JAPAN’S population is on track to show its first annual decline, raising fears over the outlook for the world’s second-biggest economy and the ability of its welfare system to cope.

Japanese fertility rates have long been on the slide, but newly released figures from the Ministry of Health and Welfare confirmed that during the first six months of this year, deaths outstripped births and the overall population of Japan fell by 31,034.

If the same pattern continues for the remaining months of 2005, a demographic turning point — where the population is contracting on an annual basis — will have been reached two years ahead of official Government forecasts.

Economists fear an unstoppable era of population decline. Many analysts believe that as the problem becomes more acute the social security system will come under intolerable strain. A Health Ministry official said: “A recovery trend is usually seen in the latter half of the year . . . but we cannot rule out the possibility that the overall population may shrink this year, depending on the circumstances.”

A small number of optimists believe that the 2005 figures may have been skewed by a flu epidemic that claimed a large number of elderly people in the winter months. About 100,000 people died from the virulent outbreak between January and March, but the figure does not disguise the swing towards a shrinking population.

The Government bases its projections — and many of its economic models — on the findings of the National Institute of Population and Social Security Research, whose working prediction, until yesterday, was that the shrinking would not start until 2007. The research group had previously said that the Japanese population would reach a peak of 127.74 million next year before beginning a downward trend that would bring it to about 100 million halfway through the century.

Evidence that the turning point has been reached ahead of schedule will force Japan into a significant rethink of its welfare, pensions and immigration policies, none of which has been high on the agenda of Junichiro Koizumi, the Prime Minister.

The release of the figures, less than three weeks before a general election dominated by postal reform, highlights the lack of debate on social security. A recent cross-party poll of election candidates showed that nearly 90 per cent agreed that welfare reform was a higher priority than postal reform.

For economists and social scientists, the warning signals of the impending demographic crisis have been there for decades. Japan’s rate of population growth began slowing in the late 1970s and reached a record low last year. The present Japanese birth rate of 1.29 children born to each woman is well below the replacement level of 2.08, and the problem is spectacularly acute in Tokyo, where the rate is 0.99.

The dramatic fall in Japanese birth rates and the ageing of the population has been well documented, but few policy initiatives have had any impact. More than 20 per cent of Japanese are older than 65 and the pace at which that figure has been reached has been startling.

In France, for example, it took more than a century for the proportion of the population older than 65 to double from 7 to 14 per cent. In Japan it has taken 20 years. Jessie Wilson, a CLSA Asia analyst, said that the problem is wrapped up in social trends.

Japan has one of the world’s latest marrying populations and, outside Scandinavia, it has the highest percentage of single women of child-bearing age.

This is significant, she said, because the latest figures show that in 2003, less than 1 per cent of Japanese births occurred outside marriage, a figure that has been mostly unchanged since records began.

With immigration levels low, corporations are growing increasingly concerned that factories will soon suffer from a shortage of young workers.

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