Japan has had an extended period of strong economic growth. On the policy front, six years of “Abenomics” saw lower fiscal deficits, near-record unemployment, and higher female labor force participation. But economic and financial sector challenges are set to grow as demographic headwinds—the aging and shrinking of Japan’s population—intensify.
Japan’s population will continue to shrink, and the old-age dependency ratio will increase further.
In our chart of the week from Japan’s latest economic assessment we show how the population will continue to shrink, and the old-age dependency ratio—the ratio of individuals aged 65 years and over to individuals aged 15-64 years—will increase. The government needs a well-specified and credible medium-term plan to reduce debt and deficits in the coming years to address the challenges of financing health and pension costs of an aging population.
On January 15, the IMF will release new research and analysis and publish a blog on the future of savings and pensions in an aging world.