The number of Japanese citizens fell at the fastest clip last year since data collection began in the 1960s, adding pressure on the nation’s social security system and shrinking labour market.

The population of Japanese nationals dropped by more than 861,000 to 121.6 million over the year to Jan 1, extending a streak of decline to 15 years, according to the Ministry of Internal Affairs on Wednesday. While the foreign population increased 11% to hit three million for the first time, it was not enough to make up for the shortfall in Japanese nationals. The overall population shrank by 0.4%.

A diminishing population poses multiple challenges for the country, including a labour shortage. While the country’s unemployment rate consistently stands below 3%, the lowest among developed nations, many businesses are facing severe manpower constraints. There are nearly three openings for every worker looking for a job in the service sector, while the market is squeezed even more among construction firms. 

A record 260 companies went bankrupt in 2023, as they couldn’t secure enough workers to maintain their operations, according to a report by Teikoku Databank. 

The latest data showed the working-age population as a percentage of the overall population remained almost flat from the previous year, as a rising number of foreign workers managed to fill the gap. Still, it is unclear if Japan can continue to accommodate the same pace of foreign inflows without adequate structural support. 

Another concern is the pressure on the nation’s social security system, with fewer taxpayers to support the growing ranks of the elderly. Japan’s tax and insurance premium revenue is projected to decrease by about 10% by 2040, according to a 2018 estimate by Takero Doi. That is likely to make it more complicated for the country to finance expanding social security expenses.

To push up the nation’s declining birthrate, Prime Minister Fumio Kishida pledged to lift the government’s support per child to be on a par with Sweden, where 3.4% of gross domestic product is allocated to family benefits. 

  - Bloomberg