On one hand, as for savings, a higher elderly population share in the economy would reduce the aggregate savings rate as a life-cycle model indicates. On the other hand, population aging affects investment at least through two channels. First, if a decrease in the labor force substitutes for capital, domestic investment could increase.
Second, a decrease in domestic demand due to the declining population reduces domestic investment. If population aging shifts consumption towards the service industry where firms find it hard to  5  See Katagiri [2012] for a mechanism that a series of unexpected revisions in the forecasts for the Japanese population could lead to protracted deflation.