Japanification 2.0: The Worry of Population Aging in Europe-US

JAPANESE POLITICS: WHY IS THE WEST HEADING TOWARDS EXTINCTION? - JIANG XUEQIN

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“In sum, demographic shifts that began in the 1980s are now producing acute labor shortages and persistent upward pressure on wages.”
— Kazuo Ueda, Jackson Hole Economic Policy Symposium, August 2025

On 22/8/2025, in the pinewood hall of Jackson Hole, Kazuo Ueda stepped up to the podium not to deliver an academic speech. He brought a warning. Ueda recounted a seemingly familiar story: an economy once hailed as “invincible” but then mired for three decades in a spiral of deflation, population aging, and low wage expectations deeply ingrained in social psychology. Japan became the symbol of “secular stagnation” – where ultra-loose monetary policy and massive fiscal stimulus still failed to ignite growth.

But then he twisted the narrative : the picture today is different. Japan has entered a new phase – where labor shortages are no longer a distant prospect but an everyday reality. From car factories, construction sites to small street eateries, businesses are desperate for workers. And this scarcity is forcing wages, stagnant for decades, to surge – 2025 recorded an average increase of over 5%, the highest since the late 1980s. As labor costs rise, technology is no longer an option but a necessity: robots flood into logistics, AI infiltrates customer service, and the entire economy is pushed into mandatory restructuring.

Ueda's implied message is clear: Japan is no longer an exception, but a mirror for the West. Europe–US–Canada is also entering that orbit – aging population, low birth rates, immigration blocked by politics, while the post-COVID inflation shock has broken the anchor of price–wage expectations.

And his final message, echoing like a somber refrain:

“Japan today could be Europe–US tomorrow. And if the world is not prepared, labor pain will become the greatest macroeconomic challenge of the 21st century.”

In today's article, Viethustle goes through each layer of the “demographic poker game”:

• Japan and the demographic puzzle: where population peaked from 2008, shrinking workforce, women and elderly bearing the load, wages stagnant for 30 years, then suddenly exploding with the 2025 wage shock.

• Europe–US–Canada entering Japan's orbit: fertility rate hitting rock bottom, immigration turning into a political card, COVID shock breaking price–wage expectation anchors, “sticky” services inflation spreading.

• AI & automation – the only lifeline?: from hospitals, warehouses to construction sites, technology is no longer an “option” but a “survival condition” to cut costs and keep production running.

• Political dilemma: opening immigration or investing in AI are both “optimal solutions”, but voters and businesses often choose the easy path. If everyone delays, demographic stagflation will become a common trap.

• Final puzzle: Will Europe–US–Canada dare to learn in advance from the “Japanese laboratory”, or wait for another shock strong enough to force change?