The challenge of an aged and shrinking population: Lessons to be drawn from Japan's experience

Japan is the first industrial country to have an aged and shrinking population. Such a demographic situation poses numerous macroeconomic and microeconomic challenges, with the former further amplified by Japan's high public debt level. This paper underscores the multiple criteria to consider in evaluating Japan's policies as it has approached this demographic tipping point. In examining Japan's macroeconomic policies as well as the specifics of its social insurance policy framework, it seeks to draw lessons relevant for countries confronting the prospect of an aged population, while recognizing the importance of viewing Japan's policies in the context of its unusual culture and history. The paper notes Japan's current initiatives to grapple with its recent years of anemic growth and with the fiscal and social challenges arising in an aged population.