The most important challenge facing Japan is depopulation due to the low birthrate and aging.
Those aged 65 or older now number some 35 million, but the figure will reach 39.35 million in 2042. In contrast, the working age population -- those aged 15 to 64 -- has been decreasing since a peak of 87.26 million in 1995, and is projected to sink to around 60 million in 2040.
Social security reform has so far focused on 2025, when all baby boomers will be aged 75 or older, but Japan's aging will peak in 2042 when the boomers' children will be 65 or older.
For the first time last year, the government released its estimates of social security expenditures for the period leading up to the 2040s. The total payout of social security benefits in fiscal 2018 will be about 121.3 trillion yen, or 21.5 percent of gross domestic product, but is expected to rise to some 190 trillion yen or 24 percent of GDP in fiscal 2040. How can we pay this huge bill? A long-term vision for fiscal and social security reform focusing on the 2040s is necessary.
--- People's lives on verge of jeopardy
Prime Minister Shinzo Abe said at his New Year's press conference on Jan. 4 that Japan faces aging and a rapid decline in the birthrate, "and we must tackle head-on this difficult problem on par with a national crisis and promote reform for the future."
However, it is difficult to say that the Abe administration has been tackling the demographic crisis "head-on."
The administration has failed to secure funding for social security spending and has borrowed money to pay for the program. The total long-term debt owed by the national and local governments now stands at 1.107 quadrillion yen. This massive amount, nearly twice Japan's GDP, is almost unheard of across the world. If left unattended, Japan's debt could swell to some 2.7 quadrillion yen, one estimate warns.
The loss of public trust in the nation's finances would drive up long-term interest rates, cause massive latent losses to financial institutions holding large quantities of Japanese sovereign debt, and damage the financial system as a whole. Even the government would find it difficult to secure funding for its programs; if they cannot borrow money to pay for social security spending, the lives of ordinary citizens would be in chaos.
Prime Minister Abe argues that with the creation of a society where people can live longer in good health, the economy can grow even as the population declines. But fears of national bankruptcy or social security failure are driving people to save up for retirement, not to spend money. Personal consumption makes up 60 percent of GDP.
The government must quickly show how to find funding for social security programs and win back the public's trust in them. Improving efficiency and cutting down on human resource costs in medicine and nursing care are also necessary. The government plans massive spending programs in response to the planned consumption tax hike from 8 to 10 percent, saying that those measures will help shore up the economy. This pork-barrel policy, however, is far from an improvement.
The government should revamp the employment system so that willing people can continue to work after they turn 65, and encourage corporations to introduce measures in this regard. The healthy life expectancy is getting longer and more people are living without the help of medicine or nursing care. If people to be supported by the social insurance system become supporters of the system, the program's finances will improve.
-- Revitalizing regions is key
Programs are also needed to slow down depopulation in the future. Birthrates are low in major cities regardless of era or country. Tokyo's rate in 2017 was a mere 1.21 per woman, far lower than the national average of 1.43. The capital's population has been maintained by inflows from regional Japan.
The current depopulation problem is rooted in the decrease of the working-age population triggered by the decline of regional areas, which used to have higher birthrates. The source of the big cities' workforce has vanished.
Regional farming, forestry, fisheries, and manufacturing industries are also suffering from serious labor shortages, making it difficult for them to continue to be the pillars of their local economies. This has prompted the government to accept more foreign workers in response to regional industries' urgent need for labor. The new program will ease the labor shortage symptoms for the time being.
Accepting workers from overseas, however, has little effect in stemming depopulation, which is affecting the entire nation. Local governments have invited companies or universities to come to their areas, but stopping the decline is no easy task.
Encouraging working-age residents to settle down requires making their communities safe and attractive, on top of creating jobs. Some cities, towns and villages have succeeded in luring young residents or improving birthrates by paying for day care and child medical costs, or building more day care centers.
Children who are born now will be the ones supporting society in the 2040s. The central government's plan to reform the social security system into one for "people of all ages" should correspond to efforts by those local governments.
All-out efforts are necessary to revitalize regional Japan and ease depopulation.