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Philippe AghionCollège de FranceÉconomie des institutions, de l'innovation et de la croissanceAnnée 2025-2026Japanese Economy : Demographic ChallengesTakeo Hoshi est invité par l'assemblée du Collège de France sur proposition du Pr Philippe Aghion.Takeo Hoshi : Professeur d'économie et directeur du Tokyo College, université de TokyoRésuméOne of the most pressing issues facing the Japanese economy in recent decades is the set of profound demographic changes. Japan has been experiencing simultaneous shifts: an overall decline in population, a rapid acceleration of population aging, low fertility rates, and a marked decline in the scale of internal migration. Each of these factors interacts with the economy in complex ways. In this lecture, I argue that although demographic change is often cited as the main culprit behind Japan's long stagnation, its direct impact on economic growth has been smaller than that of the slowdown in productivity growth. The exception, however, lies in the decline of internal migration, which has had a more immediate effect on labor market fluidity and regional dynamism.Japan's population peaked around 2008 at approximately 128 million people. Since then, the number has steadily declined, falling below 125 million by the early 2020s, and projections suggest that by the middle of this century it may shrink to near 100 million or even lower. Population decline naturally raises concerns about the shrinking of domestic markets, reduced tax revenues, and the sustainability of public services. However, from a macroeconomic perspective, population size alone does not necessarily reduce per capita income growth. Countries with smaller populations than Japan—such as Switzerland or the Scandinavian nations—have achieved high levels of prosperity. What matters more is the ability of an economy to generate productivity growth and adapt its institutions to demographic realities.Closely tied to the overall decline is the remarkable speed of population aging. Japan is already the world's oldest society, with more than 28 percent of its population aged 65 and older. This share is projected to reach one-third within the next decade. Aging raises fiscal and social challenges: increased expenditures on pensions, health care, and long-term care, coupled with a shrinking working population that supports these systems. Economists debate whether aging itself is a drag on productivity growth. Some argue that an older workforce may be less innovative or less mobile; others note that older workers often bring experience and stability. What is more certain is that aging imposes heavy redistributional pressures. Given the current social security systems in advanced countries, it requires governments to tax, borrow, or cut spending elsewhere in order to finance the growing needs to support the elderly.A key driver of both population decline and aging is Japan's low fertility rate. For more than four decades, Japan's total fertility rate has hovered well below the replacement level of a little bit above 2. In recent years, it has dropped to around 1.3 or even lower. Policymakers often frame low fertility as the cause of economic stagnation, but the causality may run in the opposite direction. Economic uncertainty, sluggish wage growth, long working hours, and high costs of childrearing have made family formation more difficult for younger generations. In particular, the severe constraints on women—who face strong pressures to choose between family and career—contribute to delayed marriage and fewer births. The underdevelopment of childcare infrastructure, persistent gender wage gaps, and rigid corporate practices all reinforce this trend. Thus, low fertility should be understood not just as a demographic phenomenon, but as a reflection of deep structural and social issues within Japanese society.Among the demographic shifts, the decline in internal migration deserves special emphasis. Historically, Japan's postwar growth was supported by the large-scale movement of workers not only from rural areas to urban centers but also in the other direction. This internal migration allowed human capitals to flow toward their best uses, thereby sustaining economic growth dynamics. However, in recent decades, this movement has slowed markedly. Fewer people are relocating, and regional labor mobility has declined. The reduced reallocation of labor across regions and sectors has diminished Japan's overall economic dynamism. In this sense, the decline in internal migration has had a more direct impact on productivity growth than population decline or aging alone.It is worth stressing that demographic change, while dramatic, does not fully explain Japan's prolonged stagnation. What was more important for Japan was the sharp decline in productivity growth beginning in the 1990s. In fact, if productivity growth were stronger, Japan could offset many of the burdens of aging and population decline. Conversely, even if fertility rates were to recover somewhat, without productivity growth the economy would still struggle to generate prosperity. Aging may have discouraged innovation and led to slower productivity growth, but a more important cause for the productivity growth decline was the lack of creative destruction.Nonetheless, the demographic challenges cannot be dismissed. They exert continuous pressure on the social fabric, highlight the limitations of current gender and labor policies, and constrain fiscal choices. The low fertility rate, in particular, reflects the frustrations of a generation that finds it difficult to reconcile work and family life. Addressing demographic challenges therefore requires more than pronatalist policies; it demands comprehensive reforms in labor practices, childcare support, gender equality, and regional revitalization.In sum, Japan's demographic changes are real and significant, but their economic meaning is often misunderstood. Population decline and aging are frequently portrayed as insurmountable obstacles to growth, when in fact the more fundamental challenge lies in productivity growth. The one demographic factor that does have a direct bearing on productivity—declining internal migration—deserves much more attention. Understanding this distinction allows us to focus policy debates where they matter most: on fostering innovation, mobility, and inclusivity, rather than simply lamenting demographic destiny.