AGING AND DEFLATION: COMPARING POLICY RESPONSES BETWEEN JAPAN AND SINGAPORE

Abstract

Population ageing creates deflationary pressures in an economy by weakening aggregate demand. To elucidate policy insights on this increasingly common challenge, this thesis investigates how demographic trends in Japan and Singapore have shaped their policy responses in countering its deflationary pressures. A comparison of the two countries reveals substantial variation in policy initiatives due to diverging local demographic trends. This thesis argues that while both Japan and Singapore experience population ageing, Japan’s entrenched trend of population decline has necessitated policies primarily targeted towards mediating the deflationary pressures caused by population ageing. On the other hand, because Singapore still experiences population growth, these deflationary pressures are not yet primary concerns of ageing-related Singaporean policy. However, to prevent these deflationary pressures from setting in, Singaporean policy initiatives should focus on ensuring workforce growth and quality such as through immigration. At the same time, it should also maintain sufficient wage growth while ensuring the fiscal sustainability of its pension system to prevent the weakening of aggregate demand. In doing so, Singapore can ensure sustainable economic growth to fight off deflationary pressures.