Jan. 16 (Bloomberg) -- No sex, please, we're Japanese.

That, at least, is what the folks who sell Durex condoms would have us believe about residents of the world's second- biggest economy. Its annual survey -- 2005's involved more than 317,000 people in 41 countries and territories -- found that Japanese have the least active sex lives.

Japanese have sex an average of 45 times annually. Greeks are the most prolific lovers, averaging 138 sexual encounters. Asians in general did poorly, taking the bottom eight places on Durex's list. Thais make whoopee the most among Asians -- 97 times a year.

The links between economics and sex are highly speculative, at best. So are explanations for why Asians appear to be unenthusiastic lovers. Stress, perhaps. Maybe it's the cramped dwellings in which many Asians live. Or perhaps Asians are just more honest about sex. Who, after all, likes to admit they don't have much, even anonymously?

Durex's findings, as unscientific as they are, mesh well with the biggest risk facing Asia's No. 1 economy: a dwindling population.

Population and Debt

In 2005, the number of deaths in Japan exceeded births. Thanks to a record-low birthrate, and policies that virtually forbid immigration, the population shrank for the first time since Japan began compiling data in 1899. There are signs that the trend will persist, if not accelerate.

While demographics rarely fit easily into investment decisions, comments last week by Jim Rogers should be a wake-up call for Japan. Rogers, who co-founded the Quantum Hedge Fund with George Soros in 1970, said he wouldn't increase his Japanese stock holdings because the falling birthrate will make it harder to pay the national debt.

``If the current birth rate, which is the lowest in the major developed countries, continues, there will be no Japanese,'' Rogers said. ``Who will pay the enormous debt?''

It's a valid question, and one investors rushing back into Japan should be asking. A declining workforce will reduce tax revenue, making it harder to pay back the nation's 800 trillion yen ($7 trillion) debt. The government has said that the birth- to-death rate needs to rise to 2.1 to maintain Japan's current population of about 127 million. The birthrate now is 1.26 children per woman.

More Babies, Please

Unfortunately, Japan isn't taking its birth drought seriously enough. It's a reminder that while Japan is indeed recovering from a 15-year funk, the good times won't last without bold policy moves -- not next month or next year, but immediately.

Persuading people to procreate is a tall task for governments. Awkward, too. Singapore, for example, created a government-sponsored dating program that's drummed up more ridicule than births. In 2004, Australian Treasurer Peter Costello raised eyebrows urging citizens to have ``one for mum, one for dad and one for the country.''

Low birthrates are a global challenge, especially in rich nations. Japan's transition from growing population to shrinking one is particularly dangerous.

A declining labor force will exponentially reduce the gross domestic product of a huge economy on which many smaller ones rely. It will make Japan's massive unfounded pension liabilities harder to finance and the world's largest national debt harder to service. The result may be sharply higher Japanese debt yields.

Japan's Options

Japan has three choices: persuade women to have more babies, allow increased immigration, or accept a steady decline in living standards. The bad new for investors is that, at the moment, Japan is on a path toward achieving the third option.

A Japanese preference for ethnic homogeneity makes easing immigration laws difficult. While Japan will have to import more labor, it's unlikely to do so fast enough to close the population gap.

That makes option No. 1 -- encouraging procreation -- the most obvious in the short run. It will take a measure of political will that doesn't seem to exist in the current crop of leaders. The same is true of the private sector, which tends to think it's the government's responsibility.

In 2005, Prime Minister Junichiro Koizumi turned some much- needed attention toward upping female participation in the labor force. For years now, the Organization for Economic Cooperation and Development has been calling on Japan to do just that, arguing it would boost potential growth and increase the quality of the labor pool.

Empowering Women

The trouble is Koizumi has talked far more about empowering women than he's achieved. His gender equality initiative seeks to create conditions -- things like more flexible work hours and affordable daycare -- where women can both have children and find good jobs without many specifics about how to do it.

Thanks to institutionalized sexism, few women rise to senior management positions and motherhood still tends to be a career- ending decision. And so, many women are delaying pregnancy, leaving Japan with a declining birthrate and a rapidly aging population.

Of course, if Durex is right that Japanese rarely have sex, the nation has even bigger problems on its hands. More likely, the solutions to Japan's population woes are in plain sight. It's up to politicians to take them seriously and act now.

If they don't, the debt outlook will become gloomier, investors like Rogers will keep their distance and yet another Japanese recovery may be scuttled by inaction in Tokyo.

To contact the writer of this column: William Pesek Jr. in Tokyo at wpesek@bloomberg.net

Last Updated: January 15, 2006 13:02 EST