Japan’s total fertility rate (TFR) in 2022 was 1.26, the lowest level ever. The decline in the number of marriages due to the pandemic was a contributing factor, but even so, while the TFR improved to 1.45 in 2015, Japan's TFR rate is generally on a downward trend.
Improving TFR may not improve birth numbers
What is even more serious is the sharp decline in the number of births. The combination of the declining population of young people and the decline in TFR means that the number of births in 2022 was only 771,000, which is decreasing at a faster pace than expected.
... the number of births will be around 500,000 in 50 years.
Until now, many experts involved in population issues have focused their discussions on measures to improve TFR. However, they are beginning to realise that as the absolute number of young people declines, increasing TFR alone will not be enough to slow the rate of population decline.
According to the population projection for the next 50 years published by the National Institute of Population and Social Security Research (IPSS) in 2023, assuming the TFR as the median will remain at around 1.36, the number of births will be around 500,000 in 50 years. And if the marriage behaviour of young people changes even further, the result might be worse than projected.
Twofold impact on economy and society
The impact of the declining birth rate on the economy and society is twofold: the impact of the declining birth rate itself, and the impact of the declining total population and ageing that result from the declining birth rate. The former involves the decline in childcare-related consumption and demand for education associated with the decrease in the young population, while the rapid decline in the 18-year-old population will have a significant impact on the state of higher education in Japan.
In July 2023, the Ministry of Education, Culture, Sports, Science and Technology forecast that the number of students going on to university will decrease from the current 640,000 to 500,000 by 2040-50. Based on this forecast, more universities will also find it difficult to survive. Regarding the latter, there are a wide range of possible impacts, including labour shortages, maintaining the social security system and impeding economic growth.
... and there is no guarantee that foreign labour will choose Japan even if the door is widened.
The declining birth rate leads to a decline in the working age population, which in turn leads to a decline in the labour force. The population projection above predicts that the population aged 20–64 will decrease by approximately one-fourth from 69.38 million people in 2020 to 51.47 million people in 2050.
Of course, if the labour participation rate increases, the decline in the labour force will be smaller. The workforce participation of women and the elderly has thus become an important policy pillar in Japan, and the term “women’s empowerment” has become popular.
However, there are limits to the improvement in the labour participation rate of women and the elderly, and the government is beginning to show signs of changing its current policies for accepting foreign labour, such as reviewing the Technical Intern Training Program. However, the problem of labour shortages is common not only in Japan but also in East Asian countries such as South Korea, Taiwan, and China, and there is no guarantee that foreign labour will choose Japan even if the door is widened.
... Japan, which has one of the highest levels of government debt among developed countries, cannot easily increase expenses associated with its ageing population.
Safeguarding the later years of an ageing population
The ageing population associated with the declining birth rate is also posing various challenges. The biggest challenge is maintaining the social security system such as pensions, medical care and nursing care, and the shortage of people to support the rapidly increasing elderly population. This is an issue that overlaps with the labour shortages mentioned above, but it also includes the issue of fiscal spending to cover rapidly increasing social security benefits.
This also means that Japan, which has one of the highest levels of government debt among developed countries, cannot easily increase expenses associated with its ageing population. Maintaining sustainable economic growth is also essential, but the outlook is uncertain as there are concerns that productivity will decline as the population ages. Although technological advances such as AI and robots are thought to help resolve labour shortages and improve productivity, it is currently uncertain to what extent they can be relied upon.
Measures for declining birth rates have been discussed for over 30 years. For this reason, in recent years Japan has increased public spending on family within the government’s social spending. Previous experience shows that countries with higher public spending on family (relative to GDP) tend to have a higher TFR.
The ratio of public spending on the family to GDP in Japan has increased from 1.48% in 2016 to 2.46% in 2021, which can be interpreted as even though the TFR has been declining in recent years, assistance to families plays a role in supporting the TRF to some extent.
Furthermore, the current Fumio Kishida administration is proposing various policies described as “measures to address the declining birth rate that are at a totally different level”. These include increasing the child allowance for households with multiple children, raising the age eligible for benefits to 18 years old, raising the childcare leave benefit rate, and expanding the grant-type scholarships for higher education. These policies have the potential to improve the TFR, but raising financial resources to sustain them will not be easy.
... [If] the economic social structure of gender inequality that lags behind the global norm is not fundamentally improved, it is easier said than done to overcome the declining birth rate.
Government measures criticised
In addition to curbing other existing expenditures, the Kishida administration is considering a “support subsidy system” that would use medical insurance premiums to raise the necessary finances to prevent a declining birth rate. The idea is that all generations will chip in to support raising children, but this plan has been widely criticised.
Some views question the use of medical insurance premiums as a source of revenue; also, if all generations are to support child rearing, then why not use consumption tax? The government cannot help but be criticised for choosing the easiest way to collect revenue.
The question is: how effective are these measures for solving the declining birth rate issue? For young people, if society cannot guarantee stable incomes and expectations for the future, it will be difficult for them to decide to get married and have children. Furthermore, if the environment preventing women from balancing work, housework, and childcare does not change, and the economic social structure of gender inequality that lags behind the global norm is not fundamentally improved, it is easier said than done to overcome the declining birth rate.
In the near future, as countries in East Asia and Southeast Asia are facing similar challenges, Japan — being an advanced country with low birth rate — has to proceed with structural reforms in order to share with the world a better experience.