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Japanese Economy Update

New Population Projection: How does it differ from the old one?

  Senior Research Fellow


Population projection revised after six years from the previous one

New Population Projection for Japan has been published by the National Institute of Population and Social Security Research on April 26. Previous projection was published in April 2017 and, following the five-year revision cycle, it was supposed to be revised in 2022. However, because of the COVID-19 pandemic, the publication of the New Projection had been postponed for a year.

The New Population Projections consists of a set of Basic Projections for the period 2021-2070, and a set of Long-Term Reference Projections for the period 2071-2120. Projections are provided for each of the nine sets of assumptions: combination of three assumptions for the fertility rate and three assumptions for the mortality rate. The discussion on the projection usually focuses on the projection based on the “medium level of fertility rate” combined with the “medium level of mortality rate” assumptions. The following discussion will also be made on the basis of this standard projection.

Aging and shrinking of the population expected for the next hundred years

As Figure 1 shows, the New Population Projection expects the total population of Japan to continue to decline in the next hundred years. Total population that saw a peak of 128.0 million persons in 2008, had fallen to 126.6 million persons in 2020 according to the Population Census of Japan for 2020. After 2020, the population is projected to fall to 87.0 million persons in 2070, and further to 49.7 million persons in 2120. The average annual rate of decline of the total population during the hundred years, 2021-2120, is 0.9 percent.

As for its composition by age groups, the population of those aged 0-14 will shrink from 15.0 million persons (11.9 percent of the total) in 2020, to 8.0 million persons (9.2 percent) in 2070, and to 4.5 million persons (8.9 percent) in 2120. Similarly, the population of those aged 15-64 will shrink from 75.1 million persons (59.5 percent) in 2020, to 45.4 million persons (52.1 percent) in 2070, and to 25.2 million persons (50.6 percent) in 2120.

In contrast, the population of those aged 65 and over will increase from 36.0 million persons (28.6 percent) in 2020, to 39.5 million persons (35.8 percent) in 2043, before shrinking to 33.7 million persons (38.7 percent) in 2070, and to 20.1 million persons (40.4 percent) in 2120. Even though the population of the aged starts to shrink after 2043, it should be noted that the share in total population of the aged will continue to rise and stay high at around 40 percent, as Figure 2 shows.

In terms of the ratio of the aged (65-) to the working age population (15-64), or the old-aged dependency ratio, it will rise to around 80 percent by the end of the projection period. Since the ratio broadly resembles the ratio of those receiving pension benefits to those paying pension contribution, it suggests that the pressure on the financing of the pension system will become more intense in the next hundred years.

Difference of total population between the New and Old Projections

The new Projection is compared with the old one in Figure 4. It shows that the new Projections has somewhat revised upwards the population up to 2115. It is partly due to the underestimate of the population between 2015 and 2020 by the old Projection. However, since the difference of the two Projection becomes larger towards the future, it is not only the difference in the starting point that is affecting the upward-revision.

Reasons for the upward revision of total population

The factors that seem to have affected the revision of total population are threefold.

A.Total fertility rate

First, there has been a downward-revision of the total fertility rate of the Japanese females.

The Old Projection have over-estimated the total fertility rate by 0.0862 in 2020 (projection of 1.3988 turned out to be 1.3126). Therefore, the rate for the later years have also been revised downwards accordingly, as Figure 5 shows. It reflects, as it can be imagined, the impact of COVID-19 on the marriage rate and the birth rate during the period 2020-2022. The rate is now projected to fall to 1.2853 in 2046 and remain constant thereafter (instead of 1.3973 after 2033 in the Old Projection). For the Long-Term Reference Projection, total fertility rate is assumed to be constant after 2070.

It should be noted that this downward revision of the total fertility rate of the Japanese females itself leads to downward revision of total population, not upward. The downward revision needs to be explained by other factors.

B.Life expectancy

Second, life expectancy has been revised upwards for both males and females in the long-term

As Figure 6 shows, the profile of the revision is different between males and females. In both cases, the projected life expectancy in early 2020s reflects the impact of COVID-19 that led to the fall in life expectancy for both genders in 2021. After that, in the case of males, it is revised upwards throughout the projection period. In contrast, in the case of females, the projection is revised downwards until 2040 and then revised upwards. As a result of the upward revision, at 2070, life expectancy at birth for males is projected to be 85.89 and for females 91.94. Life expectancy for the Long-Term Reference Projection assumes to remain constant after 2071.

Longer life expectancy is a factor that leads to the upward revision of the total population and the share of those aged 65 and over.

C.Number of foreigners

Third, the projected number of foreigners in Japan has been revised upwards.

Total population shown in Figure 1 includes both the population of the Japanese and of the foreigners. The breakdown of the projection of total population to that of the Japanese and the that of the foreigners is show in Figure 7

The number of Japanese is projected to fall from 123.4 million persons in 2020, to 77.6 million persons in 2070, and to 41.2 million persons in 2120. It is a decline of population by 37.1 percent in 2070, and by 66.6 percent in 2120 compared to 2020 (annual average rate of decline in the hundred years is 1.1 percent).

However, the decline in Japanese population is projected to be somewhat offset by the increase in foreigners. Population of the foreigners is projected to increase from 2.7 million in 2020, to 9.4 million persons (3.4 times the population of foreigners in 2020) in 2070, and to 8.5 million persons (3.1 times the population of foreigners in 2020) in 2120. As a result, the share of the foreigners in total population is expected to rise from 2.2 percent in 2020, to 10.8 percent in 2070, and to 17.1 percent in 2120.

Figure 8 shows that, compared to the Old Projection, the New Projection includes a downward-revision of the Japanese and an upward-revision of the foreigners, so that the decline in total population has been somewhat mitigated by the upward-revision of projection of foreigners. Reflecting the increase in foreigners in 2015-2020, the population of foreigners for 2020 turned out to be 0.6 million persons more than projected by the Old Projection. After 2021, the upward revision of foreigners increases to 5.2 million persons in 2070, and to 5.9 million persons in 2093, before falling slightly to 5.4 million persons in 2120.

Since the projection of population of the Japanese has been revised downward, the increase in life expectancy (the second factor mentioned above) apparently has not been enough to offset the impact of the decline in total fertility rate (the first factor mentioned above). It was the increase in the population of foreigners that led to the upward revision of the total population in the New Projection.

How will the New Projection affect the Financial Verification of the Pension System?

The purpose of the publication of population projection every five years is to provide an input to the preparation for the Financial Verification of the Pension System that takes place every five years. The Financial Verification exercise provides projections of the financial balance of the Japanese pension system, and makes suggestions on the ways to rectify the situation if an imbalance is expected to emerge in the next hundred years.

The last time the Financial Verification exercise took place was in August 2019, following the Population Projection published in April 2017. According to the standard five-year cycle, next Financial Verification should take place next year. It implies that the time available for the preparation will have to be shorter than the previous exercises. It is interesting to see how, on the basis of the New Population Projection, the new Financial Verification, will come up with projections of the financial balance of the pension system in the coming hundred years, and, if an imbalance is in sight, what kind of policies will be suggested as being effective in maintaining the sustainability of the system.