JAPAN: Older, smaller population to impact Japan's choices

. TOKYO, Japan / The Japan Times / June 30, 2009 Today's edition of The Japan Times carries a review of Japan's security and defense policies, in the context of current situation in China, North Korea and United States. Published here is an extract of the report by By Brad Glossserman and Tomoko Tsunoda HONOLULU: Japan's demographic transformation: The country's population has started to decline and is projected to shrink nearly 30 percent by 2055. By then, Japan will have 89 million people, ranking it 18th among nations (it is No. 10 today). Blame a plunging fertility rate as the population lives longer. The portion of elderly people (age 65 and above) in Japan's population is 21.5 percent and is projected to reach 38.9 percent by 2050, making Japan the grayest nation in the world. These changes have profound implications for Japan's future. The number of working-age citizens is shrinking. This limits economic growth, cuts tax revenues, squeezes government budgets and reduces financial options: All will have a powerful impact on foreign and defense policy. A demographic transformation will also influence values and preferences, affecting priorities and transforming national goals. Make no mistake, Japan will continue to be wealthy, but rather than generating new capital, it will be living off that wealth. It's estimated that Japan's real gross domestic product could fall 20 percent over the next century compared to what it would be if population size remained the same. Household wealth will stop growing and enter an absolute decline over the next two decades. By 2024, household wealth will have returned to 1997 levels. It's hard to sustain economic competitiveness with a population in decline. Markets shrink and innovation is hampered. The cost of doing business rises and foreign investment is diverted to more dynamic markets. As GDP contracts, tax revenues and savings will diminish. Tokyo will face increasingly difficult choices about priorities and the provision of services [rc] Brad Glosserman (bradgpf@hawaii.rr.com) is executive director of Pacific Forum CSIS. Tomoko Tsunoda was a Vasey Fellow at Pacific Forum (tomoko.tsunoda@gmail.com). This article originally appeared in PacNet Newsletter and is drawn from their study, "The Guillotine: Japan's Demographic Transition and its Security Implications," available at www.pacforum.org (C) The Japan Times