Assessment and recommendations

Japan’s future prosperity depends on its ability to tackle two enormous and inter-related challenges, which will largely shape its future spatial and economic development. The first is an unprecedented process of demographic change: the country’s population is ageing and shrinking rapidly. The second challenge concerns productivity. With the labour force shrinking as a share of the population, output per worker will have to rise even faster if per capita incomes are to increase. A “super-ageing” Japan cannot sustain rising living standards without strong, sustained productivity growth. This will require efforts to stimulate innovation and entrepreneurship and to strengthen the international integration of the Japanese economy. The productivity of services, in particular, will be a critical concern, because demographic change will create challenges for service delivery, in particular – both increased demand for age-related services and increased unit costs for service delivery in places where population is falling.