest workers” — a more politically palatable designation for immigrants — under a variety of programs which make them available for both high- and low-skilled positions. Foreign students are now allowed to work, and there has been a big influx of workers from Vietnam, brought by Japanese employers who place them in language school and then use them to fill service positions.
There may be limits to what these measures can achieve; women’s labor-force participation may indeed already have reached a level as high as it is likely to achieve. Still, taken together these indicators suggest that the demographic demise of Japan was foretold prematurely by macroeconomic analysts.
Investment implications: Big demographic predictions and analyses, particularly those making projections years or decades into the future, often prove to be incorrect. Shunning a country as a potential investment destination on the basis of broad generalizations and assumptions about future demographic trends can cause investors to miss opportunities for investment or speculation. At the moment, we are modestly bullish on the Japanese yen.
