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Japan’s Population Declines by Record in Challenge for Growth

Japan’s population fell by a record last year, underlining the struggle to boost growth and rein in soaring welfare costs in the world’s most rapidly aging society.

The population declined by 0.2 percent to 127.8 million as of Oct. 1, the Ministry of Internal Affairs and Communications said in a report today. Fukushima prefecture, which was devastated by last year’s record earthquake and nuclear disaster, registered the biggest decline, of 1.93 percent.

Japan faces a shrinking workforce as 2012 marks the first year the nation’s baby boomers are set to retire. The world’s third-largest economy has contracted three of the past four years and policy makers including Bank of Japan (8301) Governor Masaaki Shirakawa have said low growth is mainly the result of demographic changes.

“It will definitely will negatively affect long-term economic activity, especially potential growth numbers,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “The generation of baby boomers are leaving the labor market and this demographic change could impact the fragility of the pension system.”

Japan is the world’s oldest society, with a median age of 44 years, according to a 2009 United Nations report.

“The most significant challenge confronting Japan is how to adjust to a rapid demographic change that is unprecedented in developed countries,” Shirakawa said in a January speech.

Fiscal Quandary

Social-security expenses, which have more than doubled in the past two decades, account for 52 percent of general spending in the fiscal year that began April 1. Prime Minister Yoshihiko Noda has proposed doubling the national consumption tax, currently at 5 percent, by 2015 to address the fiscal pressures and contain the world’s biggest public debt. The legislation faces resistance from opposition lawmakers as well as some in his own party who’ve warned about damping domestic demand.

People aged 65 or older comprised 23.3 percent of the entire population, compared with 23 percent for the year before, according to today’s report.

The population of Iwate, which was also hit by the earthquake and nuclear crisis, fell by 1.03 percent. The capital of Tokyo was one of seven prefectures where the number of people rose, gaining 0.28 percent.

To contact the reporters on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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