This week we are publishing a series of five articles on Japan’s economy and policy:
Demographics and savings
The flip in the trade account and balance of payments as national savings turn negative
Government debt and Funding
Inflation dynamics
Monetary policy
We start today with demographics and the end of households savings.
Japan has long been the world’s demographic laboratory. Its population peaked in 2010 at 128 million, has since fallen below 123 million, and is projected to slip under 100 million by mid-century. More than 29% of Japanese are already over 65, the highest in the developed world. By 2050, that share will approach 40%.
The life-cycle hypothesis, first articulated by Franco Modigliani, is simple:
The young dissave (consume more than they earn).
The working-age population saves.
The retired dissave again, running down accumulated wealth.
For Japan, this model is not theory. It is reality.
In the 1960s and 70s, Japan’s household saving rate exceeded 20% of disposable income. A large working-age population was piling up wealth, fuelling domestic investment and large current account surpluses. Since then, the saving rate has collapsed. According to Charles Yuji Horioka (2025), household saving followed a perfect demographic arc:
1955–1975: rising from ~12% to a peak above 23%.
1975–2023: relentless decline, with the saving rate down to 0.6% in 2023.
The only exception: a pandemic spike in 2020–21 from forced saving.
Horioka’s econometric analysis shows a cointegrating relationship between Japan’s household saving rate and its dependency ratio. As dependents (young + old) rise relative to workers, savings fall. The effect is not only significant , it is almost textbook-perfect in magnitude. you can download a free copy of the paper on SSRN site.
The Impact of Population Aging on the Household Saving Rate: The Case of Japan by Charles Yuji Horioka
The following chart is the demographics pyramid as of 2025. It shows:
A shrinking base of young cohorts.
A narrowing middle of working-age adults.
A broad top-heavy structure dominated by the elderly.
This shape explains Japan’s transition from net saver to net dis-saver: the weight of retirees relative to workers has simply become too large.
Japan’s demographic future is already locked in:
The youth ratio fell from 84% of workers in 1955 to just 29% in 2023.
The old-age ratio jumped from 10% in 1957 to 53% in 2023, and is heading toward 80% by 2070.
The overall dependency ratio will exceed 100% in 2045, meaning every working-age person will support more than one dependent.
The consequences for savings are stark. Horioka projects Japan’s household saving rate will:
Turn negative this year (–7.5% in 2025).
Fall to –12.6% by 2035.
Collapse to –32% by 2070.
Unless corporate or government savings offset the shortfall, Japan will move from global lender to a global borrower, a profound shift in the world’s balance of capital. Japan’s transition from super-saver to dis-saver is no longer a forecast, it is happening. This demographic drag will not only reshape Japan’s economy. It will ripple through trade balances, capital flows, government debt sustainability, and ultimately monetary policy.
Tomorrow, we continue with Part 2: What happens when a nation with a negative saving rate flips from surplus to deficit in its balance of payments.
Regards,
Andre Chelhot, CFA
Editor
The Macro Anchor