Japan's population is getting older faster than any other country's and 40 percent will be 65 or older by mid-century, double the current figure.

That means Japan will have to shed the notion that the elderly need support and instead view them as a vital part of the work force, the Cabinet Office said in its annual report on ageing society released on Friday.

"Businesses should change their assumption that the elderly are useless because their motivation and vitality have declined, while workers should prepare from an early age so that they will be able to work when they are old," the report said.

Japan already has the world's highest percentage of the elderly, with one out of five people 65 or over as of 2005, and the government sees the figure rising to two out of five in 2055.

Among the soon to be "elderly" are Japan's post-World War II baby boomers, about one million of whom will turn 65 every year between 2012 and 2014, by which time most baby boomers will be over 65.

The country's pension system is already creaking under the pressure of an ageing population as the number of workers supporting pensioners has been on a steady decline.

As of 2005, there were 3.3 workers -- those aged between 15 and 64 -- supporting each person 65 or over, but in 2055 there will only be 1.3 workers supporting each elderly person.

While not making a direct link with the difficulties facing the pension system, the report proposed that the elderly be given opportunities to work more and urged younger workers to stay fit so they can keep working longer.

Japan's population now stands at around 128 million, but is set for a decline due to the rising number of elderly and the low fertility rate.

The fertility rate, or the average number of children a woman bears in her lifetime, edged off a record low last year, but still stood at 1.32, way below the 2.07 demographers say is needed to keep the population from falling.