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News Release

Growth Strategy Would Also be
an Effective Solution to the Population Problem
- Averting the Risk of Brain Drain -

September 25, 2006

Overview

In 2005, Japan's overall population fell. The figures are provisional and may yet be revised, but there is no changing the fact that Japan has reached an historic crossroads and that its population, which has been growing since the Meiji era, has entered a declining phase.
Population decline is primarily due to birthrate decline and population aging. However, in 2005, the effect of these natural factors was positive, albeit small and, by contrast, the social factors of emigration and immigration resulted in a population fall of 52,729 persons. The decline in overall population in 2005 was due to a fall in the number of foreigners coming into Japan and a rise in the number of Japanese leaving Japan.

So, what is the outlook for Japan's population? First of all, population decline due to natural factors is likely to continue at a gentle pace. Against this backdrop, if decline due to social factors becomes established or even accelerates, Japan could be facing severe population decline far sooner than expected.
Amidst the rapid economic and social globalization of recent years, social factors have come to stand alongside natural factors as one of the principal reasons for population decline in every country. However, to compare Japan with countries that have very different income levels and economic circumstances would be meaningless. This article compares Japan with Germany, whose situation resembles that of Japan in many respects.

Germany's population has been declining since 2003. Social factors, rather than natural factors, and the rise in the number of Germans leaving Germany, are the principal cause. The number of Germans entering Germany peaked at 310,000 in 1994, and thereafter began to decline, falling to 130,000 in 2005. Meanwhile, the number of Germans leaving Germany began rising in 2003, from around 110,000 to 140,000 in 2005. The net number of Germans entering Germany peaked at 310,000 in 1990 and thereafter began to decline, reaching –20,000 (an emigration surplus) in 2005. The trend reflects harsh conditions on the employment front. A breakdown by age reveals that the number of people aged 25-39, who form the core of the workforce, has fallen, while a breakdown by region indicates that the situation is particularly bad in the former West Germany, especially the two southern states, which are the center of growth.

Under these conditions, many in Japan have pointed out the need to address the effects of population decline with measures to counter birthrate decline and greater use of foreign labor. However, these measures alone will be insufficient. Even if the fertility rate increases and more foreign workers enter a country, population decline will not be halted if the number of nationals leaving the country rises faster. In Japan, fears that this will happen have already surfaced and show signs of growing in the future.
These conditions suggest that growth strategy will also be the key to solving the problem of population decline. However, growth strategy is a priority policy issue in every country. For this reason, it is urgent that Japan should not confine itself to pursuing domestic reforms but should look overseas and set about building a business environment that is more attractive than those offered by other countries. It is to be hoped that the new administration will show leadership.

(i) Strategic pursuit of investment in research & development
The government must assume investment risk if Japan is to produce revolutionary new technologies, unrelated to existing technologies.
(ii) Active use of foreign capital
A reduction in business costs through public sponsorship, etc. must be used to help Japan escape its reliance on domestic capital alone.
(iii) Further strengthening of human resource development
Japan must increase its investment in education, which is among the lowest among the developed economies. It must also seek to make active use of foreign students and researchers.

For more information on the content of this report, please contact Hidehiko Fujii , the Japan Research Institute, Limited.

Tel: 03-3288-4615
E-mail:fujii.hidehiko@jri.co.jp

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