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Will Immigration Rescue Japan, and the Region?

By Craig Moran

Japan is facing an uncertain future as the effects of its demographic imbalance begin to manifest. Home to the oldest population in the world, Japan’s fertility rate would have to soon rise considerably if the country hopes to avert fading into economic irrelevance. But since that is unlikely to happen in the near future, Japan needs to start considering the obvious but unpopular solution: immigration. Not only would it serve to maintain Japan’s population balance, but it could help improve economic conditions in countries across Southeast Asia. Japan’s steps to save itself could mean saving the region from poverty, too.

Time is quickly running out for the world’s third largest economy. Classified as a “super-aged nation,” over a quarter of the population is older than 65. Japan has 1.4 million fewer people today than in 2007, when the population peaked at 128 million. If current demographic trends continue, by 2037, those aged 65 and older will make up almost 40 percent of the total population. The implications for policymakers are huge: With the working-age population predicted to plummet by 44 million in the next 20 years, the burden of an aging population will fall on a shrinking number of shoulders.

Unfortunately, Tokyo is averse to facing its demographic problem head-on. Instead, the government has resorted to implementing increasingly desperate policies that fall short of significantly expanding the workforce. So far, priorities have revolved around raising birth rates by setting up dating services, or easing the work-life balance by encouraging paternity leave—a practice traditionally shunned due to conservative gender roles that see the husband as the breadwinner of the household. Policymakers are also encouraging more women to enter the workforce. In an attempt to reconcile women’s roles as both wage earners and mothers, Tokyo is spending $1 million on a three-year trial program offering subsidies to women who choose to preserve their eggs for pregnancy in a later stage of life.

However, none of these programs will do much to mitigate Japan’s demographic problem. Relaxing immigration laws, on the other hand, would go a long way in growing the country’s working-age population. In a country where foreign nationals make up only about 2 percent of the population, immigrants represent a vast, untapped labor resource readily available to contribute to the Japanese economy.

Where changes to immigration regulations have been considered, they have so far been limited to expanding foreign worker “traineeships,” targeting semi- and low-skilled workers on temporary work visas. Consequently, the structure of the workforce has effectively remained unchanged amid a public that is consistently opposed to the increased presence of foreigners. And without deliberate steps to improve attitudes toward immigration, this is unlikely to change. It is therefore met with surprise when high-ranking government officials speak out about the country’s anti-immigration culture. The head of the Japan Immigration Policy Institute in 2014 openly admonished the government’s “desperate desire to avoid opening up the nation to immigration—at all costs.” But his subsequent proposal to let in 10 million migrants over 50 years silently died in a political culture that regards foreigners with deep suspicion.

At a time when a growing number of people throughout Southeast Asia are migrating to nearby countries in search of better employment and higher living standards, this lack of foresight is nothing if not a missed opportunity. Despite a number of economic partnership agreements signed with neighboring countries, Japan boasts some of the world’s most rigid immigration laws, which actively deter the arrival of foreign workers. Consequently, many skilled workers choose other destinations, such as Thailand, which is facing a similar demographic problem but sports an open labor market designed to attract competent labor from across the region.

The influx of migrant workers to Thailand has resulted in increases in productivity and rising wages, But their contributions extend beyond the Thai economy: The money they send back to families in their home countries benefits those economies as well. Remittances from Japan, a leading world economy, could transform the entire region. The World Bank estimated that remittances to developing countries would amount to more than $450 billion in 2015, an injection of cash that inarguably creates conditions for economic growth across the planet. Remittances generate three times more money annually than the total global aid budget, with the value of transfers often overshadowing entire industries: The Philippines, for example, received $25 billion in remittances in 2013, outsizing its $22 billion electronics industry.

What’s more, remittances reduce the volatility of economies and have steadying effects on the overall demand for goods and services. Lining the coffers of otherwise cash-strapped governments means Japan can expect healthier, more stable neighbors, boosting integration and trade links with Southeast Asia. However, so far only money transfer operators (MTOs) such as Western Union and MoneyGram have truly benefitted from global migration. The duopoly they have over the industry allows them to charge fees in excess of 8 percent on transfers, thereby hampering the potential impact of these transactions. Even so, regulatory reforms, such as a ban on exclusivity agreements suggested by a World Bank study and pledged by European and African leaders, have the potential to boost competition, forcing fees downward and strengthening remittances as an industry in their own right.

For now, Japan is only slowly catching on. In stark contrast to its anti-immigration stance, Tokyo seems to be aware of the spillover effect of migrant workers and has tried to facilitate yen remittances across Asia. The Japanese ministry of finance has sought to create a market enabling direct exchanges of yen with other Asian currencies, doing away with the dollar as an intermediary. The move has the potential to reduce the grip of MTOs over the remittance market and reduce funding costs for financial institutions and businesses region-wide—to the benefit of migrants, Japan, and the region.

Japan must recognize that the right choice for its economy is also the right choice for the broader Asia-Pacific. By expanding its immigration intake, Japan has the chance to save its own economy from collapse while also promoting greater economic interaction with neighboring Asian countries. If Tokyo ignores this reality, it will soon face an economic and demographic crisis of its own making.

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Craig Moran is an independent geopolitical consultant. He has experience in energy and natural resources planning, assessing and advising on political and security risks, and handling constitutional and legislative issues across multiple territories.

[Photo courtesy of Thomas E. Smith]

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