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Big in Japan, and About to Go Global: The 'Silver Economy'

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For Caroline Kennedy, who's about to become ambassador to Japan, the issues surrounding monetary policy and demographics will be front and center.

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Japan's Prime Minister Shinzo Abe says that the 28-day 2020 Olympic Games will be an "explosive agent" for the country's economy. But no one should ignore the fact that Japan's single most important issue today is its aging population.

It's why Caroline Kennedy is likely to show an appreciation for the issue when she goes before the Senate for her confirmation hearings next week to become America's next ambassador to Japan. Japan's aging population may not be as sexy as the Olympic Games or as urgent as the future of nuclear energy, the China/Japan territorial disputes, or the ongoing economic malaise that is now a two-decade long struggle, but it has dramatic implications.

In a paper just released by the IMF, it's precisely the reality of aging societies that should now be considered a factor in the recent ineffectiveness of monetary policies. In his paper, "Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness," Dr. Patrick Imam says that "monetary policy also has a weakened effect on the economy due to changing demographics. Demographic profiles vary significantly by country: While some countries are aging more rapidly than others (e.g. Germany, Japan), no part of the world remains untouched by this phenomenon."

He continues, "With fertility rates plummeting around the world, often below replacement rate, including in low-income countries, the world is going through an unprecedented demographic shift that is leading to a rapidly graying world."

Caroline Kennedy will find, as ambassador to Japan, that while the issue of an "aging population" may for many countries be just below the surface, in Japan, it is front and center. Government leaders across Japan fully understand that a population with roughly 40% of its people over the age of 60 within a couple of decades is beset by a historical challenge neither they nor anyone else in the world has ever seen.

Japanese leaders are acutely aware they're the proverbial "canary in the mine shaft" as the rest of the globe addresses this profound demographic construction as well. It's not just the one billion globally over age 60 by as soon as 2020 -- it's that we'll have more people over the age of 60 than under the age of 14. In Japan, by 2020, there will be more adults needing diapers than babies, a condition that's also coming to South Korea and Western Europe shortly after, as they, too, experience the consequences of increased longevity against the stunningly low birth rates that are now characterizing modern societies.

The new ambassador might concentrate on solutions to this perilous demographic reality now hitting Japan. As the September IMF paper suggests, solutions that can transform Japan's aging population can become new sources of economic growth and be a model for others.

Here's the larger point: Concentrate on a positive and proactive approach, and Kennedy will be prepared for 2014, which is when the Japanese take over as head of OECD; they'll be championing confabs on "Healthy and Active Aging." (The World Economic Forum's "Global Population Aging: Peril or Promise" offers one good example of this, and there are more, or course.)

As she prepares to explain how she'll work with the Japanese leadership to find solutions for maximizing what Japan calls their "Silver Economy," she'll almost surely find answers to help the US's own questions about Social Security and Medicare. Caroline Kennedy comes from a strong background that will serve her well; her father's greatest contribution to America was his vision and courage. She can ensure that America and Japan collaborate on ways to keep people healthier and more active as they meet the seminal challenge of our era -- population aging, clearly warned by S&P in its global aging reports and now affirmed by the IMF paper.

Our children, too, will welcome a visionary collaboration between America and Japan because it is in their century that our life course has to be reinvented. How long we work, how we continue to educate ourselves, how we keep ourselves financially secure for a lifetime, how we stay healthy longer -- these are all vital frontburner issues.

Editor's Note: This article by Michael Hodin originally appeared on The Fiscal Times.

For more from The Fiscal Times:

America's Baby Bust May Be Over

The 12 Most Expensive States to Raise Children

Ready-to-Retire: 7 Things You Need to Do Now

Follow The Fiscal Times on Twitter @TheFiscalTimes.
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