The city of Yubari in Hokkaido, Japan's northernmost island, declared bankruptcy in June 2006. Some of the results of this are higher local taxes, the downgrading of its hospital to a clinic, closing of schools, as well as downgraded administrative services.

Yubari, with a population of 13,000, has the highest ratio of people over 65 in the country at 41%. This is a representation of what most municipalities in Japan will face in as little as a decade or two; a rising number of elderly people, higher medical and welfare costs, a declining labor force and shrinking tax revenues.

Furthermore, it is not only small towns that face these difficulties. Even major cities such as Sapporo and Yokohama are under severe financial strain, not least because elderly people are moving to larger cities to take advantage of better social services there.

Unfortunately, faced with the prospect of this difficult future, Japan as a nation has not yet come up with a solution.