Japan’s ageing population serves as a reference point for other countries regarding demographic challenges. The situation has worsened over the past decade, particularly concerning new births.

In 2016, new births fell below one million for the first time and have continued to decline. In the first half of 2024, there were 329,998 new births, raising concerns that the annual total could drop below 700,000.

Last year’s total of 720,988 new births represented a 5% decrease compared to 2023, which itself saw a 4% reduction from 2022. The 2024 figures are at a record low since records began in 1947.

Additionally, deaths reached a record high of 1.62 million in 2024, which means that over two people died for every new baby born in Japan that year.

This ongoing shift in demographics adds pressure to economic forecasts and market stability. Fewer young workers mean a shrinking labour force, reducing overall productivity while increasing the burden on social welfare systems. Consumption patterns also change, affecting sectors such as housing, healthcare, and pensions. Investors responding to these pressures have already begun adjusting expectations, which affects wider macroeconomic trends.

Many analysts believe lower birth rates will play a key role in shaping policy decisions. With national debt already a concern, maintaining growth requires creative solutions. Some policymakers argue that automation and artificial intelligence could offset labour shortages. Others champion immigration reform, though public sentiment remains divided. Recent discussions suggest tax policies may adapt to encourage higher birth rates or better support for working parents. However, these adjustments will take time, and any direct economic impact will not be immediate.

With population decline deepening, the Bank of Japan faces new challenges in balancing inflation and interest rates. Wage stagnation, a longstanding issue, could worsen as businesses struggle to attract workers, but rising automation may keep labour costs in check. If household incomes do not improve, consumption will weaken further, particularly for discretionary spending. Sectors reliant on consumer demand must navigate these shifts carefully. As the market adjusts to these realities, movements in currency and equities could reflect changing investor sentiment.

One area already showing volatility is the yen. A contracting workforce and slower growth often contribute to currency weakness. If this continues, foreign investors may adjust their positions accordingly. Government policy could respond either through fiscal stimulus or central bank measures, which may introduce additional shifts in market expectations. Traders must monitor announcements closely, as even minor policy signals can quickly alter short-term movements.

Shifting demographics also influence corporate strategy. Companies reliant on domestic demand may reassess their expansion plans, while firms with strong global exposure could see fewer direct effects. Investors tracking corporate earnings should consider how demographic pressures factor into revenue projections. Any adjustment in long-term business strategies will likely be reflected in stock performance, requiring close attention to sector-specific developments.

These changes do not happen in isolation. Global markets take cues from Japan’s approach to economic challenges, particularly as other ageing economies face similar trends. Observing how the country responds provides insight into possible policy experiments that may later appear elsewhere. For those anticipating long-term shifts in financial markets, early signals in Japan offer valuable indications of what may unfold globally.