OZAKI SHOJI, one of Japan's biggest makers of school uniforms, has a problem. Its core product is in increasingly scarce demand, as the number of Japanese children drops. So Ozaki Shoji has branched out into casual wear, in the hope of widening its target age-group. A small rival, Onoto, which like Ozaki Shoji is based in the south-western prefecture of Okayama, seems to be having a harder time adapting. Its managers think that a trend towards more individualism in schools is also reducing demand for uniforms, in addition to the demographic trends that are hurting their firm.
The problem is not confined to uniform-makers. Low birth rates mean not only fewer schoolchildren in Okayama, but also fewer young workers for Onoto's factories. This is just the start of a demographic shift that will trigger profound changes in Japan's economy and society.
The projections vary, but most experts believe that Japan's population, now 127.6m and barely growing, will peak some time between next year and 2007, and then begin a long, steady slide that will last several decades at least. Japan's Institute of Population and Social Security Research (IPSS) forecasts that the population will fall to somewhere between 92m and 108m by mid-century, with a medium-case prediction of about 100m people in 2050. The United Nations foresees a slightly smaller drop over the period, but still to around 105m people.
Even though Japanese lifespans continue to lengthen, the country simply will not have enough young people to maintain its population. The fertility rate (the number of children per woman during her lifetime) fell below 1.3 last year, down from 3.65 in 1950. Although Japan's bureaucrats have launched a drive to promote childbirth—including tax breaks and rules helping parents take more leave—the fertility rate is expected to stay low for at least a few decades. By 2050 the proportion of children under 15 will fall to less than 11% of the population (see chart), from 16% in 1995. The average Japanese will then be over 53 years old, 12 years older than now.
This will affect everything from work and family life to foreign policy and national security. Japan will probably have to let more workers immigrate, though public unease will no doubt lead it to delay and minimise this shift as much as possible. A smaller population may also mean slower economic growth; that will take its toll on spending categories, like defence, whose clout depends more on total economic weight than on income per person.
One obvious consequence will be pressure on the social-insurance system, including health care and pensions, as the working-age population shrinks dramatically. The IPSS reckons that there will be 31m fewer Japanese between 15 and 64 years old in 2050, and that this group will shrink from two-thirds of the population now to just over half. The ruling Liberal Democratic Party lost ground in the elections for the upper house this summer, partly by forcing through benefit cuts and higher premiums on pensions. But more will have to follow. The speed of this demographic shift and Japan's high debt levels (the IMF says Japan's net public debt is around 80% of GDP) have led some to worry about a looming fiscal implosion.
A pair of economists in America—Christian Broda of the New York Federal Reserve and David Weinstein of Columbia University—have recently created a stir by arguing that these worries are overblown*. Most of the debate has concentrated on their long-term arithmetic: they think that Japan's population is bound to stabilise at some point, perhaps around 2060, and that Japan will therefore be able to ease the demographic transition by spreading the costs over the course of a century or more. As in other countries, the Japanese have chosen careers over children as they have grown richer. The authors argue that at some level of prosperity, however, they will value extra money less and will want bigger families.
Messrs Broda and Weinstein also make another point, however, that deserves more attention. They argue that fewer children will, in a variety of ways, save Japan some money. “If an ageing population means an increase in government transfers to the elderly,” they write, “then by the same logic, a drop in fertility rates should mean a decrease in expenditures on younger Japanese.”
There will certainly be fewer pupils, and therefore less demand for schools and teachers. Eventually, this will affect universities as well, which are already reorganising to brace themselves for greater competition. A tighter labour market will also reduce the need for unemployment insurance and other fiscal transfers to the young. Japan's unemployment rate remains high, at 4.7%, despite a recent recovery, and the jobless rate among the youngest workers is more than twice that. Within a few years, however, the labour market, especially for young people, should tighten dramatically.
This article appeared in the Asia section of the print edition under the headline "The incredible shrinking country"