A rapidly aging population has particularly damaging effects on rural economies. Japan’s youth are flocking to the country’s major urban areas, leaving many prefectures high and dry. Now, local authorities, financial institutions and private companies are collaborating to create new economic opportunities to revitalize these regions
Japan’s demographics foreshadow a perturbing future. In 2016, the country’s population stood at 126.3 million.
The United Nations has forecast it could shrink to 83 million by the end of this century, with more than a third of these citizens over the age of 65. Indeed, the number of Japanese over the working age contracted by 6% just in the past decade. Further complicating these issues for Japan’s regional economies is the seemingly unstoppable population flow from rural areas to big cities, in particular the greater Tokyo area.
In a 2015 demographics report from the Internal Affairs and Communications Ministry, only eight of the nation’s 47 prefectures had gained population in the previous year, with the 39 other prefectures suffering a decline. The greater Tokyo metropolitan area has had population gains for 20 consecutive years, and the margin of increase, which now surpasses 120,000 people annually, expands every new year. Today, the three largest metropolitan areas in the country, greater Tokyo and the areas around Nagoya and Osaka, account for more than half the nation’s population.
Prompted in part by a warning from a private think tank that the exodus to major urban areas, if unchecked, would result in the disappearance of half of the nation’s municipalities by 2040, Prime Minister Shinzo Abe added regional revitalization as a key agenda of his administration in 2014, mapping a strategy that may very literally carve out Japan’s future.
The Prime Minister’s regional revitalization policy relied on joint efforts between the national and local governments to devise comprehensive strategies aimed at reversing the population exodus. The promotion of local industries and regional tourism in order to generate more jobs were central themes. The strategy also called for the creation of new grants to fund the efforts of local governments. In 2016, this totaled 100 billion yen.
Serious efforts from regional governments to deal with local revitalization have been accelerating. Prefectural governors at a 2015 conference issued a joint declaration echoing the think tank’s findings, saying that Japan’s falling population and the excessive concentration of people in the Tokyo metropolitan area were putting many municipalities across the country at risk of disappearing. The governors added that such developments could lead to the decline of the nation as a whole.
The governors singled out seven priority areas for regional revitalization, including measures to increase the population in their areas, resuscitation of local industries, development of human resources and efforts to prevent or reduce the damage from major disasters. They also asked for greater decentralization, requesting that at least 20% of national government functions covering local administrations be transferred to the prefectural governments’ jurisdiction.
That same year, Prime Minister Abe unveiled his Abenomics 2.0 platform. It centered on raising the birth rate and expanding social security. He also created a new cabinet position devoted to reversing Japan’s demographic decline. An incentive system to encourage businesses to move their headquarters out of Tokyo and into the regions was created and it slashed corporate taxes for firms that complied. Following this, the prefectures of Ibaraki, Toyama, Ishikawa, Okayama and Fukuoka introduced tax credits for businesses that relocated their head offices there.
Regional companies have joined the revitalization bandwagon. Seishi Kitamura, President of Toho Bank, which is headquartered in Fukushima Prefecture, comments, “We are satisfied that regional revitalization stands as a pillar of Abenomics. Toho Bank, as one of the regional banks, is bridging corporate entities and prefecture governments to enhance regional revitalization. We intend to become fully involved in the revitalization of the economy in Fukushima prefecture.”
Nakaba Shindo, President of Yamanashi Chuo Bank (YCB) based in Yamanashi Prefecture near Tokyo, stresses that regional revitalization needs to be a priority. “This is why our collaboration with the prefecture is so important. We have established a strategic plan to analyze how we can maximize the effect of the new train opening here and the boost of inbound tourism. The Yamanashi prefecture has many local products such as wine, mineral water, fruits, jewelry and silk designs, and we are working to promote a strategic plan for our region as a whole.”
Japan’s efforts to revitalize its regional economies hold important lessons for all of us. The world today is a globalized one, and global competitiveness is necessary to achieve long-term and sustainable economic growth. Consequently, Japan’s regional revitalization process must be approached from the perspective as pioneering the country’s future in the world. This is why the partnership of regional governments with the Prime Minister’s administration sets an important precedent. The turning point being faced in the country’s demographic transition stemming from low birth rates, population aging and population decline calls for nothing less than the participation of the entire country.
Japan, as a nation, must be involved in the discussion on a sustainable growth model moving forward, one in which the Japanese are able to live locally and act globally. Knowledge workers and innovation will play a key role in this, along with inward and outward population flows. It will be increasingly necessary for Japan to build a flexible system where people can migrate easily both ways, from urban to rural areas and vice versa. The Abe administration has grasped this concept, setting a target of balancing the population inflow and outflow in the greater Tokyo area by 2020.
Efforts to create a sustainable future, one that includes Japan’s regions, must come from all segments of society and all levels of government. In the regions, local governments and companies are working together, along with the national government, to shape new economies. Masao Uchibori, Governor of Fukushima Prefecture, which is still undergoing reconstruction efforts after the 2011 earthquake, says his government has been involved in regional revitalization out of necessity since then.
“Decreasing population levels have been a big problem in Fukushima Prefecture, which was compounded by the 2011 earthquake and tsunami, and the accident at the nuclear power station. We were losing 13,000 people every year to urban migration”
Governor of Fukushima Prefecture
“Decreasing population levels have been a big problem in Fukushima Prefecture, which was compounded by the 2011 earthquake and tsunami, and the accident at the nuclear power station. We were losing 13,000 people every year to urban migration,” explains the governor.
In order to overcome this trend, the prefecture implemented its own revitalization program. The regional government took steps to boost existing industries such as agriculture, fisheries, commerce and tourism, which had been crippled by the earthquake. Steps were also taken to build new industries and create opportunities in areas such as renewables energy, medical services and robotics. The Fukushima Prefecture Trade Promotion Association was established to support Fukushima-based entrepreneurs and producers in their overseas marketing and expansion, and support systems were set up for inbound companies, which included generous subsidies.
“We took, and continue to take, every measure possible to support growth in these areas, which are very much in demand,” says Mr. Uchibori, adding that normal life had been restored in 90% of the prefecture.
This percentage will increase to 100% by next year, adds Minister of Environment Koichi Yamamoto: “By then, the Fukushima area will have undergone a complete cleanup of all nuclear fall-out. We are very committed to achieving this goal.”
Toho Bank has also been actively involved in Fukushima’s reconstruction. In the aftermath of the earthquake, the bank was forced to close 30 branches. “Little by little, we were able to reopen six, and we will reopen two more this year. By reopening the branches, we hoped to help create a sense of normalcy to ease the situation. We also developed mobile branches with ATMs to reach customers in areas where branches were still closed,” says the bank president, Seishi Kitamura.
Regional banks in other prefectures are also actively undertaking revitalization efforts. Takashi Tsuchiya, president of Ogaki Kyoritsu Bank (OKB), which is based in Gifu Prefecture, comments, “Although we have connections overseas through offices in Hong Kong, Shanghai and Bangkok, our top priority is to focus on local factors, as our businesses are local. At OKB, we take social issues affecting our economy strongly into consideration, such as the aging population and the labor force scarcity. With 120 years of history in the area, we are a central part of the society here.”
In Yamanashi Prefecture, YCB president, Nakaba Shindo, says his bank has turned to entrepreneurs as a new source of growth. “The ratio of loans in our activity is low compared to deposits, and we have been operating on the financial market so after the negative interest rates policy was implemented, our profits declined considerably. In order to address this situation, we have increased our loans to SMEs, nurturing entrepreneurs and supporting the founding of local corporations.”
Mr. Shindo says the positive impact of Abenomics has been felt more profoundly in larger cities than in the regions, which has affected YCB’s loan to deposit ratio. The YCB boss also feels there are too many regional banks currently in the country, and that the consolidation process will accelerate moving forward. His bank’s focus, consequently, has turned local. “We aim to encourage new financial needs from local businesses and to increase our work with individual customers by helping them improve their financial operations and increase their profits, which will positively impact our commission income,” he explains.
“To maximize our consulting services for entrepreneurs, we educate our employees in those fields. Five years ago, we implemented a strategy of dispatching 10 of our own employees to some of Yamanashi’s companies in order for them to learn more about the different industries in the prefecture, and to get a better understanding of clients’ needs. Today, we have 50 experts in the main industries of the region and strong insight that allows us to better tailor solutions.” YCB operates 90 branch locations and one office in Hong Kong.
Governor Yoshihiro Murai in Miyagi Prefecture has been working to implement policies in his region that combine Prime Minister Abe’s regional revitalization strategies with the global tenets of Abenomics. In short, he is trying to make his prefecture a more open and international community.
“Right now, my focus is to bring more tourists to this region. In Japan, the population will continue to decline. In the Tohoku region, it is expected that it will decline by 1% per year over the next 30 years, which means that by 2047, it will have shrunk by around 30%”
“We believe that this region is perfect for the manufacturing industry. In Tohoku, people might not talk a lot but they focus on work. It is my hope that we can contribute to the global economy through the manufacturing industries here”
Yoshihiro Murai, Governor,
“Right now, my focus is to bring more tourists to this region. In Japan, the population will continue to decline. In the Tohoku region, it is expected that it will decline by 1% per year over the next 30 years, which means that by 2047, it will have shrunk by around 30%. The population decline will be more serious in the younger generation range. As a consequence, the consumption rate will decline. One way around the fact that local residents are not spending as much as a result of the population decline is to bring international tourists here to make up for it,” states the governor.
Mr. Murai has launched what he calls a “creative recovery.” His regional government privatized Sendai Airport last year in order to increase its competitiveness. The number of international routes served by the airport has since doubled. “By handing over the airport management to a concession, they will oversee management, and that way they can set landing fees at a lower price compared to other airports, which helps in attracting more business,” he explains.
The governor believes that Japan’s future growth depends on three sectors: IT, finance and manufacturing. Growth of the first two sectors is more promising in the Chubu and Kansai areas, whereas Tohoku is better suited for manufacturing, says Mr. Murai, given that the cost for land, labor, water, electricity and other public utilities is much lower there compared with other parts of Japan. “We believe that this region is perfect for the manufacturing industry. In Tohoku, people might not talk a lot but they focus on work. It is my hope that we can contribute to the global economy through the manufacturing industries here,” he concludes.
Teruhiko Achikita, President of Nankai Electric Railway, says Prime Minister Abe’s economic strategies have positively impacted the tourism sector. “During the last three years, there has been a sudden surge in the number of passengers going through Kansai International Airport. I strongly believe this increase is a result of Abenomics. We were having a tough time until 2013, but now things are getting better. In the near future, we expect exponential growth that will double traffic. If these figures hold, I think that we’ll actually experience overcapacity. Consequently, in the future, I’d like to see business models that will spread out the increasing number of tourists to different locations. We are near full capacity now.”
Nankai Electric Railway is a major operator in Osaka Prefecture, with a diversified portfolio of businesses from transport to real estate, leisure and retail. The 1994 opening of the Kansai International Airport created a large new window from the world into the region, says Mr. Achikita, which he hopes will propel further regional revitalization.
“Japan is facing a challenging population decline. Compared to figures from 10 years ago, we have recorded a 9% decrease in the number of commuter passes, excluding the airport line. But for users who live in this area, the decrease was only 1%. From these two figures, we can conclude that the number of people that are using trains to commute is decreasing, so our trains must be used by senior citizens. In order to accommodate them, we have to create other businesses, for instance bus transportation. We are hoping that by promoting a greater influx of people into the area, we can contribute to curbing this social challenge. This is an area in which we are collaborating with local government.”
Masaki Ogata, Vice-Chairman of the East Japan Railway Company, says that his company is also working closely with government to bring new visitors in, as well as to prolong their stay in the regions. “We are working together with the local governments of different prefectures, especially those in the Tohoku region. Even though the number of inbound tourists has increased, the percentage of those staying at least one night in the Tohoku area is only 1%.
“So, we are offering package tours for Chinese tourists who use Sendai Airport and Shinkansen for traveling around the Tohoku and Tokyo region. For foreigners, Kyoto tends to be more popular, and thus, what the majority of visitors do is go to the west.”
“We are offering package tours for Chinese tourists who use Sendai Airport and Shinkansen for traveling around the Tohoku and Tokyo region. For foreigners, Kyoto tends to be more popular, and thus, what the majority of visitors do is go to the west”
Vice-Chairman, East Japan Railway Company
Another railway company, Keihan Holdings, has opted for diversification as the path forward in regional revitalization. Keihan operates more than 50 subsidiaries in five business divisions including rail and bus transport, real estate, construction, distribution (including department stores and the hospitality industry) and leisure services, such as hotels. President Yoshifumi Kato adds that the gap created by the aging population can and has been filled with increasing tourism visitors. “I agree that there is a problem with a declining population in Japan. But our efforts have helped revitalize the Kansai region. We have expanded into different business areas, and although we traditionally focused on hotels, tourism and transport, our real estate division is now accounting for between 40% to 50% of our profits,” he states.