Japan’s demographic time bomb continues to tick louder as the country faces a critical labor shortage fueled by a rapidly aging population. New government data reveals that Japan’s elderly population, those aged 65 and above, has reached an unprecedented 36.25 million, accounting for a staggering 29.3% of the nation’s total population. As Japan commemorated “Respect for the Aged Day,” the stark realities of its demographic crisis became even more apparent.
With the country’s overall population shrinking, the aging demographic is placing immense pressure on the workforce. Robert Feldman, chief economist at Morgan Stanley MUFG Securities, described Japan’s labor shortage as one of the most pressing issues facing the country today. “The labor shortage is just as bad as ever,” he said, pointing out that labor-intensive industries such as food services are bearing the brunt of the crisis. According to a recent survey by Teikoku Databank, 51% of Japanese companies are struggling to fill full-time positions, highlighting the widespread nature of the labor shortage.
The number of elderly workers still participating in the workforce has provided some relief, with over 9.14 million workers aged 65 and older continuing to work. However, as these individuals begin to retire, Japan will face an even more significant gap in its labor force. Feldman warns that without a new generation of workers to replace them, Japan’s economic future is in jeopardy.
The Demographic Time Bomb
Japan’s demographic challenges are expected to worsen over the coming decades. Projections from the National Institute of Population and Social Security Research indicate that by 2040, 34.8% of Japan’s population will be over the age of 65. At the same time, the working-age population will shrink dramatically, causing the country’s labor force to plummet from 69.3 million today to just 49.1 million by 2050.
In an effort to counter this downward trend, the Japanese government has launched several initiatives aimed at encouraging citizens to have more children. Prime Minister Fumio Kishida’s administration has implemented policies that offer financial support for families raising children, expanded child-care services, and even sponsored public dating apps to increase marriage rates.
However, demographic experts caution that these efforts, while necessary, are not enough to address Japan’s immediate labor shortages. As a result, Japan has also turned to foreign labor as a stopgap solution. In 2024, the number of foreign workers in Japan hit a record high of 2 million, and the government is aiming to add 800,000 more foreign workers over the next five years.
Despite these efforts, experts like Feldman warn that the scale of Japan’s demographic crisis requires more dramatic solutions. To fully offset the anticipated labor shortages, Japan would need to bring in tens of millions of foreign workers — a significant challenge given the country’s traditionally conservative stance on immigration.
Beyond Immigration: A Technological Future?
While immigration is part of the solution, many experts believe that technology will play an increasingly important role in addressing Japan’s labor crisis. Automation and artificial intelligence (AI) are being touted as potential tools to enhance productivity and reduce the reliance on human workers in various sectors.
Carlos Casanova, senior economist at UBP, explained that while AI holds promise, it has yet to make a significant impact on the country’s demographic challenges. “AI can be part of the solution, but Japan also needs to focus on broader social and structural changes,” Casanova said. One such change would be to increase female participation in the workforce, which remains relatively low compared to other developed nations.
Experts agree that Japan’s path forward will require a multifaceted approach. Technological innovation, social reforms, and increased immigration must work in tandem to address the country’s demographic and economic challenges. Without bold action, Japan risks falling into an even deeper labor crisis that could have profound implications for its long-term economic growth.
