Japan's Demographic Time Bomb

This weekend’s Barrons featured a very grim article on Japan’s demographic time bomb (Is the Sun Setting on Japan?). Although I have always appreciated the structural debt & population challenges facing the country, I never really understood how grave they were. Some scary data points from the article include:
- Japan's gross national debt now equals 217% of its gross domestic product, compared with 81.2% for the often-maligned U.S. and an average of 72.5% for the G-20 nations (the 19 largest economies, plus the European Union), according to the International Monetary Fund.
- The latest United Nations median forecast estimates Japan's population will fall from a current 127 million to just 101.6 million by 2050 (a decline of 20%), while the U.S. count will rise from 317 million to 404 million.
- The number of Japanese of prime working age (15 to 64), which totaled 83 million in 2007, is likely to tumble to 49 million in 2050, while the over-65 cohort jumps from 27.5 million to nearly 38 million. This implies more than 77 elderly dependents for every 100 workers by 2050, compared with just 33 per 100 now.
- Japan's household savings rate—more than 20% in the early 1970s—has dipped to about 3%. That's less than U.S. households' 4.2% as of July.
- Japanese businesses are highly inefficient and shielded from domestic and foreign competition by complex regulations. Output per man-hour in Japan trails that of the U.S. by approximately 30%.


While many pundits are encouraged by the strong victory of the Democratic Party of Japan (DPJ) in last month's national elections (which has promised to implement badly needed structural reforms to the country’s ailing economy) it will be extremely difficult to overcome the demographic tsunami facing the country. If you are not a Barron’s subscriber and would like to read the article please send me an email and I will be more than happy to forward along.