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Japan and Italy are both going through this right now. I'm not sure its going particularly well, so I think you are generally correct. We should be putting much more effort into figuring out how to manage this transition, because its both completely necessary, and inevitable.
Can't speak for Japan but for Italy an easy way to deal with shrinking population is by allowing more immigration. The one thing the current government is against, and the populace has been conditioned to believe is the main problem causing all sort of issues. Particularly by facilitating an influx of skilled workers, you have from day one taxpayers that can fund your pensions, and that didn't cost you a euro for the first 18 years orbso of their lives (education, health care etc). Of course it's not that trivial as first they should create an attractive job market that makes skilled workers want to go there in the first place but other countries have successfully done that. I'm not counting on this to happen, just saying that it's an option
As we continue to replace workers with machines it will be easier… but that’s a slow process.
Japan is like being in the year 2000.
I think if you talk to people in the west they would say the year 2000 is better than now.
They have cheap housing/ rent, the country is safe, plenty of jobs. Sounds great. The only issue japan is having is that gdp isn't increasing but from an individual person point of view things seem better.
So if you rely on a narrow view of what success looks like (for example, only considering GDP growth), it would be considered not good, but from a lived experience, its fine.
It makes sense that an economy that overshot what its population growth rate can support, it needs to contract.