Japan’s rapidly aging population is creating unprecedented challenges for the nation, with new data revealing that a staggering 36.25 million citizens, or 29.3% of the total population, are now aged 65 and older. Released ahead of Japan’s annual “Respect for the Aged Day,” the figures are a sobering reminder of the country’s demographic crisis. As the population continues to shrink and grow older, the strain on Japan’s workforce and economy is mounting, with experts sounding alarms about labor shortages and long-term economic repercussions.
According to Robert Feldman, chief economist at Morgan Stanley MUFG Securities, Japan’s shrinking pool of working-age individuals is compounding labor shortages across various sectors, particularly those requiring manual labor. “The labor shortage is just as bad as ever,” Feldman noted, pointing to the food service industry as one of the hardest-hit sectors. The labor crunch has reached a critical point, with a Teikoku Databank survey finding that 51% of Japanese companies are struggling to fill full-time positions.
Although Japan has relied on its elderly workforce to mitigate labor shortages, the number of workers aged 65 and older has now reached an all-time high of 9.14 million, a number that has risen consistently over the last two decades. However, as these elderly workers retire, the shortage of young, able-bodied workers to replace them is expected to create an even deeper labor crisis.
Long-Term Projections
Demographic experts warn that Japan’s aging population is on a trajectory that will only worsen in the coming years. The National Institute of Population and Social Security Research projects that by 2040, 34.8% of Japan’s population will be over 65, further accelerating the decline in the working-age population. Feldman’s research predicts that Japan’s labor force could shrink from 69.3 million in 2023 to just 49.1 million by 2050, a loss of nearly 20 million workers in less than three decades.
The Japanese government is taking proactive measures to reverse the demographic decline, with a range of policies aimed at boosting birth rates. Prime Minister Fumio Kishida has prioritized support for families, including financial incentives for child-rearing and expanding access to child-care services. Additionally, local governments have been encouraging citizens to meet, marry, and start families through initiatives like publicly funded dating apps.
Despite these efforts, Feldman and other economists argue that boosting birth rates alone will not solve Japan’s labor crisis. Immigration has emerged as a potential solution, and Japan has been gradually opening its doors to foreign workers in recent years. In 2024, the country welcomed a record 2 million foreign workers, and the government is aiming to increase that number by 800,000 over the next five years.
The Role of Technology
While immigration may provide some relief, the scale of Japan’s demographic challenges demands a more comprehensive approach. Many experts are looking to technology, specifically artificial intelligence (AI) and automation, to increase productivity and reduce the reliance on human labor in industries such as manufacturing and retail.
Carlos Casanova, senior economist at UBP, told CNBC that AI is often seen as a solution to Japan’s labor shortages, but so far, it has done little to address the underlying demographic crisis. “AI can help, but it’s not a cure-all,” Casanova said, emphasizing that Japan must also make structural changes, such as increasing female workforce participation, to mitigate the effects of its shrinking population.
With the clock ticking on Japan’s labor crisis, the country faces an urgent need for innovation. A combination of technological investment, immigration reform, and social changes will be critical to ensuring that Japan can sustain its economic momentum despite its aging population.
