A Demographic Perspective on Japan's “Lost Decades”

v i e w 3 8 ( S u P P l e m e n t ) : 1 0 3 -1 1 2 ( 2 0 1 2 ) 1 0 3 A Demographic Perspective on Japan's "Lost Decades" Reiko Aokithe Japanese economy has not grown since the asset bubble burst in 1990.Stock markets have not yet recovered and the unemployment rate has remained high, by Japan's standards, despite a zero real interest rate (held down by deflation).initially, the years of economic underperformance were called the "lost decade."a widely held view was that Japan had not bounced back because the country lacked an effective economic policy.But after another decade passed without significant improvement, those years are now called the "lost decades." the emerging consensus is that the causes of the lost decades are to be found in fundamental aspects of Japanese society and economy.my argument in this essay is that the economic stagnation of the lost decades is a symptom of problems brought on by demographic changes in Japan since the end of world war ii, notably the population aging caused by low fertility and increased longevity.institutions that had functioned well under a growing supply of labor in expanding markets, such as social security schemes, labor market practices, and the political system, failed to adapt. in addition, the shifting age structure worked against badly needed economic adjustments, as resources continued to be directed toward the aging members of the society.the burden of old-age support has become the responsibility of the relatively smaller young age cohorts, creating a situation that is very difficult for the society to correct.Japan's traditional respect for the elderly means that taking resources away from the old is socially unacceptable; it is also politically difficult, because the older generation forms a very large voting bloc. in the conclusion i describe the country's demographic prospects and take note of possible interventions that might yield better outcomes: some of them specific to Japan, others that would apply to any aging society.Japan is the world leader in this demographic change.there may be lessons for other societies that eventually must follow Japan's demographic path.