Effects of Population Aging on Japan’s Economic Growth

Recently, population aging has become severe in Japan. According to the data collected by Statista Research Department, the population aged 65 years and older in Japan possessed 28.4% of the total population in 2020 compared to 10.4% in 1986. This paper investigates how recent population aging affects several factors in Japan’s economy that have influence on the short-term and long-term economic growth in Japan. I investigated three factors from three aspects, which are replacement ratio of pension from the income of retired people perspective, productivity index and average retirement age from the aspect of the overall productivity of the economy, and the saving index after the population aging from the perspective of the accumulation of capitals in the economy. This paper found out that population aging will negatively affect Japan’s economic growth by observing a decrease in the replacement ratio of pension, a stable productivity with an increase in the retirement age, and the decrease in the overall aggregate saving of Japanese. There are also several recommended policies which may potentially eliminate the effect of population aging on Japan’s economic growth with the evaluation of the effectiveness of each of them.