Japan's film market — the third largest in the world — is on the upswing thanks to an Anime boom, increased wages and a younger generation not content to Netflix and chill.


In line with much of Japanese industry since the bubble economy burst at the beginning of the 1990s, there was for many years scant optimism on the outlook for the nation's movie business, or indeed the rest of its entertainment and leisure sector. Decades of wage and economic stagnation combined with a shrinking and aging workforce seemed only to point in one direction. But recent years have seen the film business post record numbers, and some analysts believe that despite suboptimal demographics, the best is yet to come.


Driven in no small part by the phenomenal success of anime Your Name, 2016 saw total cinema admissions in Japan — still the third largest film market in the world behind the U.S. and China — top 180 million for the first time since 1974, up from a nadir of less than 120 million in 1996. Box office hit a record $2.1 billion in 2016, falling only 3.2 percent from that last year, despite the absence of a comparable blockbuster. Half of the top five local and Hollywood films in 2017 were animated — including the highest-grossing domestic release, Toho's Detective Conan: The Crimson Love Letter ($65 million) — even though the aging demographics are skewed against such success.


Japan's population statistics make for grim reading whichever way you stack them. The total number of Japanese is predicted to fall by 27 million to less than 100 million by 2050. Meanwhile, the working-age population peaked back in 1995 and has already shrunk by 10 million. But there are silver linings to this chronic labor shortage. Unemployment hit a quarter-century low of 2.4 percent in January, and there are now 1.5 vacancies for each job seeker. The squeeze is finally translating into higher wages, particularly for young and unskilled workers.


"There was no good news from the Japanese entertainment sector for many years, just concerns about the falling population and flat wages. Even when Abenomics [the economic policies of Prime Minister Shinzo Abe] began at the end of 2012, it was only benefiting rich people who had money invested in equities or other assets," says Shinnosuke Takeuchi, who covers the Japanese entertainment and leisure sectors at Jefferies investment bank in Tokyo. "But now wages are beginning to rise for younger workers. Looking at historical trends, at times of wage growth, leisure spending rises even faster than overall growth."


Takeuchi cites a number of other factors that make him bullish on Japan's entertainment sector, including Tokyo Disney Resort and Universal Studios Japan theme parks — and the once-dire future of the film industry.


Flying in the face of worries that young people were abandoning the big screen for the smaller ones in their pockets, moviegoing among 10 to 19-year-olds has been trending up since 2012, with anime's popularity playing a big part. The rise of social media — in particular Twitter, which grew its Japanese user base by 5 million to 45 million last year — is increasingly influencing young audiences.


"There is a tradition of promoting imported movies in Japan with a 'U.S. No.1 Hit' tagline, but that is gradually changing as many young people now look for movie recommendations on social media," notes Takeuchi.


The film business is also getting a boost from the expanding other end of the population. The tight labor market has led to employees delaying retirement and older people returning to the workforce. Half of those aged 65 to 69 are now in employment, meaning they will have more money to spend when they do finally retire. The Japanese lead some of the longest and healthiest lives in the world, and according to government data, households of people over 70 spend 26 percent more on movie and theater admissions than households in their 60s.


"There are now around 10 million people in the 65 to 69 age group, the baby boomers, who will be retiring soon, and this should also be positive for the movie industry," suggests Takeuchi.


Cinema going is also benefiting from another quirk of Japan's demographics. Although the population has been falling, the number of households has been growing due to a rise in people living alone. This group is not, however, electing to stay in by themselves watching Netflix, Amazon and Hulu.


"Even as subscriptions to streaming platforms have risen significantly over the last few years, movie admissions grew 4 percent between 2015 and 2017," explains Takeuchi. "Those people who live on their own are looking for opportunities to go out and spend time with family and friends in shared experiences like watching movies in theaters."