Japan is on course to lose as much as 30% of its population in the coming decades, putting the country at risk of insolvency and potentially ending its role as a pillar of regional stability. The crisis threatens not only Japan’s national security, but the entire US position in the Asia-Pacific.

Crowd beneath a cherry blossom tree, Japan. Credit: Flickr/br1dotcom

By Jonathan Webb, Research Assistant, IISS-Asia

In 2013 Japanese Prime Minister Shinzo Abe confidently asserted that ‘Japan is back’. Since then his government has continuously worked to redefine and expand Japan’s strategic role. Yet four years later, and with a sitting United States president who has questioned US commitments to Japan, the Abe government has done little to address Japan’s most serious long-term strategic challenge: a demographic shift that may reduce the country’s population by 30% by 2060, according to the United Nations. The strategic ramifications of such a decline would be extreme. They stretch beyond Japan’s own national security, endangering the long-term US position in the Asia-Pacific. Japan and the US must recognise the coming crisis, and work to avert it at all costs.

The decline of Japan’s population is rooted in decades of low fertility. The current birth rate is 1.35 per woman, far below the figure of 2.1 required to sustain the population. This is projected to cause a loss of over 500,000 people per year in the 2020s, accelerating to over 1 million per year in 2060, leading the population to fall as low as 89 million from a high of over 127 million today. In that scenario, Japan – already the most aged society in the world – would see the percentage of its population over the age of 60 rise to a staggering 49% in the next 42 years. The proportion of people aged 75 years and over would exceed 28%, more than twice the number of children under the age of 19 (12%). At the same time, the labour force could decline by as much as 43%, forcing the country to shoulder a crippling old-age dependency ratio of roughly 1.2 retirees to every worker.

While many countries face the prospect of long-term demographic decline, Japan’s threat is by far the most advanced, and the country remains critically unprepared to meet the challenge. As the population has aged, expenditure on social security has ballooned from 17.5% of the national budget in 1990 to 33.3% in 2017, almost perfectly mirroring the change in the percentage of the population over retirement age. With national debt already exceeding 230% of GDP, the situation is unsustainable. If left unresolved, Japan will eventually be forced into an endless cycle of tax rises and benefit cuts, further impairing economic growth, or a devastating fiscal collapse as the debt burden overwhelms taxpayers’ willingness and ability to pay. It is fanciful to assume that such a Japan would be able to effectively defend itself, let alone continue discharging its international responsibilities and alliance commitments as it does today.

US–Japan cooperation is the lynchpin of regional security

These responsibilities and commitments are, however, the foundation upon which Asia-Pacific security rests. With the world’s seventh largest defence budget in 2016, Japan boasts one of the planet’s most sophisticated and capable militaries, featuring the region’s premier navy (the world’s fourth largest by tonnage), as well as advanced air and ground forces. While primarily deployed defensively to protect the home islands, Japanese forces play a key role backstopping and protecting US forces in the region, of which Japan hosts the majority. In fact, Japan hosts the largest non-conflict overseas military deployment of US forces in the world. This deployment includes roughly 50,000 troops, 130 US Air Force fighters, the US III Marine Expeditionary Force, and the US Navy’s Seventh Fleet, which includes its only permanently forward deployed aircraft carrier strike group. This presence, and the accompanying synergy with Japanese forces, underpins US ability to project power in the Asia-Pacific and globally.

Just as important however, is Japan’s financial and economic contribution to the region. Japan has long been the Asia-Pacific’s principal provider of economic aid, generally contributing more than half of the annual regional total since 1990. Japanese aid in 2015 was approximately US$24.7 billion, exceeding that of the US and China. As the second largest economy in Asia, Japan drives regional economic growth with over US$700bn in annual regional trade. This activity, combined with Japan’s provision of as much as 86.4% of the cost of basing US forces in its territory, equate to the country effectively underwriting the US presence in the Asia-Pacific. Tokyo acts as a kind of ‘financier-in-chief’, providing the capital behind US military power projection, and regional economic development.

A declining Japan puts the sustainability of the US Asia-Pacific position in doubt

Population decline puts all of that in jeopardy. Japan’s armed forces already struggle with recruitment, and a shrinking labour force will drive up personnel costs that already exceed 40% of the country’s defence spending – a budget already so pressured that more than 20% of expenditures go towards paying off historic debt. As fiscal conditions deteriorate, Japan will find it increasingly difficult or even impossible to fund defence and foreign aid at current levels, let alone raise spending to match an increasingly assertive China. A less secure Japan may also have less appetite for confrontation with China, limiting the effectiveness of US forces deployed in its territory. Or, conversely, Tokyo may demand that such forces confront China on issues peripheral to US interests. Even if such scenarios are avoided, a weaker Japan will present the US with an impossible choice: reallocate US forces and funds to Asia to fill the gap (endangering US commitments elsewhere), massively increase defence spending to maintain the existing posture, or drawdown in the Asia-Pacific. The latter scenario would be nothing short of a disaster for the US, Japan, and the region.

Neither immigration nor piecemeal reform can make up for low birthrate

While the Abe government nominally acknowledges the need to address Japan’s demographic challenges, it has not implemented the structural reforms necessary to catalyse change. Efforts to raise female labour participation rates, increase access to daytime childcare, and promote a healthy work–life balance are critical. But the results so far are underwhelming, and these measures cannot by themselves resolve the underlying problems presented by a critically low birth rate. Similarly, while increased immigration is an important part of any potential solution, historically mono-ethnic Japan lacks the political will and societal infrastructure to integrate the more than 500,000 annual new arrivals that would be needed to cover the deficit.

In the end, resolving Japan’s demographic dilemma will require a fundamental readjustment of national priorities, including painful reform of the country’s labour market, and a profound change in the way its people conceptualise work, leisure, gender relations and raising children. Today’s Japanese must accept that just as previous generations worked to stimulate economic growth following the Second World War, so they must guarantee future security and prosperity by building a more diverse society in which people have more children.

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