Japan: A country in crisis?

Among the films currently being shown on Japan Airlines is the atmospherically entitled Memories of Tomorrow (Ashita no kioku). It is gripping, but not cheerful, in-flight viewing. Starring one of Japan's best-known actors, Ken Watanabe, it charts the retreat of a once confident Tokyo advertising executive into premature senility.

Memories of Tomorrow works at several levels. It offers an unaccustomed, but highly acclaimed, role for the usually swashbuckling Watanabe. It presents contemporary Japanese society as it would like to see itself: family-oriented, self-sufficient and discreet - and for this it has been criticised as too kind. But the film can also be interpreted as a metaphor and a warning. The land of the rising sun is fast becoming the land of the lingering sunset, with the multiple consequences this entails.

Japan is ageing inexorably. Its population peaked last year just short of 130 million. It has just passed Italy to become the country with the highest proportion of over-65s anywhere and the lowest ratio of children under 15. If the more extreme projections are to be believed, by the turn of the next century, there could be fewer than 50 million Japanese. The country faces a decline in its population on a scale unprecedented in the developed world. Only a generation ago its economic growth rates and technological prowess held the West in awe. From now on Western countries should watch Japan for another reason. The choices it makes are bound to influence the way in which the rest of the ageing world tackles the same problem in years to come.

The cause of Japan's difficulties is simple. While Japanese are living longer, its women are producing too few children. The gravity of the situation became apparent this spring, when official figures for 2005 showed another fall in the average number of children a Japanese woman bears in her lifetime from 1.29 in 2004 to 1.25 last year - the fifth straight year of decline. For those who see a country's strength reflected in numbers, the news was even worse. For the first time since 1899, when records start, the Japanese population declined in absolute terms.

The fact of Japan's ageing population is not just statistical. It's changing the country in many ways. Some are obvious. At Tokyo's Narita airport, the uniformed marshals who direct arriving passengers to the correct passport control queue are visibly of pensionable age. Taxi drivers and small-shop keepers are more likely than not to be grey-haired, as are the staff on the Tokyo subway.

In the busy central shopping district of Ginza, where all the big department stores have a branch, it's only in the youth fashion sections that all the assistants are young. Daytime shoppers are of a certain age. Babies and small children are conspicuously few and far between.

Other signs are less obvious: the television and street advertising is tailored to age as well as youth. There is the emergence of ageing as a theme in films and books. In scientific research establishments, it is striking how many projects address different aspects of ageing or, as it is called, "health maintenance in a greying society".

The National Institute of Advanced Industrial Science and Technology, AIST, at Tsukuba outside Tokyo, showcases a robot in the form of a winsome furry seal, called Paro. It's not a toy, or not in the conventional sense. It was designed more with the elderly and infirm in mind, a mechanical pet said to be remarkably effective in calming and occupying those who are bed-ridden or suffering from dementia.

Whole areas of government and business are slowly coming around to the reality of an ageing population - and the financial sector senses opportunity along with risk. Dormant for the past decade, Japan's economy is awakening. And who is driving the tentative recovery but Japan's flourishing band of pensioners. f

Tetsuro Sugiura, chief economist at the Mizuho research institute in Tokyo, describes it as the "grey boom". It used to be, he said, that the elderly were anxious about the future and saved even into their dotage. This is no longer true. Japan's pensioners are spend, spend, spending. They are buying luxury goods, travelling, and indulging their taste for expensive foods. Time was, Sugiura says, when they would try to leave as much as possible to their children who would have looked after them in old age. That unspoken family contract, though, is nothing like as firm as it was. The children are doing less caring, and the parents have fewer inhibitions about spending the money they have saved.

One of Japan's most innovative financiers, Yoshitaka Kitao of SBI holdings is already devising new products to match the new demographics. Holding court in his vast suite of offices in Tokyo's glass and steel equivalent of London's Docklands, Kitao sets out his rationale. Japan's low birth rate, he says, will mean a slow growth rate and continuing ultra-low interest rates. He believes that those with savings will look beyond conventional deposit accounts to increase their returns. He sees the future in share-owning and e-trading for small investors. The skill will be to make such financial instruments attractive and accessible to this generation.

It is inevitably the state pension system that will be the first to feel the negative effects of the declining population. Prudently, the government of Junichiro Koizumi introduced a pension reform two years ago, with later retirement and higher contributions from employers, employees and the government. But the calculations, which derived from the most conservative demographic projections available, were not conservative enough. Unless the birth-rate rises - which looks unlikely - either pensions will have to fall, or a new round of reforms will be needed.

The more immediate worry, though, is not the pension system but economic growth and employment. Businesses already face difficulties finding new recruits. The unemployment rate is below 4 per cent across much of Japan, and at its highest - on the island of Okinawa - is still less than 8 per cent. It has plunged since the recession ended two years ago, even though some companies are still slimming down.

Younger workers are already at a premium, and things will only become more difficult from now on. The labour force in the 15-24 age bracket, which stood at more than 8 million in 1990, will have shrunk to 5.3 million by 2015. Search and recruitment agencies are growth businesses in Japan these days.

One solution is for manufacturers to set up affiliates in China, but the results have often been disappointing. It's no good, one analyst said, staffing a factory with Chinese workers at one-tenth of the cost of Japanese, if the end product is substandard.

Migrant labour is another option. While the assumption abroad has been that Japan is culturally ill-disposed to migration, resistance is shrinking. There are in fact two million foreigners living in Japan, 200,000 of them illegally. And the IT sector is not alone in looking outside Japan for new workers.

Software engineers have been recruited in India, and Japanese companies have set up training schools in Beijing and Ulan Bator (Mongolia) as a prelude to bringing the graduates as staff to Japan. And while some employers fear the intrusion of new ideas and practices into Japan's hierarchical working ways, others welcome the foreigners - often other Asians - as not only eager and hard-working, but bearers of a more mobile and energetic work culture. Japan, it seems, is not as immune to globalising tendencies as many assumed.

For those who believe something more fundamental must be done, there is another - more obvious and perhaps less controversial - remedy: encouraging men to work post-retirement and mobilising the supposedly under-used resource that is Japanese women.

To the greying men who run Japan's politics and business worlds, it is the female solution they seem to prefer. Although well-educated - increasingly, on average, better educated than the men - women constitute a smaller proportion of the work force than in many developed countries. Persuading more of them to return to work after child-bearing would go a long way towards addressing the labour shortage. The other reason for investing in women is the hope that they can be persuaded, bribed even, to have more babies.

Dr Kuniko Inoguchi could be described as Japan's baby supremo. Minister for gender equality and social affairs, she is a rare being indeed. Not only is she a woman in the man's f world that is Japanese government and politics, she is married with two children - a good deal more than the national average. An academic lawyer and former diplomat, she has sat on numerous committees, and advised the UN and other international bodies. In the outer area of her office at the Cabinet building, there are cuddly toys on the window-ledge - a deceptive soft touch. Inoguchi is charming, and incisive.

Contrary to popular belief, she insists, young Japanese women have a high rate of participation in the work force. The problem, according to Dr Inoguchi, arises when these young women have their first child. As in Britain in the Fifties, the expectation is that a mother will leave work and stay at home. There are also the familiar practical difficulties about returning to work. The provision of childcare is patchy: although 150,000 more children have kindergarten places than five years ago, 20,000 are still waiting. And, while paid maternity leave and job protection have been in force for 10 years and are comparable with Britain's, take-up is far lower.

The political discussion now is about whether the benefits should be raised and whether incentives should be introduced, in the form of tax credits or grants, for instance, for producing children. The hope is that this would increase the birth-rate, rather as, it is assumed, generous child benefits have done in France. Dr Inoguchi remains to be convinced. She is adamant, though, that no Japanese government can order Japanese women to have more babies. This would sound too much like pre-war propaganda.

Dr Inoguchi sees the problem as much in terms of social attitudes. Japan, she points out, for all its outer modernity, is still to a large extent a Confucian family-values society. Most women marry before they have a child; a bare 2 per cent of Japanese babies are born to single women and the social stigma remains. So the present problem is as much about marriage as it is about child-bearing.

And the marriage figures here are not consoling. The age at which Japanese women marry has been steadily rising, as it has across much of the developed world. The proportion who never marry has also increased fourfold in one generation. So long as Japanese women produce so few children out of wedlock, fewer and later marriages mean fewer children.

Dating agencies are proliferating and worried parents are taking paid advice about making introductions for their offspring. Some even advocate a return to traditional match-making and arranged marriages.

One strand of research, however, suggests that it is the new economic position of women that is responsible for the baby famine. According to this argument, young women in full-time work are reluctant to surrender their new-found independence, especially if it means marrying a man they consider a social or economic inferior. "Not having children is our revenge on the system," one professional woman whispered to me at a meeting.

Dr Ichiguro is more hopeful. Surveys, she says, show that the vast majority of young women want to have two or even three children - and the government's job, she says, is to try to help them "make their dream come true". She does concede, though, that the attitudes of women, men and employers to combining careers and children will all have to change. For her, one solution to Japan's population decline might be more social modernisation; another possibility is that falling male wages might encourage more mothers to take paid work.

Amid the gloom and the barely disguised alarm, there are some Japanese who argue that a smaller population is just what their country needs. A senior politician suggested, only half-joking, that half the present number of people might be the optimum number. The notion that the country is overcrowded is widely held, even if there is almost as much space per Japanese as there is per Briton, and the countryside is far from choked with development.

Only slightly less optimistic souls say that Japan possesses many tools for managing its demographic decline. Japanese enjoy good health by international standards and live longer than many. By raising the pension age, improving productivity, encouraging the long-lived elderly to enjoy themselves, and applying the country's renowned innovative talents to finding hi-tech solutions, Japan might not only survive, but prosper. It would be too fanciful to suggest that the Japanese might even start to feel so positive about their future that the birth-rate would pick up of its own accord. For the time being, the mood is the elegiac pessimism of Memories of Tomorrow, suffused with the glow of the setting sun.

'Tokyo Love Hello' by Chris Steele-Perkins is published in November by Intervalles