Economic Performance and Challenges
Following the economic bubble burst in 1990-91, Japan experienced a prolonged period of deflation adjustment, leading to disappointing economic performance in the 1990s. Productivity was affected, reflecting the rigidity of the labor market and excessive investment at the end of the 1980s. Despite rapid economic growth from 2003-07 due to demand from China and other emerging markets, the global financial crisis of 2008-09 and the earthquake and tsunami in 2011 dealt significant blows. Japan’s status as an economic powerhouse declined, falling to the fourth position globally (by purchasing power) by 2011, where it has remained since. Although it has advantages in innovation, information technology, telecommunications, and high-skilled labor, unfavorable demographic trends and resistance to immigration also indicate a bleak long-term outlook.
Aging Population Issue
The rapid aging of Japan’s population is a major concern. It is projected that from 2022 to 2050, the total population will decrease by about 20 million, and by 2050, the proportion of the population aged 65 and over is expected to rise to 37.7%. In 2021, the number of births in Japan reached an all-time low. By 2050, the working-age population will also contract significantly. Although the government will strive to increase labor force participation, especially among women, large-scale immigration remains politically unfeasible. There may be a slight increase in “foreign workers” from abroad, particularly after the COVID-19 pandemic.
Diplomatic and Security Challenges
On the diplomatic and security front, Japan faces threats related to China’s rise, escalating friction with Russia, and its political and economic status in Asia. Territorial disputes with the two major powers have intensified Japan’s concerns about its ability to protect its interests. These geopolitical tensions will accelerate Japan’s efforts to redefine its right to self-defense, maintain its alliance with the United States (possibly further acquiring U.S. nuclear weapons), and develop cooperation with allies such as Australia. Should China attempt to annex Taiwan, Japan may participate in any U.S. efforts to support Taiwan’s defense.
Development Trends and Outlook
The country is actively leveraging international agreements, such as the Economic Partnership Agreement (EPA) with the European Union, which came into effect in 2019, and the Regional Comprehensive Economic Partnership (RCEP), which came into effect in 2022. It is also seeking closer economic cooperation through bilateral and quadrilateral mechanisms with ASEAN and major European countries, as well as regional powers like India and Australia. Japan’s strength in high-tech industries indicates that it will continue to lead in the production of high-value-added products, while ceding low-value-added production to lower-cost countries such as ASEAN member states.