Prime Minister Sanae Takaichi's ambitious 370 trillion yen ($2.3 trillion) investment plan to revive Japan's economy over the next 14 years confronts a demographic crisis that threatens to undermine its central promise: higher wages and relief from inflation for struggling households. The draft roadmap to 2040 aims to double annual economic growth to 1% as early as possible, but the numbers reveal a stark challenge that policy alone can't wish away.
By 2040, Japan's employed population of 68 million will shrink by 7% due to rapid aging, according to projections from the Ministry of Health, Labour and Welfare. That means output per worker would need to expand at around 1.5% annually just to compensate. The historical average? Less than 0.2%. Even assuming a more feasible 0.5% expansion in productivity, Japan would still face a shortage of 10 million workers — rising to 16 million if fewer migrants and women join the workforce.
The Immigration Paradox
Employers and prefectural politicians argue Tokyo needs to attract more overseas workers to fill the gap. The ruling Liberal Democratic Party is moving in the opposite direction. Takaichi's government stopped accepting overseas workers for food services in March, then in April doubled the residency requirement for foreign nationals seeking citizenship to a decade. In May, it hiked the maximum fee for permanent residency by 2,900% to 300,000 yen, despite successful applications having dropped roughly 40% from their peak in 2007.
This undermines a work visa regime that Takaichi's predecessor Shinzo Abe implemented in the seventh year, which 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, and 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? In those 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%, underscoring a far more pressing need to replenish the workforce.
Sectors in 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, threatening 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 automated 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 Local 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 aging economies like South Korea and Taiwan.
Prefectural governments also want change. One year ago, 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.
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.
Hudson Lockett wrote the piece. Jon Sindreu edited it, and Aditya Srivastav handled production.
Why This Matters:
Japan's demographic crisis isn't an abstract policy challenge — it's a looming threat to the living standards of millions of workers and their families. Without enough caregivers, productive employees can't work full-time. Without enough truck drivers, grocery prices rise. Without enough farm workers, food security weakens. The government's restrictive immigration policies actively undermine its own economic goals, leaving businesses unable to fill critical positions while households face higher costs and reduced services. Prefectural leaders and major business groups recognize what the data shows: Japan needs more workers, not fewer pathways to residence. The choice between listening to local governors and employers calling for functional immigration policy, or pandering to fringe xenophobic parties, will determine whether Takaichi's growth plan delivers relief to working families or leaves them bearing the costs of isolation and decline. When permanent residency fees jump 2,900% and citizenship requirements double while worker shortages threaten to leave a third of freight unshipped, the burden falls hardest on ordinary people trying to afford care for aging parents, put food on the table, and keep their jobs secure.