The decrease, which specialists say signals the start of an era of shrinking population, occurred two years earlier than had been expected. It poses serious challenges to the long-term economic vitality of Japan and its ability to care for one of the world's fastest-aging societies.

The number of deaths outnumbered births by 10,000 this year, according to statistics released by the Ministry of Health, Labor and Welfare. Excluding wartime figures, the number of births, at 1.067 million, was the lowest since records have been kept; births dropped 44,000 from the previous year.

The number of deaths, 1.077 million, was higher than had been expected because of a flu epidemic early this year, the ministry said.

''Our country is now standing at a major turning point in terms of population,'' Jiro Kawasaki, the minister of health, labor and welfare, said at a news conference on Thursday.

With government policies appearing to be ineffective in raising the birthrate, many young Japanese have stopped contributing to the national pension system because of doubts over its long-term health. Anxieties over the future are likely to deepen now that the long-dreaded demographic turning point, which specialists predicted would occur in 2007, has already been reached.

''The trend toward fewer children is becoming more and more significant,'' Prime Minister Junichiro Koizumi told reporters. ''I once again feel we have to come up with policies to stop this trend.''

Japan's current population of 128 million is expected to fall to 100 million by 2050 and to 64 million by 2100 if current trends continue. There is no movement in Japan to open the door to widespread immigration. The Japanese workplace, more than those in other advanced countries, remains closed to women, in keeping with the belief among the country's male political and business leaders that married women belong at home.

Japan has not only one of the world's lowest birthrates, currently 1.29 lifetime births per woman, but also the highest life expectancy. Those trends are particularly evident in rural areas, where graying Japanese dominate and schools are being shuttered. By 2025, nearly 30 percent of the population is expected to be older than 65.

A pervasive pessimism about the future is believed to have led young Japanese to postpone marriage and children. In the past decade, Japanese companies have relied increasingly on contract workers instead of hiring costly staff employees.

Many young Japanese have simply given up on finding work or getting further education. The government classifies these Japanese as NEET -- an acronym for not in education, employment or training -- and says they number 600,000.

Those who marry have been doing so later, with the average marrying age for men at nearly 30 and for women at nearly 28. Many women who want to continue working are said to delay marriage or to have only one child because of the scarcity of child care, high education costs and discrimination in the workplace against married and older women.

A government panel on increasing the birthrate is expected to make recommendations in June.

''We will need to continue reform of our social security system to enhance stability and to come up with measures to support coming generations,'' Mr. Kawasaki said.