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
1
I. Introduction
Good morning. I am very pleased to have a lot of participants from central banks,
international organizations, and academia in this year’s 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 year’s 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. Japan’s 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, Japan’s 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, Japan’s 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.
2
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. It is a
must-face reality which is just yet-to-come. 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 Japan’s 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. I
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. Today, this may sound way beyond our
imagination. 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
Japan’s period of high-growth began in the mid-1950s and ended in the early 1970s.
3
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 Japan’s 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,
4
“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 Japan’s 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 Japan’s 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 percent1 (Chart 8). 1 The contributions do not add up to the total GDP growth rate (0.6 percent) because of the rounding errors.
5
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 nation’s population coincides with that nation’s 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. During the
bubble period, they indeed actively purchased their homes. 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
6
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. Their shares in the Japanese consumption are projected to increase
further. 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). Rapid population aging is the dominant factor in increasing a
fiscal deficit. 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 elderly’s 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 Looking
ahead, further studies on that area are much awaited.
2 See Fujiki, Hirakata and Shioji [2012].
7
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. Seemingly, there would be no linkage
between demography and deflation. 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
3 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].
8
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 today’s decrease in aggregate demand and all the forward-looking
responses have come into play behind Japan’s deflation.5
In the meantime, the real per capita GDP growth rate in most of American and European
advanced economies has declined to Japan’s 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.
5 See Katagiri [2012] for a mechanism that a series of unexpected revisions in the forecasts for the Japanese population could lead to protracted deflation.
9
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
10
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 nation’s 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
11
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, Petty’s Political Arithmetic or
Malthus’s 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.
12
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.
Demographic Changes and MacroeconomicDemographic Changes and Macroeconomic Performance: Japanese Experiences
May 30, 2012BOJ IMES ConferenceBOJ-IMES Conference
ki Shi kMasaaki ShirakawaGovernor of the Bank of Japan
Chart 1
D hi Ch i JDemographic Changes in Japan160
Child and aged populationForecast
million
120
140Child and aged populationWorking-age populationTotal populationEmployed persons
Forecast
80
100
40
60
0
20
40
01970 75 80 85 90 95 00 05 10 15 20 25 30 35 40 45 50 55 60CY
Note: Child population working age population and aged population refer to the number of persons under 15 years those between 15
1
Note: Child population, working-age population, and aged population refer to the number of persons under 15 years, those between 15and 64 years, and those over 64 years, respectively.
Sources: National Institute of Population and Social Security Research; Ministry of Internal Affairs and Communications.
Eff t f R id P l ti A i
Chart 2
Effects of Rapid Population Aging
Real GDP Growth Rate Real GDP Growth RateReal GDP Growth Rateper Capita
Average for 2000-10, percent
Real GDP Growth Rateper Working-Age Person
Average for 2000-10, percent Average for 2000-10, percent2.02.02.0
1 2
1.6
1 2
1.6
1 2
1.6
0.8
1.2
0.8
1.2
0.8
1.2
0 0
0.4
0 0
0.4
0 0
0.4
0.0JP US UK Euro
areaDE FR
0.0JP US UK Euro
areaDE FR
0.0JP US UK Euro
areaDE FR
2
Note: A working-age person refers to those between 15 and 64 years old.Sources: World Bank; Haver.
G th R t f W ki A P l ti
Chart 3
Growth Rate of Working-Age Population
5 year-on-year change, percent
3
4 Forecast
2
3
0
1
-2
-1 JapanUnited StatesKoreaChina
-3
2
1955 65 75 85 95 05 15 25 35 45 55
China
CY
3Sources: National Institute of Population and Social Security Research; United Nations.
Japanese Age Structure in the High-Growth EraChart 4
p g g19751955
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4100
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4million million
80
90
100
Males Femalesage
80
90
100
Males Femalesage
50
60
70
50
60
70
20
30
40
20
30
40
0 00 20 40 60 81 01 21 40
10
20
0.00.20.40.60.81.01.21.40
10
20
Males Females
W ki l ti ti 67 7% 67 8%
Males Females
W ki l ti ti 60 8% 61 8%
0.00.20.40.60.81.01.21.4million million
Working-age population ratio 67.7% 67.8%
4Source: Ministry of Internal Affairs and Communications.
Working-age population ratio 60.8% 61.8%
Total and Working-Age PopulationChart 5
2 5year-on-year change, percent
g g pGrowth Rate of the Working-Age Population Growth Rate of the Population
2 0year-on-year change, percent
1.5
2.0
2.5
1 0
1.5
2.0
0.0
0.5
1.0
0.0
0.5
1.0
1 5
-1.0
-0.5JapanUnited StatesUnited Kingdom -1.0
-0.5
-2.5
-2.0
-1.5
1955 65 75 85 95 05 15 25 35 45 55
gFranceGermanyAdvanced economies' average
CY-2.0
-1.5
1955 65 75 85 95 05 15 25 35 45 55
Japan United States United Kingdom France Germany Advanced economies' average
Working age population 0 74 0 81 0 59 0 49 0 23 0 35
1955 65 75 85 95 05 15 25 35 45 55CY
Growth Rate in 2010, percent
1955 65 75 85 95 05 15 25 35 45 55
Working-age population -0.74 0.81 0.59 0.49 -0.23 0.35Total population 0.05 0.89 0.60 0.58 -0.06 0.41
5Sources: United Nations; National Institute of Population and Social Security Research.
R i i i th J T t l F tilit R t F t
Chart 6
Revisions in the Japanese Total Fertility Rate Forecast2.4
2.0
2.2 Forecast in 1976
Forecast in1986
Replacement ratio
1.8 Forecast in1992
in1986
Forecasti 1997
1.4
1.6 Forecast in 2002
Forecast
in1997
1.2 Forecast in 2006
Forecast in 2012
1.0 1964 70 76 82 88 94 00 06 12 18 24 30 36 42 48 54 60CY
6
Sources: Ministry of Health, Labour and Welfare; National Institute of Population and Social Security Research.
Newspaper Citations on Low Birth Rate Chart 7
p pand Population Aging
number of articles
5,000
6,000"Low birth rate" or "population aging"
"Bubble"
4,000
"Non-performing loan"
3,000
1,000
2,000
01991 93 95 97 99 01 03 05 07 09 11CY
7
Note: Number of articles found in The Nikkei, The Nikkei Business Daily, and The Nikkei MJ.Source: Nikkei Telecom.
Decomposition of Real GDP Growth in Japan
Chart 8
Decomposition of Real GDP Growth in Japan
6 average of year-on-year changes, percent
4
5 Productivity (real GDP per employed person)
the number of employed persons
Real GDP
+0.92
3
0.9
+0.8
0
1 Forecast
+0.5 -0.3
-0.6 -0.8-1.2
-2
-1
0
Note: Fiscal-year basis. The rates of change in the number of employed persons from the 2010s onward are calculated using the population outlook (medium variant) and the projected labor force participation rates (assuming the labor force
-2 1970s 1980s 1990s 2000s 2010s 2020s 2030s
8
p p ( ) p j p p ( gparticipation 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.
Labor Participation of Female WorkersChart 9
pLabor Participation of Female Workers in Japan Comparison of Labor Participation of
Female Workers in 2010t
90
100percent
90
100percent
60
70
80
60
70
80
40
50
60
1990 40
50
60
Japan
20
30
1990
2000
201020
30United States
Germany
Sweden
0
10
15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65-
2010
age0
10
15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65-
9
15 20 25 30 35 40 45 50 55 60 65age 15 20 25 30 35 40 45 50 55 60 65
Sources: Ministry of Internal Affairs and Communications; OECD.
“The Spending Wave”
Chart 10
p g
Housing Starts Domestic Car Sales Real Output in the Medical and Health Care Industryy
1.6
1.8 million
5million
50
60trillion yen at constant 2000 prices
1.2
1.4
3
4
40
50
0.8
1.0 2
20
30
0.6 1980 85 90 95 00 05 10CY
11980 85 90 95 00 05 10
101980 85 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-on-year changes from 2006 to 2008.
Sources: Ministry of Land, Infrastructure, Transport and Tourism; Japan Automobile Dealers Association; Japan Mini Vehicles
10
y , , p ; p ; pAssociation; Research Institute of Economy, Trade and Industry.
Fiscal Balance in JapanChart 11
p
FY 2012 Budget (General Account)
Social Security Expenditure by Category
55trillion yen
( )Pensions
51.7 tril. yen(51.8%)
45
50
Medical care30.8 tril. yen30
35
40 National debt service
21.9 tril. yen (24%)
Others 25.4 tril. yen
(28%)30.8 tril. yen
(30.9%)
Welfare and 20
25
30Local
allocation tax grants
16 6 tril yenSocialothers
17.3 tril. yen(17.3%)
10
15
16.6 tril. yen (18%)
Social security
26.4 tril. yen (29%)
0
5
1970 75 80 85 90 95 00 05FY 09
11
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.
1970 75 80 85 90 95 00 05 09
Chart 12
Household Financial AssetsHousehold Financial Assets
90%
100%
70%
80%
90%
Others
Investment trusts
50%
60%
70% Investment trusts
Equities
30%
40%
50%Bonds
Life insurance
10%
20% Deposits
0%20-29 30-39 40-49 50-59 60-69 70-age
12
Note: As of 2011.Source: Central Council for Financial Services Information
Ratios of Population over 65 Years by Region
Chart 13
Ratios of Population over 65 Years by Region
Under 20.020.0–22.923 0 25 9
Ratio of aged population, %
23.0–25.926.0 and over
13Note: As of 2010.Source: Ministry of Internal Affairs and Communications.
Working Age Population Growth and Inflation:
Chart 14
Working-Age Population Growth and Inflation: Cross-Country Comparison
1990 20001990s 2000s
12year-on-year change, percent
8year-on-year change, percent
8
10
r
567
2
4
6
GD
Pde
flato
r
1234
DP
defla
tor
2
0
2G
Correlation coefficient:0.07Japan
2-101G
D
Correlation coefficient:0.67Japan
-2-1 0 1 2 3
Working-age population growth percent
-2-1 0 1 2 3
Working-age population growth percent
14
Note: For the 24 countries where the data are available among those that joined the OECD by the 1990s.Source: OECD.
Money Growth and InflationChart 15
10
15(-0.18)(0.62)
12025
(0.59)(0.79)
United States France
0
5Adjusted Money Growth (% points)
05
1015
-51970 80 90 00 10
Infration Rate (%)-5
0
1970 80 90 00 10FY
U it d Ki d Japan
152025
(0.31)(0.65)20
30(0.17)(0.49)
United Kingdom Japan
05
1015
-10
0
10
-50
1970 80 90 00 10-20
1970 80 90 00 10Notes: 1. Figures in parentheses are correlation coefficients of 1970-1994 and 1995-2011.
15
g p2. 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 1990’s, French is selected as the representative of the euro area.
Sources : International Monetary Fund; Statistics by individual countries.
Population Growth and Inflation in Japan
Chart 16
Population Growth and Inflation in Japan
Population and the GDP DeflatorPotential Growth Rate and Expected Inflation in
the Medium to Long Term
9
4
5 Working-age populationLabor force
y/y chg., percent y/y chg., percent
3 0
3.5 4.5
Potential growth rate per capita
percent percent
6 3
4 Labor forceGDP deflator (right scale)
2.5
3.0
3.0 Expected inflation (right scale)
3
1
2 1.5
2.0 1.5
0 0
1
0.5
1.0 0.0
Note: Lagged values are used for population growth because they precede inflation by a year Expected inflation is the inflation
-3 -1 1960 65 70 75 80 85 90 95 00 05 10CY
0.0 -1.51991 96 01 06 11FY
16
Note: Lagged values are used for population growth because they precede inflation by a 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.
Real per Capita GDP Growth Rate in Advanced Economies
Chart 17
Real per Capita GDP Growth Rate in Advanced Economies
5 Japan United States
ten-year average growth rate, percent
4
Japan United StatesGermany FranceUnited Kingdom SpainItaly
2
3
1
2
0
-1 1971-
8073-82
75-84
77-86
79-88
81-90
83-92
85-94
87-96
89-98
91-00
93-02
95-04
97-06
99-08
01-10
CY
17
Sources: United Nations; Statistics by individual countries.
C t A t T d B l d I B l
Chart 18
Current Account, Trade Balance and Income Balance
35trillion yen
25
30
35Trade balance Service balanceIncome balance Current transfersCurrent account
15
20
5
10
-5
0
-101996 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11FY
18
Sources: Ministry of Finance; Bank of Japan.
Labor Participation of Female Workers and Fertility RateChart 19
p yPrefectures in Japan15 OECD Giants
2 0total fertility rate
2 4total fertility rate
1.8
2.0
2.2
2.4 y
United States
1.6
1.8
2.0 United KingdomFrance
Sweden
1.2
1.4
1.6
Japan Germany
Canada
1.0
Correlation coefficient: 0.381.2
1.4 Japan GermanyItaly
KoreaC l ti ffi i t 0 46
0.8 60 65 70 75 80 85
Labor participation for female workers d
Correlation coefficient: 0.38
1.0 40 60 80 100
Labor participation for female
Correlation coefficient: 0.46
19Note: 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.
aged 30 to 44, percentLabor participation for female workers, percent
L b P ti i ti f A d W k
Chart 20
Labor Participation of Aged WorkersLabor Participation of
Aged Workers (over 60) in Japan Labor Participation by Sex in Japan
50
55
TotalMales
percent
90
100percent
40
45
MalesFemales
70
80
35
40
50
60
25
30
30
40
15
20
0
10
20 Males
Females
20Note: The statistics do not include the data for Fukushima, Miyagi, and Iwate prefectures in 2011.Source: Ministry of Internal Affairs and Communications.
151990 92 94 96 98 00 02 04 06 08 10CY
015- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65-
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 dit f H lth C
Source: United Nations; OECD
Expenditure for Health Care(Change from 2000 to 2008, percent) 11 25 74 49 85
Source: United Nations; OECD.
21
G D ti P d t d G N ti l I i J
Chart 22
Gross Domestic Product and Gross National Income in Japan
GDP and GNI Income Balance
18
20Portfolio investment incomeDirect investment income
trillion yen
116
118 Gross domestic productG i l i di i
CY 2000=100
14
16 OthersIncome balance
110
112
114 Gross national income - trading gains
8
10
12
104
106
108
4
6
8
98
100
102
0
2
1996 98 00 02 04 06 08 10 11FY
94
96
1996 98 00 02 04 06 08 10 11CY
22
Sources: Cabinet Office; Ministry of Finance; Bank of Japan.
FY
Chart 23
F i O t d Di t I t tForeign Outward Direct Investment
90 percent of nominal GDP
70
80 Japan
United States
50
60 Germany
France
United Kingdom
30
40
g
10
20
0 1990 92 94 96 98 00 02 04 06 08 10CY
23
Source: OECD.
Chart 24
L b P d ti it E l d P b C tLabor Productivity per Employed Person by Country
United States
Italy
France
Germany
Canada
United Kingdom
20 30 40 50 60 70 80 90 100
Japan
h d USD
24
Note: Average in 2000s.Source: World Bank.
thousand USD