Every September, on “respect for the aged” day, Japan’s government gives each citizen who turned 100 in the previous year a silver sake cup. This year, however, recipients could be forgiven for feeling short-changed. To ease the budget burden created by surging numbers of elderly – about 20,000 centenarians are expected to need congratulating this year – officials have cut the amount of silver used to cast each cup from 94g to a miserly 63g.
Such penny-pinching may seem ungracious, but officials cannot be faulted for trying to rein in age-related spending. The combination of a perilously low birth rate with enviably healthy lifestyles and high-quality healthcare means Japan’s population is both rapidly ageing and shrinking.
If not addressed in time, the result of this demographic double-squeeze threatens to be a fiscal disaster that could derail Asia’s leading economy, inflicting untold damage on its global partners and sending shockwaves through the financial system.
Getting on: Japan’s elderly face the prospect of a retirement age rising as high as 70 or 75
Whichever party wins the general election this month will find its horizon darkened by a looming budget crunch brought much closer by a recession that has shaved more than 7 per cent off gross domestic product in the past two quarters and forced an extraordinary government spending spree.
Since the global financial crisis hit last year, the Liberal Democratic party-led government has approved stimulus spending amounting to about 4 per cent of GDP. The result, predicts the Organisation for Economic Co-operation and Development, will be a ballooning of the deficit from 3 per cent of GDP in 2007 to about 10 per cent by 2010. By then the ratio of gross government debt to GDP will be approaching 200 per cent – a level that not long ago would have been unimaginable in peacetime.
Doom already seems inevitable to some analysts. Carl Weinberg, chief economist at High Frequency Economics, believes the election on August 30 offers only the prize of presiding over the “biggest financial meltdown in history” when markets balk at new bond issues and interest rates soar.
Such gloom may be premature; for the moment investors appear content to fund the deficit for meagre returns. Yet the situation clearly cannot be sustained forever. Kaoru Yosano, Japan’s finance minister, says that at current debt levels a long-term interest rate of 1.3 per cent is a “strange thing”.
Below: In Otoyo, ‘you never hear children’s voices any more’
He suggests the cause “may be that Japanese people are over-saving. But there will be a limit to this saving. Nobody can accurately forecast how long this interest rate situation will continue.”
Addressing a chronic deficit would be politically difficult at the best of times. The added problem for Japan is that budget-balancers will be swimming against an increasingly strong demographic tide. While the total fertility rate – the number of children each woman is expected to have in her lifetime – has stabilised in recent years, it is still just 1.37, far below the 2.07 replacement rate.
A Growing Burden On Fewer Shoulders
Click for graphic
The implications for tax and spending look calamitous. Projections by researchers at the National Institute of Population and Social Security Research suggest that by 2055 the number of people in Japan will fall 30 per cent to just under 90m – a level last seen in 1955, at the start of the nation’s economic miracle. While the ranks of the elderly swell, the number of people under 65 will nearly halve.
The resulting tax burden on the dwindling workforce is already being felt. Welfare ministry data show state social security spending reaching Y41,000bn ($430bn, €298bn, £253bn) in 2015, up 42 per cent from 2006. With planned extra spending to address ageing-related challenges such as a shortage of doctors and nurses, the actual bill could be bigger. Social spending meets real need: although Japan’s elderly as a class are asset-rich, one in five gets by on less than half the median household income.
And senior citizens’ votes count. Promises of bigger benefits loom large in the campaign pledges of both the LDP and the opposition Democratic party (DPJ), which polls suggest is poised to end the ruling party’s long reign. Yukio Hatoyama, DPJ president, launched his manifesto last week with treacle-voiced promises to look after the “grannies and granddads” denied proper care or rightful pensions.
THE BIG SHRINK
Japan’s response to its rapidly ageing and declining population will be watched by policymakers around the world as the same trends begin to affect economies from Italy to South Korea.
In Japan, some argue that the trend is no bad thing. Its coastal plains are notoriously cramped. Reliance on imported food would be abated if there were fewer mouths to feed. And at a time of climate change fears, fewer people means a smaller carbon footprint.
The difficulty of reining in spending on the elderly – sake cups aside – is shifting attention to the other side of the demographic equation. “Previously, we directed most money toward health and the elderly,” says Shohei Yamada, a policy planner at the welfare ministry. “In future we want to focus greater funding on raising the birth rate.”
There is certainly room for government action to help restock maternity wards. Opinion surveys suggest that the more than 90 per cent of young single Japanese want to get married and to have an average of just over two children. In Tokyo’s Shinagawa ward, officials are trying to help them realise their dreams with subsidised matchmaking services. “Many people want to marry, but have few chances to meet the right person,” says Takeshi Nakayama, ward activities section chief, who blames overwork, the decline in the tradition of omiai formal matchmaking and the poor reputation of commercial dating services. Ward outings for the eligible are heavily oversubscribed. “We don’t think we can resolve the low birth problem on our own, but we think Shinagawa ward should do what it can,” Mr Nakayama says.
For its part, the central government aims at least to ensure parents can get day-care services for their children, a goal long delayed by underfunding and turf battles between the welfare and education ministries, which operate competing systems. Lack of day care is one reason why 70 per cent of working women leave work when they have their first child. “It’s very difficult to retain your job after having a baby, but many women want to continue working – so they choose their jobs, not children,” says Takeo Kawamata, cabinet office director for birth rate policy.
Parents can expect plenty more help if the DPJ wins power. To offset the formidable cost of child-rearing, the party has promised a Y26,000 a month child allowance and free schools. Though no panacea, such pledges have the potential to influence family planning. “This Y26,000 assistance suggested by the DPJ is pretty big,” says Minako Yagi, a Tokyo housewife who already has one baby, aged five months, and plans for another. “If we had the Y26,000, I’d want to have the second right away,” she says.
Japan's new government will face a huge debt problem
Click for graphic
Still, officials estimate that even if all of citizens’ stated desires for childbirth were fulfilled – no easy task – the fertility rate would still rise no higher than 1.75. That highlights the importance of making more productive use of the existing population. The elderly are the easiest target: many Japanese already work after reaching 60 and many of those who do not would like to. The retirement age is being gradually raised to 65, and Mr Yosano suggests that is just the start. “I don’t think this problem will be solved unless Japanese work until perhaps 70 or 75 years old,” says the 70-year-old finance minister, who confesses he hates school reunions as all his former fellows talk about is grandchildren, golf and diabetes.
Greater immigration – though politically taboo – offers another option to soften the demographic blow. Japanese companies are eagerly developing robots as a possible automated alternative. Indeed, catering to ageing consumers looks likely to become a source of competitive advantage as other nations follow Japan’s demographic lead.
None of this reduces the need to shore up the fiscal foundations, however. Indeed, economists say the DPJ’s proposed spending on family-friendly policies would fuel the problem, despite the party’s pledge to fund its plans by cracking down on bureaucratic waste. Cabinet projections based on a hoped-for “sound recovery” in the economy already show Japan achieving a primary budget balance only if all non-social security costs are held constant in nominal terms from 2012 – implying hefty cuts in real spending.
Even this relatively optimistic scenario is premised on the raising of Japan’s 5 per cent consumption tax by 1 per cent a year from 2011 to 2015 – a policy controversial within the LDP and opposed by the DPJ, which did not even mention the deficit in its manifesto.
The red ink cannot be ignored indefinitely, however. The last time the ratio of Japanese government debt to GDP went over 200 per cent was during the second world war. The hyperinflation that followed traumatised policymakers and condemned many elderly living off pensions and savings to twilight years of severe poverty. Even a mild echo of such a fiscal denouement would be much more damaging to Japan’s senior citizens than downsized sake cups.
In Otoyo, ‘you never hear children’s voices any more’
A rustic backwater in the cedar-clad mountains of Shikoku island, 700km south-west of Tokyo, is at the leading edge of Japan’s demographic convulsion. Otoyo, a web of hamlets strung through miles of inaccessible valleys, has seen its population shrink by three-quarters since 1955, as its young people left for jobs in Japan’s industrial cities, writes Jonathan Soble.
The 5,500 residents who remain are now mostly old. Yukimi Kitamura, 91, complains there is only one child in his isolated settlement of 60 people. His 84-year-old neighbour is tired of chasing monkeys out of the abandoned farmhouses that surround her home. “You never hear children’s voices any more,” she says.
At his office in the faded town hall, Norio Iwasaki, a 58-year-old former firefighter who has been mayor for five years, serves cups of the town’s sweet fermented tea. On his laptop there is a diagram of Otoyo’s age “pyramid”: it looks more like a man standing with his elbows stuck out. The average age hit 60 this year, and more than half of residents are over 65.
“Otoyo is a small model of the problems that Japan is starting to face,” Mr Iwasaki says. On current trends, the country’s overall age distribution will look something like Otoyo’s in two generations, with more than three 80-year-olds for every 15-year-old. Extreme examples such as Otoyo will be found closer and closer to cities. “Our future is Japan’s future,” he says.
Ageing and depopulation have already transformed life in the town. Two of its last three middle schools recently closed, leaving empty buildings that may eventually be turned into nursing homes. The economy is shrinking 5-10 per cent a year. Otoyo residents together earn Y1.2bn ($12.6m, €8.7m, £7.4m) annually from farming and forestry, the two main industries – and Y2.88bn from pensions.
Yoshie Mitani, director of Otoyo’s social welfare centre, says the greying of the population has placed big burdens on the young people who have stayed. Many civic tasks, such as clearing roads after storms and maintaining Shinto shrines, are performed by informal local collectives. “It used to be that if you couldn’t participate you could give a little money instead. Now that’s not accepted – the manpower is too valuable.”
The welfare centre operates health and social programmes for the elderly, its small staff supplemented by volunteers. Pensioners end up doing much of the work, Ms Mitani says. “Our volunteers are old themselves. Old people come here, then they divide up into volunteers and clients.”
In a town where jobs are scarce, nursing care should offer fresh opportunities. But Otoyo’s elderly shun institutions, preferring to live at home until severe illness or infirmity lands them in hospital. In any case, Ms Mitani says, government funding is too low to attract workers. She recently advertised a part-time carer position at Y1,000 an hour. No one applied.
Municipal authorities are trying to help old people live independently. The town subsidises a taxi-share service that charges Y500 for local trips and Y1,000 to the hospital one town away. It plans to distribute free mobile phones equipped with global positioning systems and one-touch panic buttons to summon emergency services.
But with a shrinking tax base and Y6bn of debt, there is only so much it can do. “We are persevering,” says the mayor. [rc]
This week the FT begins a series on how Japanese companies are dealing with the challenge of an ageing society. From financial services to technology, the series looks at the way companies create products for – and market them to – elderly consumers
© Copyright The Financial Times Ltd 2009.
August 4, 2009
JAPAN: Elderly face the prospect of a retirement age rising as high as 70 or 75
.
LONDON, England / Financial Times.com / Analysis / August 3, 2009
A fiscal frailty
By Mure Dickie
Every September, on “respect for the aged” day, Japan’s government gives each citizen who turned 100 in the previous year a silver sake cup. This year, however, recipients could be forgiven for feeling short-changed. To ease the budget burden created by surging numbers of elderly – about 20,000 centenarians are expected to need congratulating this year – officials have cut the amount of silver used to cast each cup from 94g to a miserly 63g.
Such penny-pinching may seem ungracious, but officials cannot be faulted for trying to rein in age-related spending. The combination of a perilously low birth rate with enviably healthy lifestyles and high-quality healthcare means Japan’s population is both rapidly ageing and shrinking.
If not addressed in time, the result of this demographic double-squeeze threatens to be a fiscal disaster that could derail Asia’s leading economy, inflicting untold damage on its global partners and sending shockwaves through the financial system.
Getting on: Japan’s elderly face the prospect of a retirement age rising as high as 70 or 75
Whichever party wins the general election this month will find its horizon darkened by a looming budget crunch brought much closer by a recession that has shaved more than 7 per cent off gross domestic product in the past two quarters and forced an extraordinary government spending spree.
Since the global financial crisis hit last year, the Liberal Democratic party-led government has approved stimulus spending amounting to about 4 per cent of GDP. The result, predicts the Organisation for Economic Co-operation and Development, will be a ballooning of the deficit from 3 per cent of GDP in 2007 to about 10 per cent by 2010. By then the ratio of gross government debt to GDP will be approaching 200 per cent – a level that not long ago would have been unimaginable in peacetime.
Doom already seems inevitable to some analysts. Carl Weinberg, chief economist at High Frequency Economics, believes the election on August 30 offers only the prize of presiding over the “biggest financial meltdown in history” when markets balk at new bond issues and interest rates soar.
Such gloom may be premature; for the moment investors appear content to fund the deficit for meagre returns. Yet the situation clearly cannot be sustained forever. Kaoru Yosano, Japan’s finance minister, says that at current debt levels a long-term interest rate of 1.3 per cent is a “strange thing”.
Below: In Otoyo, ‘you never hear children’s voices any more’
He suggests the cause “may be that Japanese people are over-saving. But there will be a limit to this saving. Nobody can accurately forecast how long this interest rate situation will continue.”
Addressing a chronic deficit would be politically difficult at the best of times. The added problem for Japan is that budget-balancers will be swimming against an increasingly strong demographic tide. While the total fertility rate – the number of children each woman is expected to have in her lifetime – has stabilised in recent years, it is still just 1.37, far below the 2.07 replacement rate.
A Growing Burden On Fewer Shoulders
Click for graphic
The implications for tax and spending look calamitous. Projections by researchers at the National Institute of Population and Social Security Research suggest that by 2055 the number of people in Japan will fall 30 per cent to just under 90m – a level last seen in 1955, at the start of the nation’s economic miracle. While the ranks of the elderly swell, the number of people under 65 will nearly halve.
The resulting tax burden on the dwindling workforce is already being felt. Welfare ministry data show state social security spending reaching Y41,000bn ($430bn, €298bn, £253bn) in 2015, up 42 per cent from 2006. With planned extra spending to address ageing-related challenges such as a shortage of doctors and nurses, the actual bill could be bigger. Social spending meets real need: although Japan’s elderly as a class are asset-rich, one in five gets by on less than half the median household income.
And senior citizens’ votes count. Promises of bigger benefits loom large in the campaign pledges of both the LDP and the opposition Democratic party (DPJ), which polls suggest is poised to end the ruling party’s long reign. Yukio Hatoyama, DPJ president, launched his manifesto last week with treacle-voiced promises to look after the “grannies and granddads” denied proper care or rightful pensions.
THE BIG SHRINK
Japan’s response to its rapidly ageing and declining population will be watched by policymakers around the world as the same trends begin to affect economies from Italy to South Korea.
In Japan, some argue that the trend is no bad thing. Its coastal plains are notoriously cramped. Reliance on imported food would be abated if there were fewer mouths to feed. And at a time of climate change fears, fewer people means a smaller carbon footprint.
The difficulty of reining in spending on the elderly – sake cups aside – is shifting attention to the other side of the demographic equation. “Previously, we directed most money toward health and the elderly,” says Shohei Yamada, a policy planner at the welfare ministry. “In future we want to focus greater funding on raising the birth rate.”
There is certainly room for government action to help restock maternity wards. Opinion surveys suggest that the more than 90 per cent of young single Japanese want to get married and to have an average of just over two children. In Tokyo’s Shinagawa ward, officials are trying to help them realise their dreams with subsidised matchmaking services. “Many people want to marry, but have few chances to meet the right person,” says Takeshi Nakayama, ward activities section chief, who blames overwork, the decline in the tradition of omiai formal matchmaking and the poor reputation of commercial dating services. Ward outings for the eligible are heavily oversubscribed. “We don’t think we can resolve the low birth problem on our own, but we think Shinagawa ward should do what it can,” Mr Nakayama says.
For its part, the central government aims at least to ensure parents can get day-care services for their children, a goal long delayed by underfunding and turf battles between the welfare and education ministries, which operate competing systems. Lack of day care is one reason why 70 per cent of working women leave work when they have their first child. “It’s very difficult to retain your job after having a baby, but many women want to continue working – so they choose their jobs, not children,” says Takeo Kawamata, cabinet office director for birth rate policy.
Parents can expect plenty more help if the DPJ wins power. To offset the formidable cost of child-rearing, the party has promised a Y26,000 a month child allowance and free schools. Though no panacea, such pledges have the potential to influence family planning. “This Y26,000 assistance suggested by the DPJ is pretty big,” says Minako Yagi, a Tokyo housewife who already has one baby, aged five months, and plans for another. “If we had the Y26,000, I’d want to have the second right away,” she says.
Japan's new government will face a huge debt problem
Click for graphic
Still, officials estimate that even if all of citizens’ stated desires for childbirth were fulfilled – no easy task – the fertility rate would still rise no higher than 1.75. That highlights the importance of making more productive use of the existing population. The elderly are the easiest target: many Japanese already work after reaching 60 and many of those who do not would like to. The retirement age is being gradually raised to 65, and Mr Yosano suggests that is just the start. “I don’t think this problem will be solved unless Japanese work until perhaps 70 or 75 years old,” says the 70-year-old finance minister, who confesses he hates school reunions as all his former fellows talk about is grandchildren, golf and diabetes.
Greater immigration – though politically taboo – offers another option to soften the demographic blow. Japanese companies are eagerly developing robots as a possible automated alternative. Indeed, catering to ageing consumers looks likely to become a source of competitive advantage as other nations follow Japan’s demographic lead.
None of this reduces the need to shore up the fiscal foundations, however. Indeed, economists say the DPJ’s proposed spending on family-friendly policies would fuel the problem, despite the party’s pledge to fund its plans by cracking down on bureaucratic waste. Cabinet projections based on a hoped-for “sound recovery” in the economy already show Japan achieving a primary budget balance only if all non-social security costs are held constant in nominal terms from 2012 – implying hefty cuts in real spending.
Even this relatively optimistic scenario is premised on the raising of Japan’s 5 per cent consumption tax by 1 per cent a year from 2011 to 2015 – a policy controversial within the LDP and opposed by the DPJ, which did not even mention the deficit in its manifesto.
The red ink cannot be ignored indefinitely, however. The last time the ratio of Japanese government debt to GDP went over 200 per cent was during the second world war. The hyperinflation that followed traumatised policymakers and condemned many elderly living off pensions and savings to twilight years of severe poverty. Even a mild echo of such a fiscal denouement would be much more damaging to Japan’s senior citizens than downsized sake cups.
In Otoyo, ‘you never hear children’s voices any more’
A rustic backwater in the cedar-clad mountains of Shikoku island, 700km south-west of Tokyo, is at the leading edge of Japan’s demographic convulsion. Otoyo, a web of hamlets strung through miles of inaccessible valleys, has seen its population shrink by three-quarters since 1955, as its young people left for jobs in Japan’s industrial cities, writes Jonathan Soble.
The 5,500 residents who remain are now mostly old. Yukimi Kitamura, 91, complains there is only one child in his isolated settlement of 60 people. His 84-year-old neighbour is tired of chasing monkeys out of the abandoned farmhouses that surround her home. “You never hear children’s voices any more,” she says.
At his office in the faded town hall, Norio Iwasaki, a 58-year-old former firefighter who has been mayor for five years, serves cups of the town’s sweet fermented tea. On his laptop there is a diagram of Otoyo’s age “pyramid”: it looks more like a man standing with his elbows stuck out. The average age hit 60 this year, and more than half of residents are over 65.
“Otoyo is a small model of the problems that Japan is starting to face,” Mr Iwasaki says. On current trends, the country’s overall age distribution will look something like Otoyo’s in two generations, with more than three 80-year-olds for every 15-year-old. Extreme examples such as Otoyo will be found closer and closer to cities. “Our future is Japan’s future,” he says.
Ageing and depopulation have already transformed life in the town. Two of its last three middle schools recently closed, leaving empty buildings that may eventually be turned into nursing homes. The economy is shrinking 5-10 per cent a year. Otoyo residents together earn Y1.2bn ($12.6m, €8.7m, £7.4m) annually from farming and forestry, the two main industries – and Y2.88bn from pensions.
Yoshie Mitani, director of Otoyo’s social welfare centre, says the greying of the population has placed big burdens on the young people who have stayed. Many civic tasks, such as clearing roads after storms and maintaining Shinto shrines, are performed by informal local collectives. “It used to be that if you couldn’t participate you could give a little money instead. Now that’s not accepted – the manpower is too valuable.”
The welfare centre operates health and social programmes for the elderly, its small staff supplemented by volunteers. Pensioners end up doing much of the work, Ms Mitani says. “Our volunteers are old themselves. Old people come here, then they divide up into volunteers and clients.”
In a town where jobs are scarce, nursing care should offer fresh opportunities. But Otoyo’s elderly shun institutions, preferring to live at home until severe illness or infirmity lands them in hospital. In any case, Ms Mitani says, government funding is too low to attract workers. She recently advertised a part-time carer position at Y1,000 an hour. No one applied.
Municipal authorities are trying to help old people live independently. The town subsidises a taxi-share service that charges Y500 for local trips and Y1,000 to the hospital one town away. It plans to distribute free mobile phones equipped with global positioning systems and one-touch panic buttons to summon emergency services.
But with a shrinking tax base and Y6bn of debt, there is only so much it can do. “We are persevering,” says the mayor. [rc]
This week the FT begins a series on how Japanese companies are dealing with the challenge of an ageing society. From financial services to technology, the series looks at the way companies create products for – and market them to – elderly consumers
© Copyright The Financial Times Ltd 2009.
Every September, on “respect for the aged” day, Japan’s government gives each citizen who turned 100 in the previous year a silver sake cup. This year, however, recipients could be forgiven for feeling short-changed. To ease the budget burden created by surging numbers of elderly – about 20,000 centenarians are expected to need congratulating this year – officials have cut the amount of silver used to cast each cup from 94g to a miserly 63g.
Such penny-pinching may seem ungracious, but officials cannot be faulted for trying to rein in age-related spending. The combination of a perilously low birth rate with enviably healthy lifestyles and high-quality healthcare means Japan’s population is both rapidly ageing and shrinking.
If not addressed in time, the result of this demographic double-squeeze threatens to be a fiscal disaster that could derail Asia’s leading economy, inflicting untold damage on its global partners and sending shockwaves through the financial system.
Getting on: Japan’s elderly face the prospect of a retirement age rising as high as 70 or 75
Whichever party wins the general election this month will find its horizon darkened by a looming budget crunch brought much closer by a recession that has shaved more than 7 per cent off gross domestic product in the past two quarters and forced an extraordinary government spending spree.
Since the global financial crisis hit last year, the Liberal Democratic party-led government has approved stimulus spending amounting to about 4 per cent of GDP. The result, predicts the Organisation for Economic Co-operation and Development, will be a ballooning of the deficit from 3 per cent of GDP in 2007 to about 10 per cent by 2010. By then the ratio of gross government debt to GDP will be approaching 200 per cent – a level that not long ago would have been unimaginable in peacetime.
Doom already seems inevitable to some analysts. Carl Weinberg, chief economist at High Frequency Economics, believes the election on August 30 offers only the prize of presiding over the “biggest financial meltdown in history” when markets balk at new bond issues and interest rates soar.
Such gloom may be premature; for the moment investors appear content to fund the deficit for meagre returns. Yet the situation clearly cannot be sustained forever. Kaoru Yosano, Japan’s finance minister, says that at current debt levels a long-term interest rate of 1.3 per cent is a “strange thing”.
Below: In Otoyo, ‘you never hear children’s voices any more’
He suggests the cause “may be that Japanese people are over-saving. But there will be a limit to this saving. Nobody can accurately forecast how long this interest rate situation will continue.”
Addressing a chronic deficit would be politically difficult at the best of times. The added problem for Japan is that budget-balancers will be swimming against an increasingly strong demographic tide. While the total fertility rate – the number of children each woman is expected to have in her lifetime – has stabilised in recent years, it is still just 1.37, far below the 2.07 replacement rate.
A Growing Burden On Fewer Shoulders
Click for graphic
The implications for tax and spending look calamitous. Projections by researchers at the National Institute of Population and Social Security Research suggest that by 2055 the number of people in Japan will fall 30 per cent to just under 90m – a level last seen in 1955, at the start of the nation’s economic miracle. While the ranks of the elderly swell, the number of people under 65 will nearly halve.
The resulting tax burden on the dwindling workforce is already being felt. Welfare ministry data show state social security spending reaching Y41,000bn ($430bn, €298bn, £253bn) in 2015, up 42 per cent from 2006. With planned extra spending to address ageing-related challenges such as a shortage of doctors and nurses, the actual bill could be bigger. Social spending meets real need: although Japan’s elderly as a class are asset-rich, one in five gets by on less than half the median household income.
And senior citizens’ votes count. Promises of bigger benefits loom large in the campaign pledges of both the LDP and the opposition Democratic party (DPJ), which polls suggest is poised to end the ruling party’s long reign. Yukio Hatoyama, DPJ president, launched his manifesto last week with treacle-voiced promises to look after the “grannies and granddads” denied proper care or rightful pensions.
THE BIG SHRINK
Japan’s response to its rapidly ageing and declining population will be watched by policymakers around the world as the same trends begin to affect economies from Italy to South Korea.
In Japan, some argue that the trend is no bad thing. Its coastal plains are notoriously cramped. Reliance on imported food would be abated if there were fewer mouths to feed. And at a time of climate change fears, fewer people means a smaller carbon footprint.
The difficulty of reining in spending on the elderly – sake cups aside – is shifting attention to the other side of the demographic equation. “Previously, we directed most money toward health and the elderly,” says Shohei Yamada, a policy planner at the welfare ministry. “In future we want to focus greater funding on raising the birth rate.”
There is certainly room for government action to help restock maternity wards. Opinion surveys suggest that the more than 90 per cent of young single Japanese want to get married and to have an average of just over two children. In Tokyo’s Shinagawa ward, officials are trying to help them realise their dreams with subsidised matchmaking services. “Many people want to marry, but have few chances to meet the right person,” says Takeshi Nakayama, ward activities section chief, who blames overwork, the decline in the tradition of omiai formal matchmaking and the poor reputation of commercial dating services. Ward outings for the eligible are heavily oversubscribed. “We don’t think we can resolve the low birth problem on our own, but we think Shinagawa ward should do what it can,” Mr Nakayama says.
For its part, the central government aims at least to ensure parents can get day-care services for their children, a goal long delayed by underfunding and turf battles between the welfare and education ministries, which operate competing systems. Lack of day care is one reason why 70 per cent of working women leave work when they have their first child. “It’s very difficult to retain your job after having a baby, but many women want to continue working – so they choose their jobs, not children,” says Takeo Kawamata, cabinet office director for birth rate policy.
Parents can expect plenty more help if the DPJ wins power. To offset the formidable cost of child-rearing, the party has promised a Y26,000 a month child allowance and free schools. Though no panacea, such pledges have the potential to influence family planning. “This Y26,000 assistance suggested by the DPJ is pretty big,” says Minako Yagi, a Tokyo housewife who already has one baby, aged five months, and plans for another. “If we had the Y26,000, I’d want to have the second right away,” she says.
Japan's new government will face a huge debt problem
Click for graphic
Still, officials estimate that even if all of citizens’ stated desires for childbirth were fulfilled – no easy task – the fertility rate would still rise no higher than 1.75. That highlights the importance of making more productive use of the existing population. The elderly are the easiest target: many Japanese already work after reaching 60 and many of those who do not would like to. The retirement age is being gradually raised to 65, and Mr Yosano suggests that is just the start. “I don’t think this problem will be solved unless Japanese work until perhaps 70 or 75 years old,” says the 70-year-old finance minister, who confesses he hates school reunions as all his former fellows talk about is grandchildren, golf and diabetes.
Greater immigration – though politically taboo – offers another option to soften the demographic blow. Japanese companies are eagerly developing robots as a possible automated alternative. Indeed, catering to ageing consumers looks likely to become a source of competitive advantage as other nations follow Japan’s demographic lead.
None of this reduces the need to shore up the fiscal foundations, however. Indeed, economists say the DPJ’s proposed spending on family-friendly policies would fuel the problem, despite the party’s pledge to fund its plans by cracking down on bureaucratic waste. Cabinet projections based on a hoped-for “sound recovery” in the economy already show Japan achieving a primary budget balance only if all non-social security costs are held constant in nominal terms from 2012 – implying hefty cuts in real spending.
Even this relatively optimistic scenario is premised on the raising of Japan’s 5 per cent consumption tax by 1 per cent a year from 2011 to 2015 – a policy controversial within the LDP and opposed by the DPJ, which did not even mention the deficit in its manifesto.
The red ink cannot be ignored indefinitely, however. The last time the ratio of Japanese government debt to GDP went over 200 per cent was during the second world war. The hyperinflation that followed traumatised policymakers and condemned many elderly living off pensions and savings to twilight years of severe poverty. Even a mild echo of such a fiscal denouement would be much more damaging to Japan’s senior citizens than downsized sake cups.
In Otoyo, ‘you never hear children’s voices any more’
A rustic backwater in the cedar-clad mountains of Shikoku island, 700km south-west of Tokyo, is at the leading edge of Japan’s demographic convulsion. Otoyo, a web of hamlets strung through miles of inaccessible valleys, has seen its population shrink by three-quarters since 1955, as its young people left for jobs in Japan’s industrial cities, writes Jonathan Soble.
The 5,500 residents who remain are now mostly old. Yukimi Kitamura, 91, complains there is only one child in his isolated settlement of 60 people. His 84-year-old neighbour is tired of chasing monkeys out of the abandoned farmhouses that surround her home. “You never hear children’s voices any more,” she says.
At his office in the faded town hall, Norio Iwasaki, a 58-year-old former firefighter who has been mayor for five years, serves cups of the town’s sweet fermented tea. On his laptop there is a diagram of Otoyo’s age “pyramid”: it looks more like a man standing with his elbows stuck out. The average age hit 60 this year, and more than half of residents are over 65.
“Otoyo is a small model of the problems that Japan is starting to face,” Mr Iwasaki says. On current trends, the country’s overall age distribution will look something like Otoyo’s in two generations, with more than three 80-year-olds for every 15-year-old. Extreme examples such as Otoyo will be found closer and closer to cities. “Our future is Japan’s future,” he says.
Ageing and depopulation have already transformed life in the town. Two of its last three middle schools recently closed, leaving empty buildings that may eventually be turned into nursing homes. The economy is shrinking 5-10 per cent a year. Otoyo residents together earn Y1.2bn ($12.6m, €8.7m, £7.4m) annually from farming and forestry, the two main industries – and Y2.88bn from pensions.
Yoshie Mitani, director of Otoyo’s social welfare centre, says the greying of the population has placed big burdens on the young people who have stayed. Many civic tasks, such as clearing roads after storms and maintaining Shinto shrines, are performed by informal local collectives. “It used to be that if you couldn’t participate you could give a little money instead. Now that’s not accepted – the manpower is too valuable.”
The welfare centre operates health and social programmes for the elderly, its small staff supplemented by volunteers. Pensioners end up doing much of the work, Ms Mitani says. “Our volunteers are old themselves. Old people come here, then they divide up into volunteers and clients.”
In a town where jobs are scarce, nursing care should offer fresh opportunities. But Otoyo’s elderly shun institutions, preferring to live at home until severe illness or infirmity lands them in hospital. In any case, Ms Mitani says, government funding is too low to attract workers. She recently advertised a part-time carer position at Y1,000 an hour. No one applied.
Municipal authorities are trying to help old people live independently. The town subsidises a taxi-share service that charges Y500 for local trips and Y1,000 to the hospital one town away. It plans to distribute free mobile phones equipped with global positioning systems and one-touch panic buttons to summon emergency services.
But with a shrinking tax base and Y6bn of debt, there is only so much it can do. “We are persevering,” says the mayor. [rc]
This week the FT begins a series on how Japanese companies are dealing with the challenge of an ageing society. From financial services to technology, the series looks at the way companies create products for – and market them to – elderly consumers
© Copyright The Financial Times Ltd 2009.
