Japan’s population of 127 million, of which nearly a quarter is over 65, is on a long-term downward trend, and is expected to lose one third of its inhabitants by 2050 and by two thirds in 2100. It has the world’s longest life expectancy and the lowest child mortality rate. The aging population translates into a population that is rapidly both aging and shrinking.
Labor availability is already an issue particularly considering the historical reluctance of integrating immigrants – foreigners account for only 2% of the population. An aging population is also synonymous with lower prices for land and a lowering of real wages thus creating a strong deflationary pressure.
Facilitating entry into the employment market for women is an unpopular measure and will most probably result in an even lower birth rate than the present 1.47. Possibly Japanese industry will increase its reliance on robots.
The country suffers from other woes: natural disasters, deflation, and an increasingly uneasy relationship with China.
Japanese corporations have made major investments in Asia, to be present in these markets as they expand, but also to take advantage of lower labor costs. This has reduced the dependence of Japanese corporations on the yen, a traditionally strong currency.
Japan, together with the US, is the largest shareholder of the Asian Development Bank in which there is a Japan Special Fund. Under Prime Minister Abe, and in contradiction with the cultural concept of sakoku or isolationism from the rest of the world, the country has been eager to create an arc of freedom and prosperity extending from Japan through South East and South Asia to the Middle East. This is viewed with alarm by both China and Russia that sees it as a means of containing them. In Asia, generally, Japan is a partner co-opted reluctantly as memories of World War II are still vivid and Japan, no longer wanting to be apologetic about that part of history, is reviving these painful memories.
Japan wants to have friendly relations with other countries in the area so as to counterbalance the rise of China. Thus, it has recently agreed to a security alliance with Australia, and is working at improving its relations with India, Russia and South Korea, the latter being a country in which Japanese are simply hated.
The limitation is essentially budgetary as Japan’s economy will face large challenges in the coming years and may no longer be able to sustain its place as the world’s second largest economy. Its ranking by GDP per capita has already decreased from the 4th to the 20th rank in fifteen years and its share of world GDP is only 10% as against 18% in the mid-1990s. The country has a large sovereign debt. Over a quarter of GDP is spent on health and nursery care and family benefits.
Prime Minister Abe wants to delete Article 9 of the constitution which prohibits war as a foreign policy instrument and does not allow the country to have an army and thus gain a larger independence from the US. It raises the issue of a possible nuclearization of the country’s military.
Indeed, Japan has undoubtedly the technological capabilities of building a nuclear weapon. It sees itself threated by the rise of China, the nuclear ambitions of North Korea, and is uneasy about its dependency on the US, wondering if the US public opinion would still, after the Iraqi fiasco, and the non-intervention in Georgia and the Ukraine, let its forces engage in foreign combat activities.
The government, however, is well aware that if it does not develop nuclear weapons, it would instill even greater distrust among its Asian partners and may well start a race to the bomb in South Korea and Taiwan.
Japan spends a larger budget on the military than China does, and its naval power is considerable. Investments are made in high-technology weaponry and in particular satellite observation and submarine detection. It is expected to spend USD 240 billion on items including aircraft and amphibious landing ships.
Japan is integrated in the US-led Theater Missile Defense System, is considered to have the world’s third best army, thus considerably reducing the possible threats that China could exercise in the region. It has also announced the development of satellite capabilities in liaison with the US.
It has recently created a Ministry of Defense. In December 2007, its Navy successfully tested n American anti-missile system. Four such interception systems are included in the defense setup. While officially their purpose is to protect Japan from North Korean missiles, they play an important part in the defense of Taiwan should China attempt an invasion. Japan, as well as the US, have repeatedly stated that they would not stand still should China decide to invade the island state.