Reuters

Japan's rapidly aging population is producing some interesting new business opportunities, including a booming market for adult diapers.

The Nikkei newspaper (subscription only) reported on Thursday that three Japanese paper companies—Daio, and Nippon Paper—are expanding their manufacturing facilities for what are politely called "incontinence products" due to an expected surge in demand. The Nikkei said adult diapers are expected to outsell baby diapers in Japan by 2020, but according to Unicharm, Japan's biggest diaper maker, the tipping point was in 2011.

The adult diaper market is growing at 6-10 percent a year, and already pulls in 140 billion yen ($1.4 billion) by catering to Japan's elderly population—it has the highest percentage of over-65s in the world, making up more than 20 percent of the population.

Demographics aside, adult diapers are an attractive business in their own right—they sell for as much as 2.5 times more than infant diapers, resulting in higher profit margins, and there's also a lucrative sales channel to institutions like hospitals and nursing homes. Marketing to consumers can still be a minefield (as the parody ad from Saturday Night Live, below, demonstrates) but diaper manufacturers—confident that the embarrassment factor can be overcome—are determined to push the envelope.

Sweden's SCA, the world's biggest hygiene product maker, recently sent a sample of its adult diapers to every Swedish man over the age of 55. It was besieged by angry phone calls from men who were perhaps not quite reconciled to needing the company's products someday.