Japanese Prime Minister Shinzo Abe has arrived in Washington, the third stop on his maiden voyage to the United States since assuming office in 2012. Over the next two days, he will hold a summit with U.S. President Barack Obama on U.S.-Japanese defense and trade cooperation, attend a state dinner in his honor and address a joint session of the U.S. Congress. In his speech before Congress, Abe will reaffirm Japan’s commitment to promoting peace and security in East Asia and extol the virtues of the Trans-Pacific Partnership, a 12-country free trade agreement that spans the Pacific Ocean Basin and pointedly excludes China.
As always with such occasions, the real work, whether on revising guidelines for U.S.-Japanese defense cooperation or negotiating the finer points of Japan’s accession to the Trans-Pacific Partnership, will take place long before Abe sits down with Obama. In this sense, his visit is largely symbolic. But this does not make it insignificant. The significance of Abe’s trip, like that of the work that precedes and surrounds it, rests in what it tells us about Japan’s strategy and what that strategy reveals about Japan’s evolving interests and environment.
Stratfor has long argued that the post-Cold War status quo of relative introversion and economic stagnation in Japan was unsustainable. We believed that internal and external pressures ultimately would compel Japan to play a far more proactive role in regional and global affairs. And we said this process would likely entail a fundamental break with the social, political, economic and foreign policy order that has defined Japan since World War II.
In Abe’s visit to the United States and his efforts to deepen trade and defense cooperation with Washington, and more broadly in his struggle to resuscitate the Japanese economy and to normalize Japan’s defense forces, we see the embryonic stage of just such a transformation. The question is whether these moves will be sufficient to achieve Japan’s long-term economic — and therefore foreign policy and security — imperatives, or whether the Abe administration’s reforms are merely the prelude to more profound changes. Answering this question is no trivial matter. To a great extent, how we approach this question will shape our understanding of Japan’s role in the global system in the years to come, and by extension its relationship with that system’s lone superpower, the United States.
With this in mind, Abe’s visit, and the defense and trade deals likely to follow from it, is occasion to think more broadly about Japan’s evolution. To do so, we must outline Japan’s current situation and identify the center of gravity — the core compulsions and constraints, both internal and external — of Japan’s emerging strategy.
Fraying at the Edges
For the past 20 years, the economic and political order that guided post-World War II Japan has been caught in a slow-burning crisis. During these so-called Lost Decades, Japanese economic growth remained essentially flat, while per capita gross domestic product, income and household spending levels all fell slightly. Economic stagnation coincided with the exhaustion of Japan’s demographic dividend in the 1990s. Since then, a rapidly aging population and outright population decline have taken their toll on the country’s economic vitality and fiscal and financial health.
Between 2005 and 2015, Japan’s working-age population fell by an estimated 7.7 million people, while its elderly population grew by more than 8 million. During the same period, the household savings rate collapsed, and social security emerged as the single largest government expenditure, followed closely by debt-servicing payments — a result of Japan’s deepening budget deficits and mounting sovereign debt. Rising underemployment rates among Japan’s shrinking workforce have exacerbated the financial effects of population aging. In the 1990s, less than 20 percent of Japan’s employed workers held “non-regular” (temporary, part-time or contract-based) jobs. By 2002, that figure had risen to 29 percent. Now it is nearly 40 percent, a stark reminder of the effects two decades of offshoring have had on the manufacturing and electronics industries that once formed the backbone of full-time employment in Japan.
Incoherence, volatility and inflexibility in Japan’s political sphere mirror the Lost Decades of economic stagnation. Since 1993, Japan has had 13 prime ministers, many of them serving for one year or less. The elite civil bureaucracy that once made Japan a paragon of efficient administration and state-led economic development has proved lethargic when it comes to implementing reforms that cut against the desires of powerful interests like the agriculture lobby. Meanwhile, apathy among young and urban voters, combined with demographic trends and a parliamentary districting system that favor older and rural segments, have forced political parties to compete ever more fiercely for the “organized” vote controlled by those same interest groups. Certain prime ministers, most notably Junichiro Koizumi between 2003-2006 and now Abe, have attempted to reform Japan’s political system from within, but to only limited effect.
Nonetheless, despite its lack of growth for two decades, the Japanese economy remains the world’s third largest, and the country enjoys high standards of living. Although some Japanese companies have lost market share to Korean, Chinese and other foreign competitors in recent years, many others remain global leaders in their respective industries. Japan claims one of the highest research and development expenditure-to-GDP ratios in the world, and it remains by many measures one of the world’s most innovative economies. And despite creeping popular dissatisfaction with establishment parties and declining administrative effectiveness, Japan’s political system is fundamentally stable, its government comparatively corruption-free, and its social contract between government and populace strong. To the extent that Japan’s post-World War II political and economic order has entered into crisis, it is by most counts a fairly mild one.
This brings us back to the question of the center of gravity in Japan’s emerging strategy. Certainly, addressing the effects of demographic decline and dwindling economic vitality are central to the Abe administration’s reform platform. They form the crux of his administration’s signature initiative, the economic growth program known colloquially as “Abenomics.” But it is unclear whether these problems, in and of themselves, will be pressing enough to force a break with Japan’s status quo anytime soon. After all, they have been around for more than a decade without prompting such change.
More likely, left to its own devices, Japan would find the means to manage demographic decline and economic anemia without dramatically changing the way its economy and political system function. Indeed, as long as its leaders can ensure that the rate of population decline outpaces the rate of economic decline, then they can, in theory, continue to provide high standards of living — high enough, at least, to prevent a rupture in Japan’s political status quo. With the pace of population aging and workforce shrinkage set to slow in the coming decades — the next generation of Japanese to retire is considerably smaller than those who retired between 2005 and 2015 — and the rate of outright population decline set to rise precipitously as Japan’s post-1945 baby boomer generation passes away, such a scenario becomes feasible. At the very least, it is difficult to say with much confidence that internal pressures stemming from demographic decline and economic decay, which will play out slowly, will be powerful enough on