Japan is in a demographic sweet spot. In fact, I predict Japan will emerge as the only advanced economy that achieves the ultimate goal sought by policymakers — a new middle class will rise in Japan over the coming three to five years.
How so? Conventional wisdom suggests "demography is destiny." On that basis, Japan's economic fortunes appear to be doomed: According to the latest official demographic forecasts, every hour Japan's population is dropping by about 50 people. As the baby boomer drag accelerates in coming decades, the official prognostications suggests that in about 300 years, fewer than 300 Japanese may be left. So how can we be bullish about Japan?
Simply put, demographics is little more than arithmetic and not economics. Economic growth is not determined by population as such, but by the employment opportunities created for the people by entrepreneurs and their companies. China's population has always been bigger than Japan's, but the Chinese economy only started growing and creating prosperity when the Communist Party relaxed its grip and allowed citizens to seek better opportunities. National income in general and domestic demand in particular goes up and down depending on how many people have a job and, more importantly, what kind of job they have or can realistically aspire to have. Here, Japan stands out among advanced industrial economies with the demographic forces now working to boost both the quantity and quality of employment.