Understanding Japan - How are Demographics Changing Japan?

Japan’s demographic landscape has reached a critical turning point as the working-age population, defined as those aged 15 and older, has been in decline since 2021. Kyohei Morita, Nomura’s chief Japan economist, identifies these labor shortages as effectively incurable due to peaked domestic participation and slowing immigration. Consequently, Japanese companies are pivoting toward a productivity-driven model, replacing labor-intensive processes in sectors like hospitality with automation and digital tools. Simultaneously, households are moving away from traditional cash holdings toward risk assets like stocks to combat inflation. The success of this fundamental economic transformation hinges on rising real wages, which serve as a primary indicator of whether companies and households are effectively adapting to this new, lower-labor-growth reality.