Why are structural issues so important for the conduct of monetary policy? The following question naturally occurs: how do demographic changes affect Japan’s macroeconomic performance? In answering that question, let us first examine Japan’s economic growth trend.
Demographic changes – especially the decline in the working-age population – have been depressing Japan’s potential growth and thus its actual economic growth over the past decade (Chart 18). The impact of these changes occurs in various ways, including a direct decrease in the labor force, slow growth in labor productivity, and a shift in the consumption structure from manufacturing to nonmanufacturing.