Elderly residents rest in the grounds of a temple in Tokyo on September 15, 2014 as the country marks Respect-for-the-Aged-Day. The number of people aged 65 or older in Japan is at a record 32.96 million, accounting for an all-time high of 25.9 percent of the nation's total population, the government announced. AFP PHOTO / Yoshikazu TSUNO (Photo credit should read YOSHIKAZU TSUNO/AFP/Getty Images)

TOKYO — Osaka-headquartered Fujiya produces professional wire cutters known for their sharpness and durability. Keeping the century-old business going are eight Vietnamese craftsmen working at the factory under the Japanese government’s Technical Intern Training Program.

“We really can’t keep up production without the craftsmanship of the technical interns,” said President Yasunobu Nozaki. “It would be difficult for us to maintain our craftsmen from the domestic labour market alone.”

Fujiya is one of many Japanese businesses increasingly relying on foreign labour. Japan had over 1.82 million foreign workers last year. The number of technical interns stood at about 343,000 last year, more than doubling over the past decade. “Technical interns are a substantial part of our workforce. If they could stay longer, it would be very helpful,” Nozaki said.

With its population shrinking, the world’s third-largest economy is becoming more serious about accepting foreign workers — from those in manufacturing and services to those with cutting-edge knowledge in emerging technologies.

The country’s population, now around 124 million people, is projected to fall 30% by 2070, according to the latest estimate by the National Institute of Population and Social Security Research in April. Government data released in early June showed that the total fertility rate — the number of children a woman has in her life — hit a record low of 1.26 in 2022, with newborns falling below 800,000 for the first time.

“It is necessary to realize a diverse and vibrant society in which foreign nationals working in Japan can maximize their abilities and contribute to alleviating Japan’s serious labour shortage — by appropriately accepting foreign nationals as members of Japan’s industries, economy and local communities,” a government panel of experts on foreign labour said in a proposal to the government in May.

Japan is also rolling out measures to attract top global talent to boost its economy. Prime Minister Fumio Kishida said in a policy speech earlier this year that Japan will “create a world-class system for accepting highly skilled workers.”

Yet various factors — from the country’s sluggish wage growth and old corporate cultures to Asian peers’ new visa programs and rising pay levels in emerging economies — pose challenges to Japan’s efforts, clouding its prospects in an age of global talent competition.

Following the panel’s proposal, the government on Friday decided on major revisions to its foreign labour programs, including replacing the technical intern program with new frameworks to directly address labour shortages.

Introduced in 1993, the technical intern program was designed to promote and transfer Japan’s advanced technology and knowledge to developing countries through training. The interns can stay up to five years in Japan, working in specific sectors such as manufacturing and farming.

“The premise [when the intern program began] was not to accept semiskilled workers,” said Hisashi Yamada, an economist at the Japan Research Institute. “Japan traditionally had views against many foreigners coming to the country. … The administrators have avoided getting involved with that political issue.”

 But there has been a growing disparity between the program’s initial goals and reality. “Only around 10% of interns continue the same job after they go back home,” said one executive of an organization that supports interns. “The main purpose for the interns is to make money. ‘International cooperation’ is just a rationale for the policy.”

Technical interns work at a farm in Japan. The country plans to replace the program to more directly address labor shortages. (Photo by Ken Kobayashi)

In addition, the program has been the target of controversy: Cases of employers abusing and not paying interns have been reported, while several thousand interns have “disappeared” from their workplace every year. In 2021, about 7,100 interns left their company without notice, apparently illegally seeking better pay or working conditions — changing jobs is not allowed for technical interns.

 The government on Friday also decided to expand the scope of another type of work visa, Specified Skilled Worker (ii), adding nine more sectors — including agriculture, building cleaning and car maintenance — to the current two of construction and shipyards. Workers under the program can stay longer and with dependent family members.

Kishida was determined to attract more workers through reforms to the foreign labor program.

“It is important to resolve various issues that have been pointed out … and to make them internationally understood while taking into consideration the human rights of foreign nationals,” the prime minister said at a government meeting on Friday, referring to the programs on interns and skilled workers, “so that Japan will be chosen as an attractive destination for work.”

 Japanese Prime Minister Fumio Kishida speaks at a government meeting on foreign talent on June 9. (Photo by Uichiro Kasai)

Japan is also widening its programs for highly skilled workers who would be critical for growing emerging industries and boosting the economy.

 “As globalization and digitalization progress, the demand for high-skilled workers is increasing worldwide, and competition for talent among countries is intensifying,” the Kishida government noted in the revised plan for its “new capitalism” policies, noting that only 1% of highly skilled workers in Japan were born outside of the country, much lower than the U.K.’s 23% and the U.S.’s 16%.

 Japan will “identify and examine issues around luring foreign workers, such as taxation and regulations, and take the necessary actions,” the revised plan states.

 As part of such efforts, the government in April introduced new programs to accept high-paid workers from abroad. If they are paid more than 20 million yen ($144,000) per year and meet a few other criteria, they can apply for permanent residency after staying for a year.

 Another move is allowing students who graduated from the world’s top 100 universities to stay for two years. Granting visas to unemployed graduates shows the eagerness of the government to attract young talent. “We are imagining the top of the top talent here,” said a government official. “Genius minds who haven’t yet decided on their career might hear of this program and consider doing an internship in a Japanese company,” she added.

Yet amid the stagnant wage growth, combined with the recent weak yen, Japan is struggling to attract highly skilled workers.

 “The higher the rank of their university is, the less students are willing to work in Japan,” said Keisuke Yoshida of Transcend-Learning, an organization helping Japanese companies find promising international students. Yoshida pointed out that the perception of Japan having long working hours and managers who disregard workers’ welfare doesn’t help either.

 Yamada of the Japan Research Institute said developed nations are scrambling to attract IT talent, “but Japan lags behind because of its lower pay.”

 According to the Organisation for Economic Co-operation and Development (OECD), the average wage in Japan rose only 3% between 2001 and 2021. That compares poorly to South Korea’s 40% and the U.S.’s 29% in the same period. The median salary for software engineers in Japan last year was 23% lower than that of Singapore and 17% lower than in Seoul, according to data from Levels.fyi, an online site that compares tech salaries.

Elsewhere in the region, the race to attract foreign talent has been intensifying after the COVID-19 pandemic, with many jurisdictions offering new programs. Singapore this year launched a new visa to lure highly skilled professionals, allowing those earning at least 30,000 Singapore dollars ($22,000) a month to stay five years and work for multiple employers.

 Thailand and Malaysia are among the other nations that also have introduced new visa programs permitting longer stays by professionals in areas like electric vehicles and investment. Elsewhere, highly skilled workers are increasingly wanted, reflecting digital transformations and the emergence of new technologies, such as artificial intelligence.

 An OECD study on migrant workers published in March found that New Zealand, Sweden and Switzerland are the most attractive countries for highly skilled workers. The study took into account factors such as educational standards, ease of obtaining citizenship for children of migrants and English proficiency as drivers attracting talent from abroad.

As emerging countries like Vietnam enjoy growth in average wages, Japan could become less attractive for lower-skilled workers as well, according to experts.

“If the pay is the same level as two or three years ago, it’s difficult to secure a good-quality workforce,” said Kaori Akiyama, a senior managing director of the Japan-Asia Youth Exchange Association, an organization overseeing technical interns. “We are telling Japanese companies: If you want good labor, you must pay more.”

 Experts point out that Japanese companies are reluctant to change their workforce culture. “When I talk to foreign students, they say that they shiver when they see N1 as a requirement for the job post,” said Yoshida of Transcend-Learning. N1 is the highest level in the Japanese Language Proficiency Test. “You feel as if you are told you are not fit to work in Japan, and they give up.”

Tokyo lags behind major Asian cities like Seoul and Singapore in the number of international schools and English-speaking doctors, said Yamada of the Japan Research Institute. “The problem is that Japan lacks experience working with foreigners compared to other nations. We need more exchange of people through tourism or from bolstering foreign investment to Japan.”

 “It’s not a problem of the hardware, like visa permits. It’s more about the software.”