Understanding Japan - How are Demographics Changing Japan?

PodcastThe Week AheadKyohi MoritaOct 13

Japan's labor force grew from the early 2010s as more women and older people entered the market, but the guest says participation has nearly maxed out and immigration is slowing. With the population aged 15 or older declining since 2021, companies are turning to automation and digital tools to address labor constraints and support productivity-led growth. The guest expects stronger real-wage growth and greater household exposure to risk assets, while tax-exempt NISA accounts have helped shift savings from cash toward stocks.

Demographics Labor Market Automation Economic Growth Personal Finance Investment Strategy

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Key Takeaways

Japan's labor force grew in the 2010s as more women and older people entered the workforce, and foreign workers—particularly from Vietnam, Indonesia, and the Philippines—added labor in the 2020s. But the guest says domestic participation has practically maxed out, immigration is slowing, and the population aged 15 or older began declining in 2021, limiting the scope for those sources to offset labor shortages.

As companies recognized they could no longer resolve labor shortages through higher participation alone, the guest says they made automation, software, and digital tools a top investment priority to reduce labor dependence. He argues this shift is moving Japan toward growth driven more by labor productivity than labor input.

The guest expects productivity improvements to help Japanese real wages grow enough to outpace prices and expects households to increase their exposure to risk assets. He also notes that cash has made up as much as half of household financial assets but is declining as stocks gain presence, with tax-exempt NISA accounts contributing to the shift alongside inflation.

TECHNOLOGY

Labor-Saving Investment — The guest says Japanese companies are prioritizing investment in automation, software, and digital tools to reduce their dependence on labor. He argues this shift is moving Japan toward growth driven more by labor productivity than by labor input.

“But then how are they doing it? Well, mainly by cutting down on labor dependence…”—

ECONOMY

Labor Force Growth — The guest says Japan's actual labor force grew from the early 2010s, despite a declining ceiling on potential labor supply, as more women and older people entered the labor market.

“And second, and that is more surprising, despite that shrinking ceiling of the maximum labor supply, maximum possible labor supply…”—

Labor Supply Limits — The guest says higher participation by women and older people supported Japan's labor force in the 2010s. In the 2020s, foreign-worker numbers increased, particularly from Vietnam, Indonesia, and the Philippines. He says domestic participation has practically maxed out and immigration is slowing, leaving these sources with less capacity to offset labor-supply constraints.

“Throughout the 2010s, Japan brought more of women and elderly people into the labor market, which led to a higher labor participation…”—

MARKETS

Household Portfolio Shift — The guest says cash and cash equivalents have accounted for as much as half of Japanese household financial assets, but their share has visibly declined as stocks have gained ground. He says inflation was not the only driver: tax-exempt NISA accounts also encouraged households to shift toward risk assets.

“Meanwhile, as much as half of Japanese households financial assets have been held in cash and cash equivalents, whose value tends to erode under inflation.”—

Japan's Shrinking Labor Pool

Morita says Japan's population aged 15 and older has declined since 2021, while rising participation among women and older people and increased foreign labor temporarily expanded the workforce; those sources are now constrained.

Automation-Led Productivity

With labor shortages difficult to reverse, companies are investing in automation, software, and digital tools to reduce labor dependence and shift growth toward productivity.

Robots in Japanese Services

Restaurants and hotels illustrate the move away from labor-intensive operations, with tablets, service robots, and self-checkout, a change also spreading across business-to-business and consumer services.

Real Wages and Household Assets

Morita expects stronger real-wage growth as productivity improves, while households may move more savings from cash into risk assets as inflation erodes cash's value.

NISA and Riskier Portfolios

Household cash holdings are declining as stocks gain share, with tax-exempt NISA accounts helping encourage the shift and more homegrown inflation likely to entrench it.

Real Wages as a Signal

Morita identifies sustained real-wage growth amid inflation as a key sign that productivity gains are taking hold and companies and households are adapting their behavior.