May 30, 2012

Bank of Japan

Demographic Changes and Macroeconomic Performance:

Japanese Experiences
Opening Remark at 2012 BOJ-IMES Conference
hosted by
the Institute for Monetary and Economic Studies,
the Bank of Japan

Masaaki Shirakawa
Governor of the Bank of Japan

I. Introduction
Good morning.

I am very pleased to have a lot of participants from central banks,

international organizations, and academia in this years annual BOJ-IMES Conference.

On behalf of my colleagues at the Bank of Japan, I am privileged to welcome you all
here in Tokyo.
The theme of this years conference is demographic changes and macroeconomic
performance.

On the theme, I am sure that Japan is the most notable case that

provides a basis for discussion.

Japans population and the working-age population

that is, the population aged between 15 and 64 years came to decline after their
peak-years in 2007 and in 1995 respectively.

The share of the population aged 65

years or older rose rapidly to 23% in 2010 from 12% in 1990 (Chart 1).

In the

meantime, Japans economic growth gradually slowed during the past two decades
mainly for two reasons.

In the former half of the period, the Japanese economy was

hobbled by the crippling effect of the burst of the bubble.

In the latter half, the rapid

population aging hampered the Japanese economy through a variety of channels.

In an

attempt to illustrate that, I frequently rely on the cross-country comparison of growth

rates including Japan.

Among G-7 countries, the Japanese GDP growth rate per

working-age population an indicator least affected by demographic changes in the

short run was the highest.

By contrast, the Japanese per capita GDP growth rate

was almost the same as the average, and the Japanese GDP growth rate, which is subject
to the decreases in the total population, was below average (Chart 2).

Neoclassical

growth theories normally do not distinguish the overall population from the
working-age population due to analytical simplicity.

However, without taking into

account the distinction between the two variables explicitly, the very challenges that
Japan is currently faced with will be outside the scope of analysis.
In the macroeconomic policy discussions in other economies, Japans experiences are
frequently cited, and a lot of lessons are drawn over the past decade.

However, a

general conclusion obtained in such policy discussions without considering the

differences in the demographic factors between Japan and other economies could
sometimes be misleading.
1

Various challenges posed by demographic changes have been and will be among the
paramount issues lying ahead for a broad group of countries including Japan.

For

example, growth rate of the Chinese working-age population has slowed since the late
1980s, and is projected to turn negative by 2020 (Chart 3).

Other Asian economies

will also find themselves in the midst of population aging in due course.
must-face reality which is just yet-to-come.

It is a

Looking at Europe, in the Euro-area

peripheral countries, immigration contributed to the expansion of the populations until

2007.

Conversely, after the global financial crisis, the immigration momentum was

lost and some countries in the region are now faced with even some emigration while
suffering from lower economic growth owing to the lower population growth or even
because of the declining population.
Rather than trying to cover all of the relevant topics under the theme of demographic
changes and macroeconomic performance in my remark, I focus on Japans experience
of population aging that, I hope, will help ensuing discussions in this conference,
because Japan can be addressed an advanced country in a sense that it has been faced
with various challenges that stem from population aging ahead of other countries.

begin by explaining demographic changes in Japan briefly, and then move on to

identifying the issues related with macroeconomic performance.

Finally, I will touch

on the policy implications of demographic changes.

II. Demographic Changes in Japan
I begin by pointing out four relevant facts in order to consider the linkage between
Japanese demographic changes and macroeconomic performance.
First, in former times, the Japanese population growth rate was high, and the Japanese
working-age population was remarkably large.
imagination.

Today, this may sound way beyond our

However, in the aftermath of World War II, overpopulation was

considered a challenge to cope with.

For example, Japanese emigration to Brazil by

sea was restarted in 1952 and continued until 1973.

It is usually understood that

Japans period of high-growth began in the mid-1950s and ended in the early 1970s.
2

The expansion of the working-age population, in tandem with the free trade regime,
provided strong grounds for rapid growth.

A comparison of the Japanese population

by age group between the beginning and the end of the high-growth era clearly points to
a rapid increase in the Japanese working-age population taking place during the period
as confirmed by Chart 4 showing a blip moving upward in the population pyramid.
For your reference, the average growth rate of the total population and the growth rate
of the working-age population from 1955 to 1975 were 1.3 percent and 1.9 percent,
respectively.

A quick cross-country comparison can confirm that Japans population

and the growth rate of the working-age population in those days were relatively high, or
sometimes even the highest, among the advanced countries.
Second, the rapid pace of decrease in the growth rate of the Japanese population and
that of the working-age population were globally unprecedented.

The trend of a

population depends crucially on the birth rate and the death rate (Chart 5).

The

Japanese total fertility rate declined substantially after the 1950s, and reached 1.39 in
2010, a lower level compared to that in other advanced countries.

The Japanese death

rate also declined substantially after World War II and reached 6.0 (per thousand
persons) in 1979.

Then it increased gradually and reached 9.5 in 2010.

Third, interestingly, the recurrent declines in the total fertility rate have long been
regarded as a one-off aberration for each point in time.

Such mis-recognition led to the

recurrent overestimation in the official projection of the fertility rate every five years,
which has been used in the actuarial valuations for the Japanese public pension system,
since the year 1976 (Chart 6).

In the official projections, the long-run fertility rate

have even been assumed to rise to two in due course until 1992 when the projection was
revised downward well below two for the first time.
Fourth, in addition to the delay in recognition of the ongoing demographic changes,
comprehension of the far-reaching implications of the changes was even more delayed.
Consequently, it took further time for Japanese people to take the measures to respond
to the expected demographic changes.

Incidentally, if you look back at 1992, the

White Paper on the National Life Style published by the government that year was titled,
3

The Advent of Society with Low Birth Rates: Its Effect and Response. With hindsight,
Japan around that time was painfully looking for ways to recover in the aftermath of the
bubble economy.

At that stage, I recall that most Japanese people along with

economists did not grasp the gravity of population aging coupled with a low birth rate
for Japans economy as properly as we later came to realize.

In that regard, for

example, a database on Japanese news paper articles indicates that articles on

population aging or a low birth rate started increasing in the 1990s.

However, it was

only until in the middle of the 2000s, articles on population aging or a low birth rate
outnumbered those on asset price bubbles or non-performing loans (Chart 7).

Up until

around that time, the working-age population had declined for about ten years.
III. Effects of Demographic Change on Japanese Economy
In the light of Japans experience, I will elaborate on three aspects, first, the economic
growth rate, second, inflation and, third, the current account balance, of the impact of
demographic changes from the viewpoint of macroeconomic performance.
Economic growth rate
At the outset, I pick up the most paramount consequence of demographic changes for
the Japanese economy, among others, that is, the economic growth rate.
The economic growth model supposes that everyone works at a given intensity.

With a

labor-augmenting technological change, in the long run steady state, per capita variables
grow at the rate of technological change, and aggregate variables grow at the rate equal
to the sum of population growth and technological change.

In aging economies,

including Japan, where the working-age population has started decreasing, the labor
force also declines, given the participation rate being held constant.

Because the

scarce labor force imposes a natural constraint on labor supply, the marginal product of
capital declines accordingly.

As a result, macroeconomic growth would be impeded.

With this idea in mind, the Japanese economic data in the past decade indicates that the
workforce declined by 0.3 percent point, labor productivity increased by 0.8 percent
point, and they add up to real GDP growth rate increase by 0.6 percent 1 (Chart 8).
1

The contributions do not add up to the total GDP growth rate (0.6 percent) because of the rounding
errors.

Having said that, while such an analysis would provide a useful first-order
approximation to consider the effects of population aging and the declining population,
for the sake of policy consideration, we need slightly more realistic approaches that
incorporate other factors.
The first factor is the possibility that labor participation may adjust to the demographic
changes in the long run.

For example, the labor participation rate of Japanese females

was notably lower than that in other advanced countries.

In particular, Japanese

females in their 30s participate in the labor market noticeably less, which was creating a
stark M-shaped curve in the participation ratio over ages in the past and in the present as
well.

However, the gap between Japan and other advanced countries in the depth of a

dip on the M-shape is dissipating in recent years (Chart 9).

The second effect comes from the gap between the per capita growth rate and the
growth rate per working-age population.

The economic growth model by Solow

supposes that a nations population coincides with that nations labor force.

In practice,

as population aging advances, the gap between the population and the labor force grows
larger.

In the process of an increase in the share of the old non-working population,

the per capita growth rate would be lower than the growth rate per working-age
population.

The growth rate per working-age population is important from a

viewpoint of the supply capacity; however, the growth rate per capita is a more
important indicator when we think about the income level of an average consumer who
supports aggregate demand for goods and services in the macroeconomy.

Even if the

growth rate per working-age population is high, as long as the per capita growth rate is
decreasing, downward pressure to demand could impede macroeconomic growth.
Third, we may need to consider the so-called spending wave hypothesis (Chart 10).
For one reason, the Japanese asset price bubble was caused by Japanese baby boomers
who experienced their peak spending years, particularly, for mortgages.
bubble period, they indeed actively purchased their homes.

During the

Likewise, demographic

changes, among other factors, were highly responsible for the decrease in domestic car
sales after the late 1990s.

On the other hand, the progress in population aging means

5

that the elderly increase demand for services, such as medical and nursing care.
Currently, the population aged 60 years or older accounts for around 40% of Japanese
consumption.
further.

Their shares in the Japanese consumption are projected to increase

If Japanese firms change their products in responding to such increase in the

potential demand, their efforts should slow the reductions in the potential growth rate.
The fourth factor arising from demographic changes could come into play through fiscal
balance (Chart 11).
fiscal deficit.

Rapid population aging is the dominant factor in increasing a

Obviously, the continued population aging increase a fiscal deficit

through the decrease in the growth rate of tax revenues reflecting the decrease in the
economic growth rate and through the increase in the social security related expenditure,
such as medical services, nursing services and public pension.

If the uncertainty

regarding the future fiscal balance increased, that could restrain the consumption by
working-age generations. Demographic changes also affect fiscal balance through a
political process.

Population aging will necessarily mean the aging of voters.

If the

elderly have a higher voting percentage compared with the young, and if the elderly
have a stronger preference for sustaining the current social security system, then a fiscal
deficit tends to increase reflecting the elderlys preference.
Fifth, demographic changes may affect the portfolio selection of households (Chart 12).
Especially, we need to examine the effects of an increase in the number of elderly
people on the selection of households financial assets, from a viewpoint of who and
how to supply risk money, which is an indispensible engine for economic growth.
However, the determinants of households financial asset portfolio include not only age,
but also labor income.

Moreover, households choose their asset portfolio while

making decisions on their housing purchases simultaneously.

We do not have

empirical studies based on Japanese micro-data enough to answer the following

questions, such as, all else being equal, whether the elderly prefer stocks or whether
they tend to sell their stocks and buy into the bond market for safer assets. 2
ahead, further studies on that area are much awaited.

See Fujiki, Hirakata and Shioji [2012].

Looking

So far, my analyses focus on the effects of demographic changes on macroeconomic

performance of the Japanese economy as a whole.

In practice, demographic changes,

such as population aging or a low birth rate, advance unevenly across regions.

For

example, the population growth rate, the working-age population and the share of the
population aged 65 years or older vary substantially from region to region (Chart 13).
Behind the dispersion in prefectural growth rates, regional fiscal balances and the
strategies of financial institutions lie uneven developments in demographic changes
across prefectures.
Rate of price increase
Next, I elaborate on the linkage between demographic changes and deflation from a
viewpoint of macroeconomic performance.
between demography and deflation.

Seemingly, there would be no linkage

But it may not be the case.

A cross-country

comparison among advanced economies reveals intriguing evidence: Over the decade of
the 2000s, the population growth rate and inflation correlate positively across 24
advanced economies (Chart 14). 3

That finding shows a sharp contrast with the

recently waning correlation between money growth and inflation (Chart 15). 4 How
could we square those facts with each other?
To some extent, the correlation between population growth and inflation could in part be
explained by the co-movement caused by business cycles.

In some advanced

economies in Europe and North America, it could be the case that the fluctuations in
economic activity would vary the size of an output gap, creating pressure up or down on
inflation while attracting or discouraging immigration that amplifies variations in
population.

That hypothesis, however, appears to be impertinent in some countries

including Japan where the impact of immigration on the total population is extremely
small and thus can be disregarded.

On that ground, business cycle fluctuations have

had a minimal impact on demographic changes.

A closer look at the case of Japan

confirms the increasingly positive correlation between inflation and population growth

Another cross-country inspection based on a broader sample, including developing countries, does not
detect positive correlation between inflation and population growth in the 2000s and in earlier periods
likewise.
4
See Kimura, Shimatani, Sakura, and Nishida [2010].

since the 1990s (Chart 16).

That would reflect the momentum towards real income

creation being undermined by population aging.

As I have discussed, repercussions of the bubble-burst, the rapid aging and stagnation of
productivity have been underway in Japan.

Against the backdrop, the real per capita

GDP growth rate has remarkably declined from somewhere around four percent back in
the 1980s to almost one percent these days (Chart 17).

With the yet-to-accelerate

population aging well envisaged for the foreseeable future, the decline in the real GDP
growth rate could undermine the medium- to long-term expectations for potential
growth, giving rise to a lower permanent income of households.
The decrease in potential growth, which effectively means a stagnant supply capacity,
gives rise to a lower permanent income.

On the flip side, the corresponding

contraction in aggregate supply would offset such decline in aggregate demand.

Simultaneous changes in aggregate demand and aggregate supply keep the price level
unchanged.

I reemphasize the fact, however, that the public had long remained by and

large unaware of the dangers created by demographic changes but, over time, the
awareness has slowly been phased in.

Along with such gradually phased-in public

awareness, yet-to-materialize declines in GDP growth have also been factored in,
precipitating todays decrease in aggregate demand and all the forward-looking
responses have come into play behind Japans deflation. 5
In the meantime, the real per capita GDP growth rate in most of American and European
advanced economies has declined to Japans neighborhood range (Chart 17).
Looking ahead, aging and the declining working-age population are expected to
continue in those American and European countries.

I cannot entirely rule out the

looming menace that may unveil itself into downward pressure on inflation rates if such
demographic changes are to undermine the momentum toward income creation in the
economy.

See Katagiri [2012] for a mechanism that a series of unexpected revisions in the forecasts for the
Japanese population could lead to protracted deflation.

Current account
The final issue that I am taking up from a viewpoint of macroeconomic performance
and the demographic changes is the current account.

Some argue that, as signaled by

the swing to a deficit of the Japanese trade balance in fiscal year 2011, the current
account balance will also turn into deficit over time (Chart 18).

I disagree with such

views.
The swing to a deficit in the trade balance reflected the declines in exports and increases
in imports, both of which are driven by temporary factors: Exports subsided resulting
from the disruption to the supply chains due to the Great East Japan Earthquake.

The

sharp increase in imports of liquefied natural gas and other fossil fuels was needed to
meet the increased demand from thermal power plants, which substituted nuclear power
lost by the accident.
In general, the current account broadly reflects the savings-investment balance of the
economy.

On one hand, as for savings, a higher elderly population share in the

economy would reduce the aggregate savings rate as a life-cycle model indicates.

On

the other hand, population aging affects investment at least through two channels.
First, if a decrease in the labor force substitutes for capital, domestic investment could
increase.

Second, a decrease in domestic demand due to the declining population

reduces domestic investment.

If population aging shifts consumption towards the

service industry where firms find it hard to substitute labor for capital, the second effect
will dominate the first effect.

Anyway, the Japanese income balance recorded 12.4

trillion yen, or 2.5 percent of nominal GDP on average from the year 2002 to year 2011,
which reflects the net international investment position of 253 trillion yen as of the end
of 2011, or more than 50% of nominal GDP.

Those figures suggest that the Japanese

current account surplus will continue for the time being.

IV. Can Japan Respond to Demographic Changes?
Demographic changes have affected the Japanese economy slowly but steadily and
profoundly.

Downward pressure on the Japanese economic growth rate resulting from

various channels reflecting the continuing population aging will persist in the
9

foreseeable future.

With the pressure underway, should we live with the dwindling

economy and quietly accept it as the fate that we cannot escape? My answer is
definitely no.

The effects of population aging on an economy can vary, depending on

the flexibility of that nations economy and society.

The current difficulties come not

from the continued population aging itself, but from the delayed response to it.

On

that ground, I emphasize that, if society correctly recognizes the challenges coming
from demographic changes, and if society judges that changes in the systems are needed,
we should find remedies in our hands.

I offer a couple of options for possible changes

if Japanese people are determined to take action.

The first option is to make various efforts to increase the labor force.

Setting aside the

issues that go beyond the mandate of a central bank governor, for example, whether to
accept more foreign workers, we can increase the labor force by raising the birth rate
and/or the labor participation rate.

Interestingly, labor participation of female workers

and the birth rate have a positive relationship, according to a cross-country data analysis.
Among 47 Japanese prefectures, labor participation of females aged from 30 to 44 and
the birth rate have a positive relationship (Chart 19).

Recently, labor participation of

Japanese female and elderly workers increased steadily.

Efforts to increase the labor

force have already started and some progress has been made (Chart 20).
The second option is to adjust the supply-side structure with the ongoing changes in line
with the demand pattern.

Typical examples on the domestic front include the response

to the potential demand from the elderly, such as medical and nursing services (Chart
21).

In the last decade, the population of aged 65 or over increased 33 percent in Japan

and 16 percent in the U.S. During the same period, spending on medical and nursing
services increased 11 percent in Japan and 74 percent in the U.S.

Those figures

suggest the large potential demand not only in the market of medical and nursing
services but also in medical equipment and other related investments in Japan.
Third, businesses should respond to the growing demand overseas by making the most
of the momentum towards globalization.

If the Japanese economy is a closed

economy, Japan will not be able to avoid all the repercussions of the decreasing
10

population.

However, Japanese businesses can grow by meeting the demand overseas,

especially in economies with higher population growth or in fast-growing emerging

economies.

One option to meet the foreign demand is exports, while other options

may include, for example, bolstering foreign direct investment by Japanese businesses
in pursuit of higher profitability which would result in a surplus in the income balance.
The real GDP increased by 0.6 percent annually on average in the 2000s while, the real
GNI excluding the terms of trade gains/losses, an indicator comparable to the real GDP,
grew more rapidly by 0.7 percent (Chart 22).

Of related matters, the ratio of Japanese

foreign direct investment is notably lower than that in other advanced countries.
Room for increasing the ratio would be substantial (Chart 23).

Increases in the income

balance surplus may require a renewed focus on GNI, which summarizes the income
earned by Japanese people.

Finally, businesses can better reallocate their capital in

line with the aforementioned three options to raise productivity.

I have already

referred to the growth rate of Japanese labor productivity, and now I point out that the
level of labor productivity is lower than that in other advanced countries (Chart 24).
Put differently, per capita income could increase substantially if businesses reallocate
their capital to be better aligned with the efficient allocations.
V. Concluding Remarks
I have explained how demographic changes affect the Japanese economy through
various channels.

In retrospect, up until the global credit bubble-burst, both academics

and policy makers did not fully appreciate the significance of a bubble-burst.

The

Japanese experience of a bubble-burst tended to be underestimated as an idiosyncratic

episode.

Likewise, bystanders apprehension about the ongoing demographic changes

in Japan may, I fear, be falling short of the mark.

My sense is that full apprehension of

the consequences of rapid population aging, coupled with the low birth rate, is yet to be
seen in light of the importance of the issue.

Economics has dealt with the issue of

population, not to mention a few examples such as, Pettys Political Arithmetic or
Malthuss An Essay on the Principle of Population. For the sake of economic policy
formulation, basic research on demographic changes and their policy implications is
indispensable.

I hope that this conference would help contribute to the accumulation

of such research.

Thank you.
11

References
Fujiki, Hiroshi, Naohisa Hirakata and Etsuro Shioji, Aging and Household
Stockholdings: Evidence from Japanese Household Survey Data, paper presented
in this conference.
Katagiri, Mitsuru, Economic Consequences of Population Aging in Japan: Effects
through Changes in Demand Structure, Discussion Paper Series 2012-E-3, Bank
of Japan, Institute for Monetary and Economic Studies, 2012.
Kimura, Takeshi, Takeshi Shimatani, Kenichi Sakura, and Tomoaki Nishida, The Role
of Money and Growth Expectations in Price Determination Mechanism, Bank of
Japan Working Paper No.10-E-11, Bank of Japan, 2010.
Shirakawa, Masaaki, Globalization and Population Aging: Challenges Facing Japan,
Speech to the Board of Councillors of Nippon Keidanren (Japan Business
Federation) in Tokyo, 2011.

12

Demographic Changes and Macroeconomic

Performance: Japanese Experiences

May 30, 2012

BOJ IMES Conference
BOJ-IMES

Masaaki
ki Shirakawa
Shi k
Governor of the Bank of Japan

Chart 1

D
Demographic
hi Ch
Changes iin JJapan
160

million
Forecast

140
120

Child and aged population

Working-age population
Total population
Employed persons

100
80
60
40
20
0
CY 1970 75 80 85 90 95 00 05 10 15 20 25 30 35 40 45 50 55 60
Note: Child population,
population working-age
working age population,
population and aged population refer to the number of persons under 15 years,
years those between 15
and 64 years, and those over 64 years, respectively.
Sources: National Institute of Population and Social Security Research; Ministry of Internal Affairs and Communications.

Chart 2

Eff t off Rapid

Effects
R id P
Population
l ti A
Aging
i
Real GDP Growth Rate
per Capita

Real GDP Growth Rate

per Working-Age Person
Average for 2000-10, percent

Real GDP Growth Rate

Average for 2000-10, percent

Average for 2000-10, percent

2.0

2.0

2.0

1.6

1.6

1.6

12
1.2

12
1.2

12
1.2

0.8

0.8

0.8

0.4

0.4

0.4

00
0.0

00
0.0

00
0.0

JP

US UK Euro DE FR
area

JP

JP US UK Euro DE FR
area

US UK Euro DE FR
area

Note: A working-age person refers to those between 15 and 64 years old.

Sources: World Bank; Haver.

Chart 3

G
Growth
th R
Rate
t off W
Working-Age
ki A P
Population
l ti
year-on-year change, percent
5
Forecast
4
3
2
1
0
Japan
United States
Korea
China

-1
-2
2
-3
CY 1955

65

75

85

95

05

15

25

35

45

55

Sources: National Institute of Population and Social Security Research; United Nations.

Chart 4

Japanese
p
Age
g Structure in the High-Growth
g
Era
1955

1975

million
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
100

million
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
100

age

age

Females

90

Males

90

Males

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

Females

0
1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0
million

11.44 1.2
1 2 1.0
1 0 0.8
0 8 0.6
0 6 0.4
0 4 0.2
0 2 0.0
00
million

W ki
Working-age
population
l ti ratio
ti

Males

Females

60 8%
60.8%

61 8%
61.8%

W ki
Working-age
population
l ti ratio
ti

Males

Females

67 7%
67.7%

67 8%
67.8%

Source: Ministry of Internal Affairs and Communications.

Chart 5

Total and Working-Age

g g Population
p
Growth Rate of the Working-Age Population

Growth Rate of the Population

year-on-year change, percent

year-on-year change, percent

25
2.5

20
2.0

2.0

1.5

1.5
10
1.0
1.0
0.5

0.5

0.0

0.0

-0.5
-1.0
-1.5
15
-2.0

-0.5

Japan
United States
United Kingdom
g
France
Germany
Advanced economies' average

-2.5
CY 1955 65

-1.0
-1.5
-2.0

75

85

95

05

15

25

35

45

55

1955 65

75

85

95

05

15

25

35

45

55

Growth Rate in 2010, percent

Japan

United States United Kingdom

France

Germany

Advanced economies' average

Working age population

Working-age

-0.74
0 74

0 81
0.81

0 59
0.59

0 49
0.49

-0.23
0 23

0 35
0.35

Total population

0.05

0.89

0.60

0.58

-0.06

0.41

Sources: United Nations; National Institute of Population and Social Security Research.

Chart 6

R ii
Revisions
i th
in
the JJapanese T
Total
t lF
Fertility
tilit R
Rate
t F
Forecastt
2.4
Forecast
in 1976

2.2

Replacement ratio

2.0

Forecast
in1986

1.8

Forecast
in1992

Forecast
i 1997
in1997

1.6

Forecast
in 2002

1.4

Forecast
in 2012

1.2

Forecast
in 2006

1.0
CY 1964 70 76 82 88 94 00 06 12 18 24 30 36 42 48 54 60

Sources: Ministry of Health, Labour and Welfare; National Institute of Population and Social Security Research.

Chart 7

Newspaper
p p Citations on Low Birth Rate
and Population Aging
number of articles
6,000
"Low birth rate" or "population aging"
"Bubble"

5,000

"Non-performing loan"
4,000

3,000

2,000

1,000

0
CY 1991

93

95

97

99

01

03

05

Note: Number of articles found in The Nikkei, The Nikkei Business Daily, and The Nikkei MJ.
Source: Nikkei Telecom.

07

09

11

Chart 8

Decomposition of Real GDP Growth in Japan

6

average of year-on-year changes, percent

Productivity (real GDP per employed person)

the number of employed persons

4

Real GDP

3
2

+0.9
0.9

Forecast
+0.8

1
0

+0.5

-0.3

-1

-0.6

-0.8
-1.2

-2
1970s

1980s

1990s

2000s

2010s

2020s

2030s

Note: Fiscal-year basis. The rates of change in the number of employed persons from the 2010s onward are calculated using the
ppopulation
p
outlook (medium
(
variant)) and the projected
p j
labor force participation
p
p
rates (assuming
(
g the labor force
participation rates in each age/sex group to remain the same as those in 2010).
Sources: Cabinet Office; Ministry of Internal Affairs and Communications; National Institute of Population and Social Security Research.

Chart 9

Labor Participation
p
of Female Workers
Comparison of Labor Participation of
Female Workers in 2010

Labor Participation of Female Workers in Japan

100

percentt
100

90

90

80

80

70

70

60

60

50

50

40
30
20

1990
2000
2010

10

40

percent

Japan
United States

30
20

Germany
Sweden

10

0
age 15
15- 20
20- 25
25- 30
30- 35
35- 40
40- 45
45- 50
50- 55
55- 60
60- 65
65-

0
15- 20
15
20- 25
25- 30
30- 35
35- 40
40- 45
45- 50
50- 55
55- 60
60- 65
65-

Sources: Ministry of Internal Affairs and Communications; OECD.

Chart 10

The Spending
p
g Wave

million

1.8

Real Output in the Medical and

Health Care Industryy

Domestic Car Sales

Housing Starts
5

million
60

1.6

trillion yen at constant 2000 prices

50

4
1.4

40
1.2

3
30

1.0
2

20

0.8
0.6
CY 1980 85

10

1
90

95

00

05

10

1980 85

90

95

00

05

1980 85

10

90

95

00

05

10

Note: Average in the last five years. The value in 2010 for Real Output in the Medical and Health Care Industry is calculated using year-onyear changes from 2006 to 2008.
p and Tourism;; Japan
p Automobile Dealers Association;; Japan
p Mini Vehicles
Sources: Ministryy of Land,, Infrastructure,, Transport
Association; Research Institute of Economy, Trade and Industry.

10

Chart 11

Fiscal Balance in Japan

p
Social Security Expenditure by Category
55

FY 2012 Budget
((General Account))

trillion yen
Pensions
51.7 tril. yen
(51.8%)

50
45
40
35

Medical care
30.8 tril. yen
(30.9%)

30

Others
25.4 tril. yen
(28%)

25
Welfare and
others
17.3 tril. yen
(17.3%)

20
15
10

Social
security
26.4 tril. yen
(29%)

National debt
service
21.9 tril. yen
(24%)

Local
allocation tax
grants
16 6 tril.
16.6
tril yen
(18%)

5
0
FY 1970

75

80

85

90

95

00

05

09

Note: The scope of social security expenditure is based on the International Labor Organization standards for international comparison.
Sources: National Institute of Population and Social Security Research; Ministry of Finance.

11

Chart 12

Household Financial Assets

100%
90%
Others

80%
70%

Investment trusts

60%

Equities

50%

Bonds

40%
Life insurance
30%
Deposits

20%
10%
0%
age

20-29

30-39

40-49

50-59

60-69

70-

Note: As of 2011.
Source: Central Council for Financial Services Information

12

Chart 13

Ratios of Population over 65 Years by Region

Ratio of aged population, %

Under 20.0
20.022.9
23 0 25 9
23.025.9
26.0 and over

Note: As of 2010.
Source: Ministry of Internal Affairs and Communications.

13

Chart 14

Working-Age
Working
Age Population Growth and Inflation:
Cross-Country Comparison
1990
1990s

2000
2000s

year-on-year change, percent

year-on-year change, percent

12

10

7
5

GD
DP deflator

GDP deflatorr
G

6
8

4
2
Japan

3
2
1
0

Correlation coefficient0.07

Japan

-1

-2
2

Correlation coefficient0.67

-2
2
-1

0
1
2
Working-age population growth

3
percent

-1

0
1
2
3
Working-age population growth percent

Note: For the 24 countries where the data are available among those that joined the OECD by the 1990s.
Source: OECD.

14

Chart 15

Money Growth and Inflation

United States

France

15

25
(0.62)

10

(-0.18)

(0.59)

1
15

Adjusted
Money Growth
(% points)

10

Infration Rate
(%)

-5

-5
FY 1970

(0.79)

20

80

90

00

1970

10

80

90

00

10

Japan

U it d Ki
United
Kingdom
d
25

30
(0.49)
20

(0.17)

20

(0.65)

(0.31)

15

10

10
0

-10

-20

-5
1970

80

90

00

10

1970

80

90

00

10

Notes: 1. Figures
g
in parentheses
p
are correlation coefficients of 1970-1994 and 1995-2011.
2. Money growth is selected as M2 for the US and Japan, M3 for France, and M4 for the UK, respectively.
Adjusted money growth is defined as money growth minus real GDP growth.
3. Because of the data discontinuity of Germany in 1990s, French is selected as the representative of the euro area.
Sources : International Monetary Fund; Statistics by individual countries.

15

Chart 16

Population Growth and Inflation in Japan

Potential Growth Rate and Expected Inflation in
the Medium to Long Term

Population and the GDP Deflator

5

y/y chg., percent

y/y chg., percent

9
Working-age population
Labor force
GDP deflator (right scale)

4.5

percent

percent

3.5
Potential growth rate per capita

3.0

1.5

30
3.0

Expected inflation (right scale)

2.5

2.0
2

1.5
1
0

1.0

0.0

0.5

-1
-3 -1.5
FY 1991
CY 1960 65 70 75 80 85 90 95 00 05 10

0.0
96

01

06

11

Note: Lagged values are used for population growth because they precede inflation by a year
year. Expected inflation is the inflation
outlook for CPI in the next 6 to 10 years by the Consensus Forecast (average of the April and October surveys in each year).
The potential growth rate is calculated by the Bank of Japan.
Sources: Bank of Japan; Consensus Forecast; Ministry of Internal Affairs and Communications.

16

Chart 17

Real per Capita GDP Growth Rate in Advanced Economies

5

ten-year average growth rate, percent

Japan
Germany
United Kingdom
Italy

United States
France
Spain

-1
CY 1971- 7380 82

7584

7786

7988

8190

8392

8594

8796

8998

9100

9302

9504

9706

9908

0110

Sources: United Nations; Statistics by individual countries.

17

Chart 18

C
Current
tA
Account,
t T
Trade
d B
Balance
l
and
d Income
I
Balance
B l
35

trillion yen
Trade balance
Income balance
Current account

30
25

Service balance
Current transfers

20
15
10
5
0
-5
-10
FY 1996 97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

Sources: Ministry of Finance; Bank of Japan.

18

Chart 19

Labor Participation
p
of Female Workers and Fertilityy Rate
Prefectures in Japan

15 OECD Giants
24
2.4

total fertilityy rate

20
2.0

2.2

United States

2.0

France

total fertility rate

1.8
United Kingdom
Sweden

1.6

1.8
1.4
Canada

1.6
Italy

1.4

Japan

Germany

1.2

1.0

1.2

Korea

Correlation coefficient 0.38

C
Correlation
l ti coefficient
ffi i t 0.46
0 46
0.8

1.0
40

60
80
100
Labor participation for female
workers, percent

60

65
70
75
80
85
Labor participation for female workers
aged
d 30 to 44, percent

Note: The left panel includes the15 largest countries in terms of nominal GDP in 2009. The right panel shows the values in 2010.
Sources: National Institute of Population and Social Security Research; Ministry of Internal Affairs and Communications; OECD.

19

Chart 20

L b Participation
Labor
P ti i ti off Aged
A d Workers
W k
Labor Participation of
Aged Workers (over 60) in Japan

Labor Participation by Sex in Japan

percent

percent

55

100

Total
Males
Females

50

90
80

45

70
40
60
35

50

30

40
30

25

20

Males

10

Females

20
15

CY 1990 92

94

96

98

00

02

04

06

08

10

15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65-

Note: The statistics do not include the data for Fukushima, Miyagi, and Iwate prefectures in 2011.
Source: Ministry of Internal Affairs and Communications.

20

Chart 21

Population Aging and Health Care Expenditure

Japan

Germany

United States

France

United Kingdom

Population over 65 Years

(Change from 2000 to 2010, percent)

33

25

16

11

11

E
Expenditure
dit
ffor H
Health
lth C
Care
(Change from 2000 to 2008, percent)

11

25

74

49

85

Source: United Nations; OECD

OECD.

21

Chart 22

G
Gross
Domestic
D
ti P
Product
d t and
dG
Gross N
National
ti l IIncome iin JJapan
GDP and GNI

Income Balance

CY 2000=100
118

20

116

Gross domestic product

114

G
Gross
national
i l income
i
- trading
di gains
i

trillion yen

18
16

112

Portfolio investment income

Direct investment income
Others
Income balance

14

110
108

12

106

10

104

102

100

98
96

94

CY 1996

98

00

02

04

06

08

10 11

FY 1996 98

00

02

04

06

08

10 11

Sources: Cabinet Office; Ministry of Finance; Bank of Japan.

22

Chart 23

F i Outward
Foreign
O t d Di
Directt IInvestment
t
t
percent of nominal GDP
90
80

Japan
United States

70
Germany
60
50

France
United Kingdom
g

40
30
20
10
0
CY 1990

92

94

96

98

00

02

04

06

08

10

Source: OECD.

23

Chart 24

L b Productivity
Labor
P d ti it per Employed
E l d Person
P
by
b Country
C
t
United States
Italy
France
Germany
Canada
United Kingdom
Japan
20

30

40

50

60

70

80

90

100

thousand
h
d USD
Note: Average in 2000s.
Source: World Bank.

24