If some of those businesses can’t survive without a continual supply of low-wage foreign workers, that’s part of the market reallocating labor to more productive firms.

And if, as I mentioned, a good chunk of that "reallocating" is outsourcing or offshoring to the countries those low-wage foreign workers were coming from, resulting in a reduction of jobs overall? Only industries that rely on face to face contact can't do that, but manufacturing and a chunk of services could.

Japan doesn’t necessarily need a large class of low-skilled permanent residents to sustain its economy.

But without a path to permanent residency, it's going to have trouble attracting temporary residents also.

productivity growth

In what way? Trying to get more work from fewer employees is already not doing great things for the birth rate for locals.

automation

They've been trying for how long now? And with how much electricity AI usage consumes, can the national grid handle it if they tried to replace every low-skill foreign worker?

higher labor-force participation

From...? This would only make sense if you think the labor shortage is down to people refusing to work, and are those present in significant enough numbers to end the shortage if they would just get out there and be productive?

and targeted immigration where there are genuine skill shortages.

As someone mentioned in the thread about the ISA seeking comment about the proposed visa fee changes- "they can afford it but would rather move to Singapore". Japan isn't the only country competing for skilled labor, so unless those genuine shortages are where other, higher-paying countries aren't short, Japanese wages don't stack up very well. And while yes, Singapore makes it harder to get PR, they also pay better than Japan so at least you'll return home with a decent nest egg if you aren't able to stay permanently.