In 2023, the Japanese Prime Minister announced that the country's population collapsed was close to the point of no return. He's exact words whether the country had reached the brink of not being able to maintain a functioning society. Those are pretty scary words. What exactly do they mean? The headline here is that Japan's population is collapsing faster than any other country in the world and to understand just how scary this is. Here's some data that paints a pretty grim picture for Japan's population crisis. First Japan's breath rate is one of the lowest in the world. In 2020, the country's breath rate had dropped for a seventh consecutive year to 1.26 breaths per woman, which is the lowest on record for Japan, and is also much lower than the 2.1 breaths fertility rate required for population replacement. The second hit to point is a consequence of the first. In 2022, the number of newborns in Japan dipped below 800,000 for the first time since 1899 when records were first collected. But what's worse is that this drop in newborns is happening 8 years earlier than the Japanese government predicted. Now of course when you're having a low birth rate and having fewer babies, you can expect your population to shrink. And that's exactly what's happening. Japan's total population has now falling for 12 straight years, sometimes dropping by around half a million people in a single year, because far more people are dying than being born. Now the next thing to worry about for Japan is that the slowdown in newborns also means the country's population is getting older by default. Again, for Japan, this is happening at an extreme rate, because its population is aging faster than any other country in the world, and also faster than at any time in Japan's recent history. The number of people older than 65 in Japan has now reached 36.2 million, the highest proportion since 1920 when record keeping for this day to began. An aging population also means that fewer people are available to work, and to contribute to the economy. Japan's liberal force of working age people between 15 and 64 years old is now down to 74.2 million people, the lowest it has been as a percentage of the population since 1945. Now as you can probably tell from all of this data, the problem for Japan is that all of this is happening at an extreme or at record levels, faster than any country would be able to keep up with. But to help you understand this even better, here's one story that highlights just how incredible Japan's population crisis is. Mid-Kentaro Yokobori, a child who was born over seven years ago in the Sugio District of Kawakami Village in central Japan. Now of course, every child is special, but Kentaro is extra special, because he was the first new born in Kawakami Village for over 25 years. Yep, you heard that right. For a quarter of a century, no new babies were born in Kawakami Village, and this baby shortage meant that the population in that village shrank rapidly, from around 6,000 people about 40 years ago, to just over 1,000 people in 2023. With younger people leaving small towns and villages heading for urban cities like Tokyo, the population in small cities all around Japan is rapidly declining. In fact, in 2023, all of Japan's provinces expressed a dropping population at a faster rate than predicted, with the exception of Tokyo. So what's happening in Kawakami Village with a baby shortage due to young people leaving old people behind, is likely happening elsewhere. Even though Kawakami's 25 year baby shortage, of course, is often held up as the biggest case study of this population crisis. Now, you put all of this together, and Japan has a perfect storm of bad things happening with its population, and this bad thing means that Japan's population decline is currently following the worst case scenario. Basically, all that can go wrong is currently going wrong. According to Japan's National Institute of Population and Social Security Research, if the current trends hold up, then annual births in Japan could fall below half a million in 2009, resulting in Japan's population being way older than it currently is, also resulting in a labor force that wouldn't be able to power the economy, and finally resulting in a country that's on course for non-stop population decline. Now, when you have a problematic population crisis of such historic proportions, it turns out there's a pretty simple solution, having more babies. But the problem is it's not easy to have a baby in Japan. Actually, scratch that. It is easy. I mean, you can have a baby in Japan just like you can have a baby anywhere else in the world. The real problem is that it's not cheap to have a baby in Japan. Here's a simple data point to put this in context. Japan is the third most expensive country globally to raise a child, behind only China and South Korea. So that's all the data that explains the problem of Japan's population crisis. Of course, there's the big question that comes out of all of this. What exactly is the Japanese government doing to fix it? First, it's getting a lot more intentional about getting the country to have more babies. Now, while you can't exactly force your citizens to make more babies, you can encourage them through policy. And the starting point is that Japan has launched a brand new children and families agency, focused on nothing but policy moves to reverse Japan's low birth rates. One of those policies is incredibly simple. Paying citizens to have more babies. The government has now increased its official baby bonus payments and will give 500,000 yen to citizens who have new kids. The baby bonus is paid as a lump sum to cover childbirth expenses, but that's not where it ends. The government is also now offering a post-birth financial support package with an additional 100,000 yen to cover costs like baby strollers, diapers, and infant formula. Essentially, the idea here is that subsidizing the cost of having kids will make it more affordable for Japanese people to have kids, and hopefully result in Japanese people having more kids. Also, remember how birth rates are super low in most parts of the country because young people are all moving to Tokyo? Well, Japan is trying to fix that too. Japan's government wants families to move out of the crowded capital and has significantly boosted a one-time grant to kick things along. It's now worth 1 million yen per child, which is about 7,500 US dollars. Now, the incentive is part of an official push to breathe life into declining towns and villages. But while all of this policies may translate into results in the coming years, in the meantime, Japan still has more immediate problems, like increasing the size of its labour force to ensure that its economy does not fall apart. In 2023, the government increased the retirement age for civil servants, and it has also somewhat relaxed its retirement rules, allowing companies to hire people older than 65. But Japan is also starting to look beyond its own borders to fix this population crisis. After decades of being tough on immigration, Japan is slowly getting around to the idea of accepting more foreign workers in what is a pretty significant shift in its immigration policy. Now, even for the Japan is also letting these foreign workers stay in the country for good, in the hope that they can contribute to its labour force and also slow down the rate of its population decline. Already, Japan's National Institute of Population and Social Security Research has revised its estimates for when Japan's population would fall below 100 million people, from 2053 to 2056. And the revision was mainly to account for a projected increase in the share of foreigners in Japan, which could go from 2.2% in 2021 to nearly 11% in 50 years. So how will Japan bring its country back from the break? Well, the government is throwing money at the problem by paying people to have more babies. It's also paying people to move to the countryside and grow their families there. It's trying to grow its labour force by turning its age in population from a liability to being an asset, and it's also starting to look beyond its borders. The big question is if any of this will work. The answer is, it's probably too early to say. But what we know for sure is that the future of Japan depends on it. 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