The impact of demographic change on aggregate final consumption: Japan’s experiences and prospects from a national accounting perspective

Using the accounting methodology of the Statistics of National Accounts, this paper analyzes Japan’s macro-economic performance under the influence of demographic change over the period from 1994 to 2023, when the share of the working age population declined from 69.9% to 59.5%, and the share of the population aged 65 years and older more than doubled from 14.1% to 29.1%. Demographic change influenced the composition final consumption as the aging society consumed relatively more health and elderly care services provided by the government. Even under the demographic pressure final consumption per capita increased by 40% and the capital stock and net foreign assets by 66%. The impact of aging on labor supply, measured as annual hours worked per capita, has been moderate due to increases in the employment rates across all age groups, but mainly because of the growth in labor productivity. Based on population forecasts up to 2070, further reductions in working hours per capita due to aging are projected to remain moderate and to be more than compensated by increases in labor productivity. Given the accelerating decline in the overall population, Japan can consume part of its capital stock and run a substantial trade deficit to sustain growth in consumption per capita until at least 2070, when the age composition of its population is projected to stabilize.