Beyond Tokyo: Can Japan boost the appeal of its regions?

Based on speech delivered to at University of Tokyo’s Regenerative Design Centre for Urban Future.

Across the OECD, regions and cities are being reshaped by falling birth rates, ageing populations and the continued movement of young people towards large metropolitan hubs. Japan knows this story well.

For more than two decades, on average, over 100,000 people each year have moved into the Tokyo metropolitan area from elsewhere in Japan – the largest sustained internal migration to a capital region anywhere in the OECD. Outside the Tokyo metropolitan area, almost every prefecture has experienced population decline since 2000. Young people, particularly women, continue to leave many regional cities in search of greater opportunities.

But Tokyo is not Japan’s problem. It is one of its greatest strengths: a global centre of innovation, culture, finance and entrepreneurship that has contributed nearly half of Japan’s GDP growth over the past two decades. As one of the world’s most successful metropolitan areas, Tokyo will remain indispensable to Japan’s prosperity.

The real question is not how to weaken Tokyo’s appeal, but how to strengthen everywhere else.

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Japan’s long-term economic future depends on whether its regions become places where people choose to build their lives rather than feel compelled to leave.

This matters not only for regional prosperity, but for Japan’s national economy.

Japan’s productivity is the lowest in the G7, and much of the untapped potential lies outside Tokyo.  Across the OECD, regions with large or mid-sized cities are more than 20% more productive than regions without them. In Japan, that productivity advantage is only around 11%, suggesting there is untapped potential in Japan’s cities beyond the capital.

Japan’s national demographic challenges are also shaped by geography. The concentration of young people in Tokyo also drives up housing and living costs, which can make it harder to start a family, at a time when Japan’s national fertility rate is among the lowest in the OECD.

The good news is that Japan has great strengths to build on.

Unlike many countries facing regional decline, Japan combines world-class manufacturing, highly skilled workers and strong public institutions with remarkably low regional inequalities. Among OECD countries, Japan has one of the smallest gaps in GDP per capita, employment and health outcomes between regions.

This means regional revitalisation does not need to focus only on repairing deep territorial divides. Instead, it should build on existing strengths so that all places have a chance to thrive.

So what can Japan learn from other OECD countries grappling with similar challenges?

The first lesson is that every place must identify and develop its comparative advantages.

For some regions this will be advanced manufacturing or research universities. Others may build around tourism, renewable energy, cultural industries, food production or health and care services.

Increasingly, regions compete for talent as much as for investment. Young workers ask whether they can find affordable housing, quality schools, accessible childcare, green spaces and a vibrant cultural life. The most successful places combine economic opportunity with quality of life to create a compelling offer for talent and investment.

Second, bet on mid-sized cities.

Much attention naturally focuses on either Tokyo or rural communities. Yet many of Japan’s greatest opportunities lie in the cities between them.

Across the OECD, intermediary cities are emerging as engines of regional growth by concentrating innovation, specialised services and employment while remaining closely connected to surrounding towns and rural areas. They provide the critical mass regions need to compete without everyone relocating to major metropolitan centres.

Cities such as Okayama, Hiroshima or Utsunomiya already possess significant assets – from universities and industrial clusters to transport infrastructure – that can support broader regional economies. With the right investment and governance, they can become magnets for talent, entrepreneurship and innovation.

Third, regional revitalisation depends on local firms.

The global economy is entering a new era of place-based industrial policy. Governments across the OECD are investing heavily in semiconductors, batteries, artificial intelligence and other strategic industries – not simply to increase national competitiveness, but to create regional growth poles.

Japan’s Regional Future Strategy reflects this shift, setting out to create new industrial clusters across Japan’s regions.

But attracting a major semiconductor plant or battery factory depends on having strong local supply chains and innovation capacity – that means small firms and entrepreneurs are just as important as the big firms that capture the headlines.  

However, Japan’s innovation remains heavily concentrated in large firms and big cities, while many small and medium-sized enterprises lag in R&D investment and digital adoption – with the third lowest rate of AI adoption among SMEs in the OECD. Without stronger local business networks, place-based industrial policies will struggle to deliver.

Finally, revitalisation efforts must also invest in the “soft infrastructure” of change.

A place can have new buildings and broadband but still feel lifeless.

Because successful transformation is also about belief, about pride, and about a shared sense of direction.

Around the OECD, some of the most successful transformations have begun not with a new railway or tax incentive, but with local leaders creating a compelling vision for their community.

Universities, businesses, civic organisations and local governments all have a role in helping residents believe that change is possible.

Japan possesses extraordinary local assets from which to build that belief. Every region has distinctive traditions, landscapes, cuisine, craftsmanship and cultural heritage that cannot be replicated elsewhere. These assets represent an opportunity not only to attract visitors but also to strengthen local pride and create places where people want to live.

Regional revitalisation is ultimately about restoring choice.

Across Europe, policymakers increasingly speak of creating a “right to stay”: ensuring that young people can build fulfilling careers without feeling they must leave the places they call home. Mobility will always remain important, but migration should be driven by opportunity, not necessity.

Japan’s regional revitalisation agenda embodies precisely this ambition. It recognises that prosperity in the twenty-first century cannot rely on a single metropolitan engine, however successful that engine may be.

Tokyo will continue to thrive. The challenge now is ensuring that every region of Japan has the opportunity to thrive alongside it.