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Main parties ignoring Japan’s top security threat

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The Oct. 22 general election is an ideal opportunity to debate major threats to Japan: Kim Jong Un’s missiles, Donald Trump’s Twitter storms, relations with China and whether three arrows or 12 zeros are key to gross national happiness.

But neither Prime Minister Shinzo Abe’s arrows nor Yuriko Koike’s zeros answer Japan’s most difficult threat: demographic devolution. The platforms of Abe’s Liberal Democratic Party and Koike’s Kibo no To (Party of Hope) have this in common: no chance of altering a population-and-borrowing trajectory that will push the debt burden toward three times the size of the economy.

Yes, I know. Warning about Japan’s aging and shrinking population veers toward Chicken Little territory. But the latest report from the International Institute for Strategic Studies (IISS) is sobering. The global think tank on political and military conflict sees a “looming crisis” that “threatens U.S. power and Asia-Pacific regional stability” in the likely loss by 2060 of 30 percent of Japan’s population.

Lest you think this is a challenge only for prime ministers of the distant future, consider today’s deflation. When Abe showed Masaaki Shirakawa the door in 2013, the then-Bank of Japan governor warned that the aging population made more aggressive monetary moves futile. Even earlier, in 2011, International Monetary Fund researcher Patrick Imam predicted BOJ failure in a paper titled “Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness?”

Those headwinds are now holding BOJ Gov. Haruhiko Kuroda far from the central bank’s 2 percent annual inflation goal. Deflationary demographics explain why record tight labor markets aren’t boosting wages much. They also explain why replacing Kuroda with a more activist policymaker would be its own exercise in futility.

Yet Abe, Koike and other major parties are sweeping under the tatami mat a worker-debt mismatch that IISS researcher Jonathan Webb says is “putting the country at risk of insolvency and potentially ending its role as a pillar of regional stability.” Nowhere among Abe’s three policy arrows are serious ideas to increase the fertility rate, better utilize the female workforce, increase immigration or take innovation to new heights to fill staffing voids. Koike’s 12 zeros, meanwhile, do more to treat the symptoms of Japan’s demographic troubles than fix the underlying malady.

Granted, “Yurinomics” has its merits. Koike’s preference for taxing excess cash holdings on company balance sheets — about $2.7 trillion — could fatten paychecks and get the BOJ closer to 2 percent inflation. Her push to phase out nuclear power reactors would make Japan safer and score a bigger piece of the global renewable energy boom. Her desire for a smoke-free Japan puts people ahead of corporations and enabling bureaucrats.

Less impressive is Koike’s policy of denying foreign residents a vote in local elections. Japan must put out the welcome mat for the foreign workers it needs to raise competitiveness and boost innovation. Worldliness is a central part of Koike’s shtick (she’s fluent in English and Arabic), but conservatism gets in way of Japan’s economic future. Abe, too, of course. Koike’s party should go the other way, favoring the importation of strategic and targeted talent: entrepreneurs, venture capitalists, programmers, biochemists, engineers, health care givers, what have you. What works for Singapore could work for Japan.

North Korea’s nuclear provocations are more immediate threats, of course. Hence Abe’s hope that a muscular stance against Pyongyang along with Trump will give him a boost at the ballot box. But Abe’s five years in office have been a key — and lost — opportunity to get a jump on altering Japanese demographics.

With majorities in both chambers of the Diet, an economic vision the public backs and, until recently, healthy support rates, Abe should’ve worked harder to curb government borrowings and increase the fertility rate — at a sluggish 1.44 as of 2016 — toward the necessary 2.1 replacement-rate level. Instead, his Oct. 22. election platform papers over the problem (Koike’s, too).

“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,” Webb says. “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.”

These foundations are, after all, those on which Asia-Pacific security rests. “Just as important,” Webb argues, “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.”

In 2015, for example, Japan’s roughly $25 billion of aid exceeded the U.S. and China. Deteriorating demographics will make it harder for Tokyo to remain the financier in chief behind the projection of U.S. military power and Asian growth — and allow China to amass ever-greater influence. Listening to election chatter, you’d never get the impression Japan has a people problem. It has a grave one and we need to think about it.

Tokyo-based journalist William Pesek is the author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”