Strengthened Indo-Pacific, Sanaenomics and Defence Expansion: Is Japan Back?

Image Source: Prime Minister’s Office of Japan

by Gaurav Dutta

When former Prime Minister Shinzo Abe declared that “Japan is back”, he was responding to doubts about whether Tokyo would slip into strategic irrelevance and become a Tier Two nation. Abe highlighted three ways to achieve it: 1) Prosperity of the Asia Pacific or the Indo-Pacific, in which Japan would become a leading promoter of rules on trade, investment, intellectual property, labour and environment. (2) guardian of the global commons, particularly in the maritime domain, and (3) rules promoter and be an effective ally of the US and other like-minded democratic nations. Today, under Prime Minister Sanae Takaichi, that question arises.

Following a landslide victory in the snap election, investors in Japan have expressed optimism, expecting faster growth through fiscal expansion. Takaichi’s credibility will depend on addressing urgent economic issues and fulfilling alliance promises, as well as managing defence matters such as defence manufacturing, constitutional reform, economic security, critical minerals, and diversified supply chains from China. Takaichi has committed to a “responsible, proactive fiscal policy at the core of the policy transition.” However, beyond market optimism, a deeper question remains: can Sanaenomics turn ambition into structural change amid economic fragility and geopolitical turbulence?

Economics at the centre of strategy

Markets initially welcomed Takakichi’s victory. The Tokyo stock exchange recorded gains amid expectations of fiscal stimulus and pro-growth policies. Investors anticipate expansionary spending, regulatory easing, and a renewed industrial strategy focused on semiconductors, critical technologies, and supply chain resilience. Reportedly, Takaichi is preparing to increase investments through targeted public spending in sectors crucial to economic security. Additionally, due to tariff impacts, firms are likely to adopt a cautious stance going forward. The success of Takaichi’s goals hinges on addressing domestic economic challenges such as wage stagnation and the consumer tax. Regarding the consumption tax, 28.8% of lawmakers favoured maintaining the current rate, while 59.1% preferred lowering or abolishing it. Currently, Japan’s weak yen has increased living costs and inflation and is affecting global bonds. Japan’s bond market, one of the largest in the world, means that small changes in Japan could potentially influence borrowing costs and investment decisions worldwide. 

However, structural economic challenges include wage stagnation, demographic decline, rising social security burdens, and a politically sensitive consumption tax. If Sanaenomics is to go beyond rhetoric, it must reconcile fiscal expansion with debt sustainability while ensuring that growth results in real wage increases and a revival of domestic demand. Rising costs were also among the reasons that led to the loss of Shigeru Ishiba’s premiership. A weak yen has increased import costs, boosted exports, and attracted more foreign tourists to the country. Foreign tourism has undoubtedly generated revenue but has also caused public grievances over concerns of overcrowding and behavioural misconduct by foreign visitors. Additionally, amid a shrinking workforce, Takaichi would need to balance the growing anti-immigration sentiment with the necessity of continuing to allow immigration into the country. 

Economic security is inextricably linked to macroeconomic policy. Diversifying away from overdependence on China, securing critical minerals, strengthening defence production capacity, and technological self-reliance are central to Japan’s long-term resilience. The credibility of the administration will depend on delivering tangible outcomes in these domains.

Defence Expansion: From Pacifist constraint to strategic normalisation?

One of the goals of the Takaichi administration is to increase defence spending to 3 per cent, ease weapons export restrictions, and contribute a greater share of the burden for the US and its allies. On the strategic front, the Takaichi administration’s security stance continues the approach of the Abe administration, but with increased boldness. Such measures align with Abe’s vision of Japan as a rule-promoting security provider in the Indo-Pacific. However, they also raise internal political questions and regional sensitivities, especially amid tensions with China and North Korea. Additionally, a recent survey found that 81.1% of lawmakers from the House of Representatives support revising Article 9 of the Japanese Constitution to clarify the legal status of the Self Defence Forces (SDF), while 83.4% support adding an emergency clause to give the government more power in case of a major disaster or armed attack. Article 9 prevents Japan from waging war and deploying armed forces externally for offensive purposes. In a speech following her victory, she highlighted ‘constitutional revision’ and hoped for a swift response from the National Diet to amend the Constitution. Nonetheless, support for maintaining Japan’s three non-nuclear principles remains at 68.7%, and support for increased defence spending stands at 84.1%. Amid reports from an official from the prime minister’s office that Japan is moving towards nuclear armament, Takaichi stated that she personally values the Nuclear Non-Proliferation Treaty (NPT) and has not received any suggestions regarding potential nuclear weapons development. Takaichi clarified that she is not in support of “nuclear sharing” with the US, in which the American nuclear weapons would be stationed in Japan in the event of an emergency. She also noted the need to assess the conditions for Japan’s response and the effectiveness of nuclear disarmament related to the Treaty on the Prohibition of Nuclear Weapons. Furthermore, Takaichi added that Japan will build concrete and realistic discussions concerning the revision of the three key security-related documents, including the Three Principles on the transfer of defence equipment and technology. 

A bolder China posture

Takaichi’s stance towards China marks one of the clearest indicators of change. Her unwillingness to retract her statement of a “survival-threatening situation” in the event of a Taiwan contingency highlights her firm position. This move resulted in her high approval ratings and improved public perception. Recently, Japan seized a Chinese boat and its captain after they intruded into the Exclusive Economic Zone (EEZ). Takaichi has stated that Japan will “resolutely” crack down on illegal fishing by foreign ships. This can be seen as a bold move against China, for which Takaichi has said that China’s coercion has made the area surrounding Japan “a severe and complex security environment since the Second World War.” Reportedly, Japan’s Defense Ministry has also decided to enhance its air base on Iwoto Island as a response to concerns over increasing China’s military presence in the region.

Takaichi’s bold actions against Beijing align with Washington’s expectation for Tokyo to shoulder a greater burden-sharing role and counter China. At the same time, she maintains that Japan seeks a “constructive and stable relationship of mutual benefit” with Beijing. This dual approach, deterrence combined with pragmatic engagement, reflects Tokyo’s broader balancing strategy.

An Indo-Pacific update and India

A more resilient and strong Japan is in India’s interest for cooperation in minilateral groupings such as the Quad. An updated Indo-Pacific strategy is likely to rest on three pillars: 1) strengthening economic foundations, 2) fostering economic growth through problem-solving, and 3) security cooperation. During a recent policy speech by Japanese Prime Minister Sanae Takaichi, she is expected to promote the concept of the Indo-Pacific by emphasising the development of artificial intelligence with like-minded nations to counter the spread of Chinese-origin AI that influences public opinion. The revised initiative is likely to be further bolstered through the Association of Southeast Asian Nations (ASEAN), the ongoing advancement of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and defence/security support via Tokyo’s Official Security Assistance (OSA). Subsequently, Japan’s Defence Minister, Shinjiro Koizumi, confirmed that his country will host the Japan-Pacific Island Defence Dialogue (JPIDD) with ASEAN nations. Reportedly, Japan’s defense ministry plans to establish a “Pacific defence initiative office” through which Tokyo plans to strengthening defence in the Pacific region.

Is Japan back?

Japan’s return cannot be measured solely in stock market gains or defence budgets. It depends on whether Tokyo can integrate economic revitalisation, industrial policy, and security strategy into a coherent grand strategy. If Sanaenomics succeeds in coupling fiscal stimulus with structural reform, while embedding Japan more deeply in Indo-Pacific rule-making and alliance frameworks, then the answer may well be yes.

But if domestic economic constraints, coalition fragility, or regional escalation undermine policy coherence, the slogan risks remaining aspirational rather than transformational. Takaichi’s durability will come under scrutiny as she needs to maintain a balancing act between both the US and China, prioritising ties with Washington while continuing her pragmatic engagement with Beijing.

For Takaichi, the situation is more serious than what Shinzo Abe experienced. Currently, the rules-based order is under strain, further complicating Japan’s FOIP principles. The US continues to remain central to Japan’s foreign policy and has avoided either support or criticism of US actions over Venezeula and Iran. Japan may be moving beyond post-war restraint toward calibrated assertiveness. Whether that evolution constitutes a full strategic return remains the defining question of the administration.

*****

Gaurav Dutta is an East Asia Analyst and holds a PhD from Jawaharlal Nehru University. Previously, he worked as a Consultant at the Ministry of External Affairs and as a Research Associate at the National Maritime Foundation. The views expressed here are personal.