Prime Minister Sanae Takaichi's ambitious 370 trillion yen ($2.3 trillion) investment plan over the next 14 years confronts a stark mathematical problem: Japan won't have enough workers to deliver the growth she's promised. Reuters reports the draft roadmap to 2040 aims to double Japan's annual economic growth to 1% as early as possible, but the country's rapidly aging population threatens to shrink the employed workforce by 7% before the plan's completion.
The numbers don't add up. To compensate for that workforce decline, output per worker would need to expand at roughly 1.5% annually—a pace that looks wildly optimistic against Japan's historical average of less than 0.2%. Even assuming a more feasible 0.5% productivity gain, the country faces a shortage of 10 million workers by 2040. That figure could balloon to 16 million if fewer migrants and women join the workforce.
The Political Paradox
Employers and prefectural politicians argue Tokyo needs to attract more overseas workers to plug the gap. The ruling Liberal Democratic Party is moving in the opposite direction. The government increasingly eschews promoting acceptance of foreigners in favor of strict policing, undermining a work visa regime that Takaichi's predecessor Shinzo Abe implemented in the seventh year of his tenure in 2019. That program granted longer-term residence to foreign blue-collar workers in sectors strained by severe labor shortfalls.
Takaichi's own LDP leadership campaign was suffused with anti-foreign rhetoric meant to win over the party's right wing. She hasn't seen off the threat from upstart xenophobe parties like Sanseito, which nabbed over a dozen parliamentary seats in the same year's snap election in February. Japanese politics now resemble early populist swerves in other developed countries like Italy, the Netherlands and Denmark, where nationalist fringe parties successfully pushed ruling coalitions right or toppled them entirely.
The difference matters. In those European nations, migrants exceed 10% of the population, World Bank data shows, while their ratio of over-65s to active workers ranges between 33% and 40%. In Japan, migrants make up just 3% despite an old-age dependency ratio over 50%. The country faces a far more pressing need to replenish the workforce.
Sector-by-Sector Crisis
The urgency is especially clear in elder care. Any growth boom requires employees in Japan's most productive sectors working at full steam to offset the drag from a shrinking population, meaning finding care homes for elderly parents. Despite hiring over 100,000 foreign care staff, a dearth of manpower forces many providers to turn away clients. Officials project the shortfall will more than double to 570,000 workers by 2040.
No sector looks safe. The auto industry, where heavyweights like Toyota Motor and Honda Motor employ about 1 million people, must triple the foreign share of its workforce to 27% by 2040 to maintain production at its current level, according to a Nikkei analysis. Counter to Takaichi's hopes of boosting food security, the Mitsubishi Research Institute estimates Japan's rapidly shrinking pool of farmers will severely reduce agricultural output, with the value of production falling more than half to 4.3 trillion yen by 2050.
Nomura projects that in 2030 roughly a third of all domestic freight simply won't be shipped because of an expected shortage of truck drivers and tighter regulation. That threatens to jack up prices for delivered goods nationwide and torpedo the prime minister's vow to rein in inflation.
Investments in AI and robotics could help close some gaps, but the scope is limited, particularly in blue-collar work. At 446 robots per manufacturing employee, Japanese industry isn't as automatised as South Korea, which the International Federation of Robotics ranks as the world leader at 1,220 robots per worker, but it's still far above the global average of 132.
Business and Regional Leaders Push Back
Japan Inc. has already voiced public support for speeding up acceptance of qualified foreign workers. In December, the country's largest business lobby, Keidanren, called for policy on foreign nationals to shift from "acceptance" to "strategic attraction." That push partly reflects more competition for foreign workers from other ageing economies like South Korea and Taiwan.
Prefectural governments also want change. One year ago in July, the National Governors' Association of Japan requested that Tokyo officially define foreign nationals as "residents and members of local communities" and take responsibility for developing and financing a national framework for recruitment, settlement and social integration, including language education.
This pragmatic approach may seem at odds with opinion polls suggesting a majority favors further restricting immigration. But a study by the University of Tokyo and Osaka University found that when respondents were surveyed using a format that mitigates social desirability bias, support for restrictions fell from about 60% to less than a third.
Policy Moving Backward
The government has moved in the opposite direction. Takaichi's government stopped accepting overseas workers for food services in March of the same year, then in April doubled the residency requirement for foreign nationals seeking citizenship to a decade. In May the administration hiked the maximum fee for those seeking permanent residency by 2,900% to 300,000 yen despite successful applications having dropped roughly 40% from their peak in 2007. The administration also lumps in policy on foreign workers and residents with fundamentally unrelated hot-button issues like overtourism and foreign real estate purchases.
This approach ultimately plays to the more aggressively xenophobic agenda of Sanseito, whose relentless criticism of Takaichi this year underscores how fringe groups operate to tilt public discourse in their favor regardless of the ruling party's policymaking. The less risky approach for the prime minister may be to listen instead to governors and local businesses calling for a functional and well-funded immigration policy. Handled well, this can enable faster growth for all in Japan rather than immiseration in isolation.
Hudson Lockett wrote the piece. Jon Sindreu edited it, and Aditya Srivastav handled production.
Why This Matters:
Japan's growth ambitions collide with demographic reality in a way that exposes the limits of political rhetoric over economic necessity. The country's business leaders and regional governors—those closest to labor market realities—are calling for pragmatic immigration reform based on competitive need and fiscal sustainability. Their voices reflect market signals that can't be ignored indefinitely. The current policy trajectory threatens not just Takaichi's growth targets but core economic functions: manufacturing capacity at Toyota and Honda, agricultural output, logistics networks, and elder care facilities that free productive workers to remain in the labor force. When a third of freight can't be shipped and care homes turn away clients, inflation control becomes impossible and growth plans become fantasy. The disconnect between what Japan's economy requires and what its immigration policy delivers represents a fiscal time bomb that no amount of automation or productivity gains can fully defuse. Markets and demographics don't negotiate with political movements.