Aging and inflation in Japan
The correlations between population aging and a low inflation level have recently been observed in industrialized countries. Japan has been experiencing a periods of falling prices for the past 25 years while the nation’s population is aging rapidly. This unique phenomenon warrants investigation into how different population structure dimensions are associated with inflation. This study addresses the following questions in relation to Japan: (i) How is population composition by age group associated with inflation? (ii) How is dependency associated with inflation? and (iii) How is population aging associated with inflation? Applying regression analysis on panel data spanning 1975–2023 reveals that an increased proportion of the population among individuals in 0–14, 25–44, 45–59, and 60–64 age groups in the previous year is correlated with increased inflation. Specifically, as population age increased, the correlation tended to rise until the 45–59 age group. Conversely, decrease in youth dependency and increased in old-age dependency in the previous year are associated with decreased inflation. The findings indicate that Japan’s population aging is associated with decreased inflation. In addition, an increase in individual real salary, the labor force participation rate, exchange rate, and basic discount rate in the previous year is associated with increased inflation while an unemployment rate increase in the previous year is associated with decreased inflation; the inflation rate during the energy shock period (2022–2023) was higher than that of the non-energy shock period.
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