Summary of Key Points
The Japanese middle class once reaped the benefits of an "economic miracle" in the late 1980s, enjoying high salaries, good welfare, and rapid wealth accumulation. However, more than three decades after the bubble burst, they now face five major pressures: stagnant real wages, an aging population, a weakening yen, a segmented labor force, and rigid corporate cultures. These factors have led to a decline in the size of the middle class and a deterioration in their quality of life. This is not an accident but the result of long-term structural problems that serve as a warning to other countries around the world facing similar challenges, such as aging populations and the gig economy.
Detailed Analysis
1. Stagnant Wages: A Surface Increase, but a Real Loss
The issue with Japanese wages is not that they have not increased at all, but that the increase has not kept up with inflation. For example, the average annual salary was 4.67 million yen in 1997 and rose to 4.78 million yen in nominal terms in 2026. However, after adjusting for inflation, there has been virtually no growth—while wages increased by 2.3% nominally in 2025, prices rose by 3.2%, resulting in a 1.3% decrease in real wages.
Why is this happening? Fearing layoffs (due to legal and social pressures), companies have divided their workforce into "regular employees" and "non-regular employees." Regular employees (mostly older workers) are able to keep their jobs, but their salaries do not increase. The proportion of non-regular employees (younger and female workers) has risen from 16% in the 1990s to 37% today, and their wages are only 60-70% of those of regular employees, with no benefits or opportunities for promotion. Companies hoard their profits (with retained earnings of 637 trillion yen in 2024), and labor unions are weak (with a membership rate of 16%), leaving workers with little bargaining power. As a result, although the unemployment rate is low, most people are engaged in low-quality jobs with no significant income increases, which in turn discourages spending and undermines economic vitality.
2. Aging Population Straining the Middle Class
Japan is experiencing an extreme aging trend: in 1990, five young people supported one elderly person; by 2025, it will be two young people supporting one elderly person, and by 2050, it may be one young person supporting one elderly person. People over 65 years old account for 30% of the population. Rural areas are depopulated, and urban housing prices have become exorbitant (apartments in central Tokyo cost 100 million yen, equivalent to 22 years' salary).
This puts immense pressure on the middle class: social security and consumption taxes are increasing (the consumption tax has risen from 3% to 10%), and young workers, whose wages have not increased, have to pay more in taxes to support the elderly. Pension and healthcare costs are borne by current workers, but the elderly live longer (Japan has one of the longest life expectancies in the world), leaving them with less disposable income. The birth rate is also low (1.14 in 2025, resulting in only 670,000 births per year), creating a vicious cycle.
3. Weakening Yen: Benefiting Exporters, Hurting Ordinary People
The yen has depreciated against the US dollar from 110 to 160, benefiting export companies like Toyota, but harming the average middle class. Seventy percent of Japanese employment is in small and medium-sized enterprises (SMEs), which rely heavily on imports for food (60% of calories) and energy (85-90%). The depreciation of the yen has significantly increased import costs.
To avoid price increases, companies resort to "shrinkflation"—reducing the size of products or decreasing the portion of meals in convenience store offerings while still raising prices. This compresses the profits of SMEs, forcing them to go bankrupt or cut wages even further. As a result, utility costs, food prices, and logistics fees all rise, making it harder for middle-class consumers to afford basic necessities.
4. The Paradox of Tourism Boom
The cheap yen has made Japan a popular tourist destination, attracting 42.7 million visitors in 2025 who spent 9.5 trillion yen. However, these benefits do not reach the average middle class. Most tourism jobs are low-paying service positions (with annual salaries of 2.6-3 million yen, which is one-third lower than the average wage), and these jobs are often held by non-regular employees.
Moreover, the increase in tourism has driven up housing and prices in popular areas like Kyoto, further squeezing the local economy. There is even a phenomenon of "dual pricing"—tourists pay high prices, while locals receive discounted goods and services. The prosperity brought by tourism does not benefit the middle class; instead, it makes their lives more difficult.
5. Toxic Corporate Cultures: Overwork with No Efficiency
The myth of the "hardworking Japanese salary earner" has long been debunked. Although a law limiting overtime was introduced in 2024, many workers still rely on overtime to supplement their low salaries, leading to a high incidence of mental health issues and work-related injuries. Middle managers are particularly disadvantaged: they must manage non-regular employees and take on additional tasks without being able to leave early for fear of being criticized for lack of dedication.
The rigid corporate hierarchy, along with excessive bureaucracy and slow decision-making, hinders the use of advanced technologies. Regular employees are stable but lack mobility, while non-regular employees have no job security, resulting in low productivity compared to other G7 countries.
Lessons for Other Countries
Japan's situation is not unique: South Korea, Italy, and Germany are also facing aging populations, and China is dealing with similar challenges. Countries in Europe and America are grappling with housing crises and the gig economy. To prevent the hollowing out of the middle class, the following measures should be taken:
- Protect wages by requiring companies to share profits with employees and strengthening labor unions.
- Address the aging population by encouraging childbirth (with subsidies) and attracting immigrants to supplement the workforce.
- Reform companies to break down hierarchies and improve efficiency.
- Stabilize prices to avoid inflation caused by currency depreciation.
Otherwise, the trap of "stagnant growth and an expanding aging population" can affect any country.
(The analysis is written in plain language without technical jargon, hoping to help you understand the difficulties faced by the Japanese middle class.)