Special Report: Can Japan's spirited youth save their aging nation?

A graduate of the prestigious University of Tokyo's economics department, Keishiro Kurabayashi could have joined a blue-chip firm and begun climbing the corporate ladder. Instead, he interned at DeNA, then a fledgling start-up and now a successful social networking and mobile gaming firm.

I thought it was like a rule - I would graduate from Tokyo University, enter a foreign consulting firm and after years of study might be ready to start my own firm, said the 29-year-old. The people at DeNA were really smart, but they weren't caught up with rules, and that was fun.

That was a big turning point for me, said Kurabayashi, who now runs his own firm.

Kurabayashi is one of Japan's 20-something generation: many born during a heady bubble economy they can't recall, coming of age in an era of sliding national status and eyeing retirement when, many predict, the country's economic sun will have set.

The fracturing of the post-World War Two system that propelled Japan's economy to the No. 2 global spot -- a status now lost to China -- has pushed many of his cohorts to seek security by trying to cling to what remains. But for many others, the uncertainty itself is giving birth to a do-it-yourself mindset that could generate welcome dynamism.

If we expect the country to take care of us, we may end up not being able to make a living, says Megumi Kawashima, 27, a website designer and one of Japan's legions of otaku fans of comics and video games. We should be sensible enough to know we need to take care of ourselves, added Kawashima, who creates manga comics -- illustrated in a distinctive Japanese style and popular around the world -- under the pen name K Ayuhara.

For now, these DIY youth appear to be a minority, whose voice has been drowned out by a drumbeat of reports about Japanese youth's generally passive response to a dismal future. But experts say their ranks will grow as traditional corporate and social systems crumble further.

On the one hand, you have young people who are taking matters into their own hands in the face of companies and a government who have little to offer them in return, said Yasuo Suwa, a professor at Hosei University's graduate school.

But on the other hand, you have young people who are looking for an easy way out, seeking shelters that are fast disappearing, Suwa said. It will be slow, but I think there will be more gutsy young people going forward.

DAUNTING DEMOGRAPHICS

The macro-economic and demographic trends confronting Japan's youth are indeed daunting.

Japan's public debt has risen to about twice the size of its $5 trillion economy from about half of gross domestic product in 1980, and is forecast to near 250 percent in 2015. Credit rating agency Standard and Poor's in January downgraded its rating on Japan's sovereign debt to AA minus from AA, warning that Japan's government debt would keep rising and citing political deadlock as a concern.

Nearly one in four Japanese are now aged 65 or over, with the figure expected to reach 40 percent by 2050. The economy has been mired in mild deflation for most of the past decade.

The aging of Japan is forcing politicians to face up to the need to raise a 5 percent sales tax to finance bulging pension and health-care costs, breaking a long-time political taboo. Social-security spending could reach more than 28.7 trillion yen ($351 billion) in the next fiscal year beginning in April, accounting for a third of the overall budget.

But while many lawmakers on both sides of the aisle agree higher taxes are unavoidable, struggling Prime Minister Naoto Kan is having little success luring feisty opposition parties to the table to discuss specific reforms.

Twenty-something Japanese interviewed by Reuters, from bureaucrats and career women to a long-haired nationalist and a radish farmer, know they face a less secure future in a system in which fewer than two workers will be supporting one retiree by 2030, from three now.

Japan's fiscal state is like a ticking bomb, said Hiromi, 26, who joined the elite finance ministry after watching a banking crisis unfold in the 1990s when he was a student. As I think about having a child in the future and wonder what his or her future will be like, I want to do something to fix the situation, added Hiromi, who asked to be identified only by his first name so he could speak more freely.

But few 20-somethings expect the government to do much to fix Japan's problems or secure their future. A survey of college students conducted last year by fund manager Fidelity International showed that 65 percent were pessimistic about Japan's future -- and an equal percentage believed they would have to rely on their own assets and savings in their old age, more than pensions.

Youth are keenly aware of China's lengthening shadow as their giant neighbor bumps Japan out of its No. 2 global economic ranking, though many seem little phased by Tokyo's relative decline.

China had long been leading Japan in national might except for the past 100 years or so, says Tsunehira Furuya, 28, whose shoulder-length bleached hair makes him look more like a pop singer than the conservative political activist he is.

China getting ahead of Japan economically is sort of a return to the historical norm, and that does not bother me.

CRUMBLING CORPORATE COCOON

Japan's relative loss of global status may be inevitable given demographics and the maturity of its economy. But a growing self-reliance and willingness to take risks could translate into a less gloomy future than many predict.

If you know that the best and the brightest only go to GM or Ford, all the other places that could innovate don't, said Brian Heywood, CEO of Taiyo Pacific Partners, which has about $2 billion invested in Japanese shares. If it is no longer the case that they only go to Toyota or Sony ... you could have real dynamism in the economy, he said.

It doesn't happen overnight.

For now, many youth seem to be seeking an elusive security, an attitude scoffed at by members of the DIY tribe.

Japanese in general these days are really spoiled and not ambitious, and just happy enough with what they are or what they have, says Juri Imamura, 28, who got a graduate degree in New York before taking a job at a Japanese e-commerce firm with aggressive overseas plans. They aren't 'hungry'.

Surveys of university students by publishing and human resources firm Recruit Co. Ltd show a steady increase since 2005 in the percentage of those wanting to spend their entire career at the first company that hires them, rising to around 80 percent as the economy faltered last year. early half of new hires don't want to work overseas, many worrying that it is too risky, another Recruit survey showed.

They are satisfied with the present situation in Japan, said Yukio Okubo, general manager at the Works Institute research arm of Recruit.

But with Japan's famed life-time employment system crumbling to be replaced by a labor force where one-third of workers have unstable jobs with uncertain benefits, chances today's youth can live out their lives in a secure corporate cocoon are shrinking.

While only about one in four Japanese aged 15-34 in a 2009 government survey said they wanted to change jobs before retirement, in fact, just over half the age group had already done so -- compared to about one-third in the 1997 survey.

I think of a company as a place that provides me with challenges and where I can build networks and develop my skills, Imamura said. So if my ideas and the corporate direction don't match, naturally I would consider leaving.

Youth unemployment is stuck near record highs at around 10 percent. That's low compared to many other advanced countries, but alarming for students faced with hiring practices that mean they may get only one shot at a full-time job after graduating.

The gloomy outlook, however, has a silver lining.

It used to be nonsense for someone to start a business because it was so risky, but now, because they can't get good employment opportunities, the risk is lower, said Naohiro Yashiro, a professor at International Christian University in Tokyo and former member of a government advisory panel.

You can't find this in survey data because the majority is still sticking to the traditional model of getting jobs in big companies or government ... so you can only find anecdotal evidence, Yashiro said.

Currently, we are in a transitional phase, adds Yashiro, who says greater willingness to start businesses or switch jobs can boost Japan's flagging productivity through a better allocation of resources.

BUSINESS CULTURE

After his stint at DeNa, Kurabayashi, set up Imio Corp with a band of former schoolmates and soccer buddies five years ago. The firm has already made it further than many Japanese startups, with $2 million in annual sales of colorful soccer and futsal balls made in Pakistan.

Embarking on a new challenge or proposing something new is often met with skepticism, Kurabayashi says. In places like Silicon Valley, people will react positively to almost anything you propose. Things could change for Japan in an atmosphere like that -- in business and in politics.

Critics say making room for more people like Kurabaysahi, though, requires changing a business culture that has long been less than encouraging to risk-takers.

Japan has to do something about its entrepreneurial opportunities, and that's all wound up in tax policies and government regulations, Taiyo Pacific's Heywood said during one of his monthly visits to Japan from his home base in Kirkland, Washington.

This society squeezes entrepreneurs; it doesn't embrace them.

Entrepreneurs, in fact, got a black eye with the public from Takafumi Horie, the founder of Internet portal Livedoor Co, who turned a $50,000 startup into a $6 billion conglomerate and was then arrested and convicted of fraud. He is appealing.

What could change things is ... if you got a mainstream Japanese guy who was a successful entrepreneur, Heywood said. Horie could have been that, but he was pushing the system and the system smashed him hard.

Among the institutional barriers to Japan making more of its DIY youth are hiring practices that err on the side of safe, if subdued, candidates, Yashiro and other experts say.

Lots of corporate personnel people say they want more individualistic employees, even if they have some faults, said Okubo at Recruit's Works Institute. But they are not really engaging in that kind of hiring.

Newer, more agile companies, such as Fast Retailing, the operator of discount clothing chain Uniqlo, are trying a different tack, experts say.

Students now are really capable, so our generation has to create a social system that can mobilize that, said Tetsuya Koizumi, executive director at FIL Investments (Japan) Ltd. Some companies are starting to realize this.

COLD TO FOREIGNERS

Firms seeking more vibrant hires are turning to Chinese and other foreigners as they target profits from growing overseas markets. But Jiang Yue, who left China at 19 to study in Japan, says she still confronts institutional discrimination in a country where many associate foreigners with crime and social friction.

Both my boyfriend and I work for firms listed on the first section of the Tokyo Stock Exchange. But when realtors call apartment owners, 70 percent of the time they say no, said the 27-year-old Jiang, who graduated from a Japanese national university and now works for an IT network firm in Tokyo.

We are working hard and receiving salaries. Why is it that we can't rent a place?

Experts say that with a population forecast to shrink 30 percent by 2055, Japan has to look seriously at opening up to immigrants, a sensitive subject in a country where many worry more foreigners mean more crime and less social cohesion.

Lawmakers in both major parties have proposed more liberal immigration policy, but neither side wants to air the topic these days for fear of alienating voters.

Opening the doors to more immigrants would require sorting out thorny issues such as who should pay for language education and other assimilation costs, and how to guard against friction between newcomers and local residents.

Life on the societal fringe, though, can generate just the sort of innovative thinking Japan needs.

Private equity banker Taejun Shin says growing up as an outsider imbued him with an unconventional approach that he thinks gives him an edge, both in his day job and in his second persona running a non-profit organization. Shin was born and raised in Japan as one of nearly 600,000 ethnic Koreans, many descendants of those brought over as forced labor during Tokyo's 1910-1945 colonization of the peninsula.

Older generation Korean-Japanese grew up knowing that however smart they were, they were not going to get into one of the 'name' corporations as a fresh graduate, a path to which most Japanese graduates aspire, says Shin, an associate at private equity fund Unison Capital. So Korean-Japanese businessmen naturally become out-of-the-box thinkers, the best example being Masayoshi Son, the founder of mobile phone carrier Softbank Corp.

Shin, whose non-profit organization Living in Peace raises loan money for small businesses in Southeast Asian markets, says he was drawn to microfinance because It's hard -- people don't think such a self-reliant concept would take off in Japan. But I find the difficulty refreshing.

GENDER GAP

Women, a hugely underutilized source of talent in Japan, face big barriers in Japan's male-dominated society, especially in conservative sectors such as banking.

The World Economic Forum's Global Gender Gap Index, measuring equality between men and women, ranked Japan 94 out of 134 countries. A study by Japan's Gender Equality Bureau of the Cabinet Office found that women accounted for only 4.1 percent of department managers in 2008 - a modest increase from 2.1 percent in 1999.

Women are treated as a minority, says a 20-something female banker who is looking for a different job. Men's attitudes get cold and harsh when women try to play on the same level, added the banker, who declined to be identified for fear of repercussions at work while she seeks another job.

Working mothers also have a hard time, despite decades of debate, programs and promises to make it easier to juggle work and child-rearing as a way to boost Japan's depressed birthrate and fill the gap from a shrinking workforce.

That doesn't stop mums like Rie Goto from trying.

There is no future unless women can raise kids and work at the same time, says Goto, 29, sitting on a bench watching her 3-year-old son Shunsuke run around a park one Sunday. In that sense, I'm determined to keep working, to show others that it can be done.

The struggle has, however, kept Goto from having kid No. 2.

Five years from now, I want to be raising a second child, says Goto, who works as an advertising copywriter. But I don't want to stop working, so I haven't decided to have another child yet.

Daycare shortages, long working hours and the high cost of education have all been cited to explain Japan's low birthrate. But Goto says a big part of the problem is a deep-rooted cultural attitude that puts the onus for child-rearing on mums.

More men are spending time with their families, but they are considered the exception, says Goto, whose own husband does help out, taking his turn picking their son up from daycare.

E-commerce firm employee Imamura, who plans to wed in the spring and hopes eventually to have two kids, also figures she'll have to hustle to manage both a career and motherhood.

I would take the shortest maternity leave possible. I am a bit scared of taking a break in my career, she says. I want to always be on top of industry trends.

BOTTOM-UP CHANGE

Japanese of all ages have long expected little from their politicians, and ruling Democratic Party of Japan (DPJ) local lawmaker Zenko Kurishita doesn't really blame them. Kurishita was elected to the Tokyo Metropolitan Assembly in 2009 at the age of 26 by the same tidal wave of voter longing for change that propelled the Democrats to power nationally for the first time.

A year and a half later, the DPJ-led government's ratings are sagging due to voter disappointment with internal ruling party bickering, economic woes and diplomatic missteps.

Yet Kurishita hopes he and like-minded young politicians can engineer change.

Until now, things have been decided top-down, but what I want to do is work with other young people to join together to change things from the bottom up.

Kurishita, who studied in the United States before working as a software salesman, admits he worries about a future in which Japan's global presence keeps shrinking, but thinks one path to a brighter future is giving young voters a bigger voice.

Naturally, elderly people are more numerous and more of them vote, so politicians tend to focus on the elderly, he said in his tiny office in central Tokyo. But when the economic outlook is tough, young people need to take the helm and lead Japan in the right direction, said Kurishita, who counts among his heroes Soichiro Honda, the auto mechanic-turned-entrepreneur who founded Honda Motor Co in the dark days after Japan's defeat in World War Two.

Succeeding in that effort could well be tough given the grip of seniors in Japanese politics, where lawmakers in their 50s are still referred to as youngsters and the point man for pension reform is 72-year-old Economics Minister Kaoru Yosano.

Young MPs are twice as old as Japan's soccer team, quipped Jesper Koll, director of equity research at JPMorgan Securities Japan, referring to the national football side, where the average age is under 25. The Blue Samurai team's stellar performance in January, when they beat an Australian band of 30-somethings for a record fourth Asian Cup title, could serve as a metaphor for the potential of Japanese youth.

It's a symbol of the power of youth that Japan has. People who get dirty, have fun and win, Koll said.

The lesson is, don't count out Japan. (Additional reporting by Chisa Fujioka, Mariko Katsumura, Yoko Kubota, Nathan Layne, Yoko Nishikawa, Abi Sekimitsu, Kiyoshi Takenaka and Taiga Uranaka) (Editing by Bill Tarrant)