Japan’s growth bottleneck (and automation catalyst): labor constraints

Prime Minister Sanae Takaichi’s growth strategy is based on AI and automation. Visualizing the labor shortage facing Japan’s companies helps explain why.

The Bank of Japan’s Tankan surveys measure business trends across the economy. Companies are asked whether they are overstaffed or understaffed; the BoJ generates an employment index with the results. As our chart shows, not only do companies perceive themselves to have less workers than they would prefer, but the index suggests the worst shortages since the early 1990s.

This reflects a decline in the working-age population and persistent skill mismatches; the shortages are most acute in construction and security. Firms report that the scarce supply of workers is forcing them to limit orders, reduce their operating hours or deliver goods and services more slowly.