The Great Shrink
Why the Yen and Rural Japan are in decline?
Today, we’re talking about the Japanese Yen (JPY) and the demographic cliff Japan is currently base-jumping off of—without a parachute. In fact this conversation started as a discord message in the SL chat randomly. Since I have been studying this topic quite a bit I was able to supply quite a few plots quickly that surprised many people including a few Japanese individuals. If you’ve been following the news in 2025 and early 2026, you know the Yen has been acting like it’s allergic to value. But here’s the kicker: it’s not just about interest rates or trade deficits. It’s about the fact that there are simply fewer humans in Japan every single morning.
When a country loses 900,000 people in a single year, it loses consumers. Fewer consumers means companies stop investing locally and move their cash elsewhere. When the cash leaves, the Yen follows it out the door. It is that simple, and therefore, the correlation is that high!
Rural Japan
While Tokyo still feels like a neon-soaked sardines-in-a-can situation, the rest of the country is quietly vanishing. We aren't just talking about a "slight dip." In rural prefectures like Akita, the population is dropping by nearly 2% every single year.
The magnitude of the decline in the countryside is staggering compared to the national average. We have roughly 9 million abandoned houses (Akiya) across the country. In villages like Nanmoku, only 2 hrs by car from Tokyo Shinjuku station, over 67% of the residents are over 65. When the labor force disappears, the economy doesn't just "slow down"—it evaporates.
As the rural areas hollow out, the tax base craters. To keep the lights on, the government has to print, borrow, and pray. This structural weakness puts a permanent "demographic discount" on the Yen. In the last 10 years, the correlation between the population growth rate and the JPY value has sat at a staggering 0.87.
The data tells a stark story: while Japan’s national population decline has accelerated into the -0.65% range, the situation in rural Japan is far more dramatic. In prefectures like Akita, the population is shrinking at more than three times the national rate, hitting -2.0% annually by 2024.
The "High Decline" Leaderboard (2025-2026 Data)
The northern Tōhoku region, where I travelled quite a bit recently, is essentially the "front line" of this crisis. Here are the prefectures seeing the sharpest drops in their native populations:
| Prefecture | Annual Decline Rate (%) | Key Characteristic |
|---|---|---|
| Akita | -1.91% | Highest elderly ratio (over 40% are 65+) |
| Aomori | -1.72% | Massive youth out-migration to Tokyo |
| Kōchi | -1.71% | Sharpest decline in the Shikoku region |
| Iwate | -1.69% | Significant rural hollowing out |
I’d call Akita the "spoiler alert" for the rest of Japan. It is currently experiencing what the rest of the country is projected to feel in 10–15 years:
It has the lowest birth rate in Japan and the highest death rate. More people are leaving (mostly 18-year-olds heading to university in Tokyo) and fewer are being born to replace those who pass away. The decline is so steep that historic industries—like its world-famous sake breweries—are struggling to find even a single apprentice to take over operations. If you visit some of the rural train stations, there is free sake for everyone! I don't know for how long though...
With a population projected to drop to just 60% of its current size by 2050, Akita is the first place where the government is having to discuss "compact cities"—essentially deciding which ghost towns to stop providing water and electricity to.
The "Ghost Town" Index: Akiya
In Japan, there is a name for these abandoned houses: Akiya (空き家). As of 2024, there are roughly 9 million of them. That is nearly 14% of all homes in the country sitting empty, slowly being reclaimed by the mountain forests. There are numerous videos on YouTube where people are 'buying' free houses from the government. Here is one in the Seto In-land Sea area...
In a normal economy, a house is an asset. In rural Japan, an Akiya is a liability.
The Valuation Trap: In places like Akita or Aomori, you can buy a house for the price of a used Toyota—or sometimes literally 1 Yen. But nobody wants them because the cost of demolition ($10,000 to $30,000) is higher than the value of the land.
The Tax Black Hole: When a homeowner dies and the children have already fled to Tokyo, they often refuse the inheritance to avoid the property taxes. This leaves the municipality with a "ghost" property that generates zero tax revenue but still requires maintenance.
There is a poetic, yet tragic, correlation between the Akiya rate and the JPY value. As the number of empty houses climbs toward a projected 30% by 2033, the structural "dead weight" on the Japanese economy grows.
Investors look at a country where 1 out of every 3 buildings might soon be a ruin and they ask: "Where is the growth?" When the answer is "nowhere," the capital leaves, and the Yen drops.
So, bottomline, if you want to travel to Japan, which is spectacular, go now. Prices are cheap, and likely will remain cheap for a while.
Damn, I want one... hey, can I get a cute Japanese girl like the ones in Fast and Furious: Tokyo Drift? Want one like that haha.
Your idea's not bad... we're kinda like that here... empty houses in some parts... families' kids went to the US for a better future. I knew Japan was having issues, but not that much. I'll tell my relatives to emigrate there... could be a chill life, right?
Hope you had fun there... dream of going, but from Central America, the cost is like $3000... seems like a lot. When I can, I'll go... that's the plan.
Wow, I'll check those places you mentioned... must be beautiful before everything goes down the drain.
Japan's like heaven to me... the culture, kimonos, the women... ufff... think I'll get divorced if I go.
It comes with some catch.
So you see it's not exactly free :)
Oh noo.
This is so expensive and how about building by yourself, a soil house and building with wood.
Same as this.
lol. No way.
You don't have permit.
That construction won't pass the Japanese building code focused on earthquake. :)
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Thank you.
Interesting video. My son has been talking to me about the declining Yen. Tried to explain how monetary policy was accelerating the Yen decline. Your blog fills in some of the background to his discussion.
Looked up immigration as a possible way to address the population decline. From the Harvard International Review:
Can't help thinking about our own immigration issues in the U.S. One way we have escaped declining populations experienced by other countries is by receiving so many immigrants. How do the anti-immigrant people hope to compensate for the loss of this population going forward, if their anti-immigrant aspirations are realized?
From the U.S. Census:
and
From the Economic Policy Institute:
I realized after I wrote this argument that it's good material for a blog, but I'm not in the mood to argue with anyone. Just interested in the subject and wanted to share that.
Yes, immigration can help with this situation. It did in US. Trouble is even today Japan remains one of the most difficult countries to immigrate to. That’s why nearly 97% of that country is homogeneous in today’s world. Especially when you consider Japan is very touristy and tourist friendly.
Not really Yen related, but I just saw a news story pointing to the fact that there is a potential oil glut on the horizon, which fits pretty much exactly with that post your wrote a while ago where you broke things down. Not that I ever doubted you :)
Yeah we have found a lot of oil. I am personally guilty of. There are cheap prices in the horizon, at least I don't see any supply shock in the horizon.
That is good to know. I have a lot of travel planned this summer and my truck isn't stingy on the gas when we are hauling the travel trailer!
So you don't view oil as a good investment at these levels?
Personally I never consider oil as a good investment. It's a cyclical commodity and I have found so much it all over the world!
You don't view the closing of the Strait of Hormuz and impending war with Iran a potential supply shock? Prices for gas here have shot up, I suppose the rise to be based on that potential supply shock.
No it’s no supply shock. It’s just news and political turmoil
Until it becomes war.
There is no supply that comes to the US or anywhere in the west from Iran. 95% of Iranian oil goes to China
I have read that other oil producers dependent on the Strait are significant suppliers to the West. Iran clearly has been essentially blockaded, but the emirates and KSA supply a great deal of minerals through the Strait. It is that supply my query concerned, more than Iran.
Edit: I should add that preventing China from accessing Iranian minerals is an act of war, as blockading Japan was prior to WWII. It seems a deliberate provocation by Israel to initiate a global conflict in it's interests. However I think that it is madness to think that Iran, China, and Russia do not well understand who is pushing that war and to expect Israel not to suffer the full consequences of it's responsibility for such conflict. Cuba may not be able to do much about being cut off from Venezuelan and Mexican production, but China is not Cuba, and Iran is not Libya or Syria.
Re-Edit: Sorry about all the editing, but I am apparently a dullard today. I noted reports yesterday about Hungary and Slovakia being cut off from mineral supplies from Russia by the EUkraine, and ~60% of the Ukraine's electrical supply last month came from Slovakia. Fico stated that Slovakia would no longer supply electricity if the Ukraine continued cutting off Slovakia from minerals that flow through the Ukraine, starting today. Russia has been paying the Ukraine during the entire conflict to ship, and the Ukraine has been transshipping, Russian products, until now. While this only indirectly involves Iran, I interpret both blockades as reflecting a global political policy to instigate war, as driving the EU's eastern members to buy American supplies at exorbitant prices, or break from the EU, will not happen without dire consequences, and China cannot tolerate a blockade of Iran's minerals. Von Der Leyen has recently stated that she is prepared to proceed with 9 member states if she cannot rule 22, and this suggests the blockades are deliberately forcing war to spread beyond the Ukraine into Central and Western Europe.
Oh, no now you are worried about supply disruptions for other countries through the strait. Again I am not worried about it. Iran doesn't have that kind of military power. I strongly recommend not reading the news. They are incentivized to elevate your fear level. Nothing to worry about
We will see pretty soon, I think.
With the AI replacing the need for workers we could be in this situation pretty soon as well. No jobs no consumers... Capital will concentrate even further in the hands of the few, but that is not helpful for the economy...
Yes, I don't know what I want my kids to be. Certainly not a programmer! Perhaps a plumber!
They could attract 50% of Finland with this deal.
Let’s start with 1%.
By the way I am not joking. A very good bottle of sake which could run $50 here; I had them for $15.
I read & listened to a few articles recently about anti-immigration movements within Japan and how counter-productive they are, especially right now. They were only talking about the entire Japan, not the prefectures/rural areas. Splitting it up makes it look a lot worse.
And 14% of the houses being ghost houses... Impressive. Must be the dream for those who seek a self-sufficient life withdrawn from society, Walden style. Or squatters. I doubt that those 9M houses are constantly checked and taken care off.
Oh they a not taken care off at all
I worked and lived in Japan for 3 years during the subprime crisis. It wasn't easy for gaijins (foreigners) to live since laws and processes are designed only for locals.
The experience of visiting Japan is very much different against living in it. I think that will improve over time, but there will be growth pains for sure. Not sure if they are ready for globalization at this point, they weren't a decade ago.
I am very much aware of what you are describing. And no, they are not ready. Yes, there is a massive difference between traveling and living there. Work culture remains toxic, especially to expats but also to their own.
I had read something about visiting or living in Japan, but definitely, the outlook is not easy at all, based on what has been explained here.