Stepwise Risk Outlook Deep Dive: Japan's Strategic Recalibration And Advocacy For An Asian NATO

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Japan's defense policy is undergoing a significant transformation, marking a shift away from its post-World War II pacifism towards a more proactive and assertive stance.
Worldwide Government, Public Sector

Today's Deep Dive is 1,149 words and a 7-minute read.

Japan's defense policy is undergoing a significant transformation, marking a shift away from its post-World War II pacifism towards a more proactive and assertive stance. This progression is largely expected to continue under Prime Minister Shigeru Ishiba, who took office on October 1st, and has proposed reshaping Japan's defense posture, including forming an "Asian NATO" and rebalancing the Japan-United States alliance, to create a broader role for Japan in regional security. These changes pose far-reaching global implications, affecting not just geopolitical stability, but also the strategic landscape for multinational corporations and foreign governments. With rising tensions in the Indo-Pacific, Japan's strategic recalibration introduces both risks and potential opportunities for global stakeholders.

Tokyo's Strategic Shift Toward a Proactive Defense

Over the past decade, Japan has gradually altered its defense policy, expanding its military capabilities to address evolving security threats in East Asia. While Japan's pacifist constitution, namely Article 9, limits its use of force, the reinterpretation of this article has enabled significant changes to Japan's defense posture. A critical milestone was the 2015 Legislation for Peace and Security, which allowed Japan to exercise the right of collective self-defense—enabling the country to defend its allies, particularly the United States, in case of attack, even if Japan itself is not directly targeted. This framework set the stage for the more transformative changes in Japan's defense policy introduced in 2022, through the National Security Strategy (NSS), National Defense Strategy (NDS), and the Defense Buildup Program (DBP).

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Source: Stockholm International Peace Institute (2024)

These strategy documents mark a clear departure from Japan's exclusively defense-oriented posture. The plans outline an increase in defense spending by aiming to double it to 2% of GDP by 2027, aligning with NATO's defense spending standards. Funding will be used to acquire advanced military technology, including 500 US-made Tomahawk cruise missiles, and enabling Japan to develop a counterstrike capability. This capability would allow Japan to launch retaliatory strikes on enemy missile bases, reflecting a shift toward offensive capabilities, while still framed as self-defense within the scope of Article 9. Japan's military modernization includes upgrading missile defense systems, enhancing cybersecurity, and developing space capabilities, as well as creating a more agile Self-Defense Force capable of responding to crises across multiple domains. While constitutional revision remains a contentious issue domestically, Tokyo's decision to reinterpret existing laws to modernize its defense forces maintains a balance between constitutional constraints and the need for stronger defense capabilities.

Geopolitical Tensions and Japan's Expanding Role in the Indo-Pacific

Japan's evolving security approach under Prime Minister Shigeru Ishiba is deeply intertwined with the complex geopolitical landscape of the Indo-Pacific, where Tokyo's perceived threats from China, North Korea, and Russia are reshaping the region's security dynamics. One of Ishiba's most controversial proposals is the creation of an "Asian NATO", a multilateral security framework aimed at consolidating existing alliances and strategic groupings in the region, as he claims that the lack of such a collective defense arrangement in Asia increases the likelihood of regional conflict. In a recent policy paper submitted to the Hudson Institute, Ishiba proposed integrating existing defense pacts like the Quad (comprising Japan, the US, Australia, and India), AUKUS (the defense alliance of the US, United Kingdom, and Australia), and Japan's burgeoning security partnerships with South Korea and European nations such as Britain and France.

Despite the ambition behind this proposal, the US has expressed reservations. Washington has prioritized strengthening its alliance with Tokyo, holding regular US-Japan Security Consultative Committee or "2+2" meetings between the US sectaries of state and defense and their Japanese counterparts and in July, announcing plans to convert US Forces Japan into a joint force headquarters that will report to the commander of the US Indo-Pacific Command. Still, Daniel Kritenbrink, the US Assistant Secretary of State for East Asia and the Pacific, dismissed the idea of an Asian NATO as premature, noting that the region's security challenges require a more measured approach. Additionally, regional actors such as India and Indonesia have avoided backing the initiative over concerns of such a grouping escalating military tensions in the Indo-Pacific, preferring greater trade and economic cooperation with Tokyo instead. While Ishiba acknowledges the complexities of forming such an alliance, he argues that the "relative decline" of US power in Asia necessitates the establishment of stronger multilateral defense frameworks to maintain regional stability. To this end, Ishiba has also suggested a rebalancing of the Japan-US Security Treaty, calling for greater Japanese oversight of US military bases in Japan. Ishiba has even proposed stationing Japanese troops in Guam, a US territory, as a reciprocal measure to the American military presence in Japan, though this idea has been met with skepticism from both Japanese and US officials.

These geopolitical recalibrations highlight Japan's evolving role as a key player in the Indo-Pacific. As Japan strengthens its security ties with allies and pushes for a more balanced partnership with the US, it is also preparing to take on greater responsibility for its own defense in the face of growing regional threats. Reflecting a broader trend in Japanese foreign policy, Ishiba voices his desire for a shift that seeks to both protect national interests and contribute to regional stability in an increasingly volatile security environment. The October 27thsnap elections for the House of Representatives, the lower house of Japan's National Diet, will serve as a referendum on Ishiba's policy aims, testing public support for his defense and foreign policy posturing.

Assessing Risks and Strategic Considerations

Japan's recalibrated defense strategy carries notable ramifications for global stakeholders, particularly multinational corporations, investors, and foreign governments. The most immediate risk is the potential for increased regional instability, as a more militarily assertive Japan in the Indo-Pacific could raise tensions with China, North Korea, and Russia. For businesses operating in or reliant on supply chains in East Asia, heightened military tensions may disrupt trade routes, particularly in key areas such as the South China Sea, where much of the world's shipping traffic passes. Moreover, Japan's shift toward offensive capabilities, such as counterstrike measures, could provoke adversarial responses from countries such as North Korea, increasing the likelihood of military confrontations. This would likely create volatility in regional markets, impacting industries ranging from manufacturing to energy.

However, Japan's defense modernization also presents strategic opportunities for stakeholders, particularly in the defense and technology sectors. Japan's increased defense spending opens up opportunities for defense contractors, technology firms, and cybersecurity companies to collaborate with Japanese entities on defense projects. Joint ventures in missile defense systems, space technologies, and cybersecurity will likely increase as Japan seeks to enhance its capabilities across multiple domains. Furthermore, Japan's growing role in regional security could lead to new diplomatic and trade opportunities for countries and companies looking to engage with Japan in defense-related industries. For global businesses, there is also the potential for economic opportunities in sectors related to infrastructure and logistics, particularly as Japan looks to bolster its southern island defenses and maritime capabilities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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