There's also one more hitch to this. This would be perfect if Gensokyo fell across multiple borders which would enable the game of which nation owns Gensokyo. The only problem is that Gensokyo is only in one nation, Japan. So, we'd have Gensokyo pop up right in the middle of japan, and in this case it would only be japan trying to reclaim it's own land. Also, food for through, what happened to where the outside world Gensokyo is on? Isn't the barrier right ontop of it, I don't know.
Now, why would there be multiple nations fighting over Japan's Gensokyo? Are other nations fighting for Japan, which caused the barrier to fall, leading to Gensokyo being right in the middle of this conflict?
Now thinking this...this is when the fun part begins. If we're playing that multiple nations are at war, and currently the front line is in japan...how'd that happen? Are people fighting over Japan? maybe the frontline has been being beaten back, falling further and further back. (In this senerio, you could do China vs US. Since the US is Japan's ally, they'd be on their side if China and it's allies tried to take Japan, turning Japan into a battlefield. Playing this more we could play that this is a world war three situation.
Drawing from current world tensions....you got Russia and China, Iran / Middle east (under a "they formed a
caliphate and attempted to take over the world)", USA, England, Japan, Canada are another side, there's the EU as well and that could split by taking sides with the US or Russia, and you also have the North Koreans (who we know are already batshit crazy). You have multiple groups and you can put them together and the more I say this this all sound really more interesting then I thought playing out a actual world war three situation using modern day politics and tensions.
You can also play this as Japan trying to take the Gensokyo region.
Another, this could cause the end of the masquerade (hey, I'm reminded of Dolphin Rider Koishi. A great story written by Rou that you all should read and that I will endless plug it because i'm a fan) that has always been, leading the world to discover that the fantasy kitchen sink actually exists and everything then goes into chaos.
If youkai from all over the world are coming out of the woodwork the whole world could be thrown into chaos. Youkai who have been in hiding now realize they don't need to anymore. For all you know, Youkai could be in government secretly, or we have groups of Youkai that have been planning to take back earth (instead of hiding and going extinct. "Damn it! Death to Mankind! The era of the Youkai begins now!". You could even have them picking up on human's tactics and using it in addition to their supernatural abilities to fight mankind. "Why be suppressed by these puny humans? We are the superior species, we should be in charge and not in cages"
If Gensokyo's fall is what drops the curtain, Japan's government (read into this and figure out how it works) could be freaking out on the situation of a bunch of superpowered, neigh-indestructible Eldritch Abomination that may or may not want to conquer humanity and decides to clamp down on Gensokyo. Aka, government people come in wearing swat gear and tries to tell the superpowered youkai that you need to leave your home you've lived in for centuries and come with us for a fate unknown.
You know exactly how that would go down and what that would lead to. Gensokyo vs Japan, and leading our heroines to try to find some sort of solution before said war breaks out, or must realize they have to take sides.
This could bring a lot of Tension, that "war about to break out" as the major problem. Such conflict is plot gold, IMO. Such a ending could be that things are peacefully resolved as the masquerade falls across the entire world and youkai peacefully integrate into humanity, partly to thank because of our heroines' actions.
Alright, let's go another path.
Now, let's go with that and go with that human and youkai are at war before the barrier falls. That could also be the reason the barrier is dropping. It's not human conflict but inter-species confict. The Youkai forces have been dropping other barriers thinking they're getting recruits. Humanity seeing the barrier drop fears that the enemy just summoned another group of Eldritch Abominations to kill them. Leading to both sides try to take / destroy Gensokyo, especially if Gensokyo's citizens refuse to slaughter the other species and reject both sides. Gensokyo's citizens might want to decide to stay out of this and would rather raise back up the border giving both sides the finger. You could also play one of the waring factions as the good guys and another as bad. You could have one pure youkai that's trying to exterminate mankind, and the other side that doesn't want to be slaves to this empire. With the barrier of Gensokyo falling, for all we know it could be the turn of the tide with Gensokyo's overpowered fighters helping turn the tide to defeat the evil army. Though, all this dips into a war story territory, and maybe not actually what you were looking for.
But dang I like it, and this all sounds really cool. I won't use it myself, but it's got that "this could be a good idea" type of thing. I hope it inspires a few plotbunnies in you all.
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EDIT: Also, another ending, that the barrier does drop and the people of Gensokyo must integrate into the real world, or they take a side with one of those forces, or they just start their own side and save japan.