Japan estimates a shortage of 970,000 foreign workers by 2040

A 2022 study estimated that Japan would face a shortage of 420,000 foreign workers by 2040. JICA's new estimate more than doubles that figure as Japan is expected to attract fewer workers from Asian countries.

The new estimate does not take into account the impact of exchange rates, as future fluctuations are difficult to predict. However, a weak yen has reduced Japan's attractiveness to foreign workers, meaning the shortage could become even more severe.

In 2019, Japan set an annual economic growth target of 1.24%, helping its gross domestic product (GDP) increase by about 20% from 2023 to 704,000 billion yen ($4,360 billion at current exchange rates) by 2040.

To achieve this goal as Japan's workforce declines, JICA estimates the country will need 4.19 million foreign workers by 2030 and 6.88 million by 2040, even as automation proceeds at a faster pace.

However, Japan is expected to have only about 3.42 million foreign workers in 2030 and 5.91 million in 2040. This difference partly stems from the downgraded outlook for Asian economies.

Economic growth to a certain extent often leads to increased labour migration to advanced economies as travel costs and brokerage fees become more affordable. Asian economies are now expected to grow more slowly than they did in 2022, meaning their workers are expected to move abroad less.

The number of foreign workers in Japan increased by 226,000 in the 12 months to October 2023 to a record 2.05 million, according to a report by the Ministry of Health, Labor and Welfare. Countries sending workers to Japan are increasingly diverse, beyond Vietnam and China, which are the largest exporters of workers to Japan.

A new study by JICA estimates that 225,000 Vietnamese workers will come to Japan by 2030, about 80% of the number before the COVID-19 pandemic. However, the growth rate is expected to slow thereafter, to 260,000 by 2040, leading to an overall shortage of foreign workers even as the flow of workers from Myanmar and elsewhere increases.

To fill this gap, Japan will have to attract more workers, but the country is facing increasingly fierce competition for foreign talent, with South Korea and Taiwan also attracting workers to bolster their shrinking workforces.

Retaining talent is another challenge. New research suggests that 62.3 percent of foreign workers will leave Japan within three years, based on previous data from the Immigration Services Agency.

In an effort to attract more workers, Japan aims to implement an updated Foreign Trainee Program by 2027 that would allow skilled workers to more easily transition to the long-term program. However, such policy changes were not taken into account in the latest study.