Japan: The Perils & Promises of Japan's Geopolitical RIse

What happened: Japan is emerging as an increasingly important global player for middle powers.

Why it matters: Japan’s elevated position gives it influence over key priorities but also comes with risks and challenges.

What happens next: Savvy players will look for ways to stand out and align their interests with the Takaichi administration.

The commodity that has grabbed the world’s focus over the last few months has been oil, but one that should be more closely watched is Prime Minister Sanae Takaichi’s attention. Since the outbreak of the Iran war, middle powers are flocking to Tokyo to shore up ties with Japan. Over the last two months, Takaichi has welcomed the leaders of France, Singapore and Canada, and has held calls with those of Germany, the UAE, Italy and others. The PM herself has visited Australia, Vietnam and the United States.

Why the sudden interest? The simple answer is that many countries believe Japan can be a key ally, act as a bridge to the US and serve as a hedge against China. We believe they are right to think so.

In our view, Takaichi has succeeded in emulating the deft diplomacy of her mentor, Shinzo Abe, and has maintained warm personal relations with US President Donald Trump while navigating his mercurial nature and avoiding — in the eyes of Japanese officials — his sometimes unreasonable demands. Since many Western leaders have failed spectacularly in maintaining even cordial relationships with Trump, having such an adept ally on their side is a no-brainer.

For Japan, this is a very positive development, as it allows the government to focus more of its priorities on the international stage. For example, aligning ASEAN countries (and India) away from China or creating a “market democracies” supply chain for rare earths and critical minerals. Being courted by more countries means Tokyo can accelerate these initiatives.

Similarly, Tokyo may find itself able to influence initiatives or policies it does not like. For example, the EU's Carbon Border Adjustment Mechanism (CBAM) scheme for imports came into effect in January. Whether an in-demand Japan can get special treatment for its imports or seek reciprocal status under the GX-ETS is unclear, but the wind certainly seems to be at Tokyo’s back.

However, all of this is not without its challenges. The main challenge is that Takaichi’s time is limited, and countries will have to work even harder to get some of her attention. Not to imply that the PM is inclined to play favorites, but rather to simply point out that when demand for something exceeds supply, the price to get any commodity will go up.

Next, Japan remains a fundamentally cautious nation. Its increased international popularity will not change that. Any government looking for Japan to take a more out-in-front role in international diplomacy will be very disappointed. This is especially true in the US, a relationship Japan manages with the utmost care.

Finally, with more stakeholders to contend with, Japan’s ever-present system of internal stakeholder alignment could become even slower and more opaque.

For foreign investors whose plans happen to intersect with a priority of the Takaichi government, congratulations: life just got a lot easier. For everyone else, the challenge is to stand out from the pack.

To do that, try to figure out how your issue or activity best aligns with the government's priorities or broader industry trends. Make engaging with you worth their time. And as always, start early and be patient.