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The Falling Sun – Japan to Fade Out by 2050

April 17, 2012

Japan’s GDP growth will become negative by 2020, due to the world fastest aging population. By 2050, it will slip to the 9th largest world economy from the current 3rd position. Korea will catch up and surpass Japan for the per capita GDP by 45%. 40% of the national population will be over 65 years old and the working population will shrink to today’s 2/3.

Yesterday, 21st Century Public Policy Institute,  a Japanese think tank, published a 100-page research titled ‘Global Japan – Year 2050 Simulation and Strategy.’ Shocked by the figures, many online news articles have been posted and active discussions are happening. Let’s take a look at this 2050 prophecy.

Four Crystal Balls

The research compares 4 different scenarios – base #1, base #2, pessimistic, and optimistic. The base scenario #1 assumes that Japanese economy will recover to the same level of the other developed countries (0.8% GDP growth rate) while the base #2 expects the average of the past so-called ‘lost 20 years’ (0.3%.) The pessimistic is a nightmarish scenario that Japan will fail to rebuild its deficit-ridden finance and follow the same course to the Euro crisis.

The optimistic scenario adds one interesting hypothesis, that by 2040 Japan will succeed in embracing women in workforce at Sweden’s level, which is one of the most advanced in diversity today. Seeing the list of committee members, however, I’m not convinced to join the optimist club. Out of the 20 committee members, who are the CEOs and Chairpersons of Japanese big name companies, there is no woman.

The Fast and The Furious

Japan’s main problem here is the aging population. Japan is the fastest aging country in the world and will be the first one to experience all the challenges triggered by the population shift. All of the above four scenarios assumes the same population forecast, under which the total population will drop by 25% from the current 128 million to 97 million in 2050 and the working population by 33% from 65 million to 44 million. Evidently, the decrease of the labor force will push the GDP down.

On the other hand, the proportion of the 65+ years will raise from 25% in 2010 to 40% in 2050. In addition, increase of the old generation will decrease the total savings, resulting in the fall of capital investment, which is required for the business to grow. While the other developed countries but the United States will follow the same course, Japan is fast and furious.

The Pessimist and The Optimist

The pessimist says Japanese economy will start shrinking by 2020. In 2050, Japan will be the 9th largest economy in the world, or 1/5 of India, which will have become the 3rd. The per capita GDP will also drop from 20th to 28th while our neighbor Korea will steadily move up from 24th to 14th.

The optimist says Japanese economy will maintain a positive growth until 2030, but then turn to negative anyway. Thanks to the inflow of smart women into the workforce, Japan will remain the 4th in the GDP ranking, after India. The per capita GDP will increase by 35% and advance its position from 20th to 18th. How optimistic!

Today’s Lesson

Even the most pessimistic scenario doesn’t talk about the end of the world on December 21, 2012. Talking about 2050 is quite optimistic, isn’t it?

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