LITMIR.BIZ

      CHAPTER 2

      2016–Year of Crises

      In 2016, new population estimates for Japan painted a sobering picture. The 2010 census had estimated that Japan’s population of 128 million would fall to 95 million by the year 2050, with all of Japan’s forty-seven prefectures suffering population loss. In the hardest-hit prefectures such as Akita, Aomori, and Kochi, it was estimated that the population would decline by as much as a third. But even Tokyo was warned to expect a decline of nearly 7 percent. The new 2016 projection showed a much more dramatic decline, with the total population dipping below 88 million by 2050. Even worse was the projection for the aging of the population: in 2010 it had been expected that by the year 2040, people older than sixty-five would make up more than 30 percent of the population in each prefecture, with Akita, Aomori, and Kochi prefectures reaching a proportion of over 40 percent. But the new projection was that 40 percent of Japan’s population would be over age sixty-five by the year 2050.

      The social, economic, and national security implications of these numbers were almost unimaginable. Many Japanese had been comforting themselves with the thought that a smaller population would not be a problem. Indeed, it was often suggested that Japan would be less crowded and thus more comfortable and livable with fewer people. But a cold, hard look at the projections showed a rapidly approaching disaster. Within a very short time, one active Japanese worker would be supporting not only himself, but also one elderly person, as the size of the workforce fell from 87 million in 2010 to only about 52 million in 2050. The implications for pensions were dire. The pension system had been assuming returns of about 4 percent on investment. In fact, the actual returns had for some time been only about 2 percent, and there had already been the possibility that pension reserves would be entirely used up in about twenty years. But by 2016 it looked as if the cost of supporting the elderly would rise sharply. Between 1991 and 2000, social spending rose by about 50 percent. The new projections showed that the increase between 2000 and 2025 would be near 100 percent. With the population shrinking by almost 1 percent annually, productivity gains would have to be in the 3 percent annual range to achieve GDP growth of just 2 percent annually. Yet this level of productivity had not been achieved in the past twenty years. Slow or zero GDP growth could not support the increased government spending that would be necessitated by rising retirement, health care, and elder-care payments.

      Beyond the domestic economic consequences, these numbers had huge international and security implications. Could an elderly and frail Japan respond adequately to the challenges posed by a resurgent China? Could it continue to be an adequate ally to the United States or to the ASEAN countries? Could it even maintain its presence among the G7, G8, or G20 countries?

      No matter how one looked at the numbers and the trends, they were disheartening. It seemed that Japan would be unable to avoid becoming older, poorer, sicker, and less secure while paying higher and higher taxes for fewer and fewer benefits. Japan appeared to be a dying country.

      LIGHTS OUT

      In the spring of 2014, the militant Sunni Muslim group known as the Islamic State in Syria and the Levant (ISIS, ISISL, or ISIL) broke out of its base in northeast Syria and quickly overran northwestern Iraq up to the very gates of Baghdad, while also threatening northern Saudi Arabia, Jordan, and parts of Turkey. At the same time, the United States and Iran appeared to be making rapid progress toward an agreement that would allow Iran to continue developing its nuclear-energy capability while still being barred from acquiring sufficient capacity to produce nuclear weapons. The combination of these two developments resulted in an unexpected shift in Middle East alliances. Because of its seminal role in the creation of the Shia Muslim state of Iraq after deposing the dictator Saddam Hussein, the United States felt a strong obligation to prevent the collapse of the new state. It also wished to maintain good relations with Tehran in order to conclude the nuclear deal. But longtime US allies Saudi Arabia, Israel, and Jordan all shared an existential fear of Iran and its surrogate Hezbollah forces in Syria, Lebanon, and northern Saudi Arabia. They deeply believed that Iran was bent on the overthrow and destruction of each of their governments. Consequently, in late 2016, Jordan and Saudi Arabia opened their airspace to Israeli bombers, which launched massive attacks on suspected nuclear facilities all over Iran. Tehran struck back by unleashing Hezbollah rocket attacks on Israel from Lebanon, sinking vessels, and planting mines that closed the Strait of Hormuz to all outbound oil shipments. They also encouraged sabotage by Shia Muslims who, despite being a small minority of Saudi Arabia’s mainly Sunni population, held the majority of the kingdom’s vast oil fields and refineries along the western edge of the Persian Gulf. Overnight, the price of oil soared to US$300 per barrel, threatening to push Japan into a massive trade deficit and to completely stall the Japanese economy.

      Because 80 percent of the oil and half of the liquefied natural gas (LNG) bound for Japan passed through the Strait of Hormuz, the closure of this passage threw Japan into a desperate situation. The government requested help from Russia, but Moscow replied that it had already committed to supplying China and had no additional capacity. Efforts to obtain increased supplies from Indonesia and Malaysia were also unsuccessful, as these countries wanted to ensure that they and their ASEAN colleagues would have a sufficient supply. In desperation, Tokyo turned to the United States in hopes of obtaining emergency imports of shale-gas-based LNG and shale oil. But despite having become energy independent as a result of the development of shale deposits, the United States did not yet have sufficient infrastructure to export substantial quantities of LNG.

      To partially offset the loss of oil and LNG-fueled energy, the Japanese government began to accelerate the restart of its nuclear power reactors. These had nearly all been shut down in the wake of the 2011 tsunami-induced partial meltdown of the Tokyo Electric Power Company’s (TEPCO) nuclear reactors at Fukushima. This action,

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