Welcome to State of Play. I'm Will Todman, Chief of Staff of the Geopolitics and Foreign Policy Department at the Centre for Strategic and International Studies. In this podcast, we bring together our leading experts to unpack the latest geopolitical developments from around the world and what it all means. So I said that this year we will try and bring you even more of our analysis. And so today we have our first emergency episode, and this is focusing on the geopolitical implications of Japanese Prime Minister Sanae Takeuchi's landslide victory in the general election that she called. This was quite a bold bet, but it certainly seems to have paid off for her and her party, as at the time of recording, she has won 316 seats out of 460 165. But if you add in her coalition partners, she's up to 352, which means she now has a super majority. And so to better understand the geopolitical implications of that, I am joined by my colleague, Nick Secheny, who is the vice president of the geopolitics and foreign policy department and also a senior fellow in the Japan chair. Now, Nick has the distinct pleasure of working with me very closely in the geopolitics department. So we talk to each other a lot, but I have yet to hear your take on this. So Nick, I'm really excited to hear what you think this all means. And I want to start perhaps on the defense side, because I know that, and Christy Gavella said in our predictions episode that she thought that Japan would increase its defense spending. And that seems, I think, probably more likely. But can you walk us through, you know, what does this huge victory mean for the likely trajectory of Japan's defense spending? Sure. Thanks, Will. And a real pleasure to join you. This plan of Japan to rapidly increase defense spending goes back to 2022, when a previous government released a new defense strategy and defense procurement budget, basically in response to the rapid deterioration of the international security environment. So in the wake of Russia's invasion of Ukraine, Japan became very worried about the potential implications of that conflict for stability in Asia. And that in turn prompted a very rigorous debate about the types of defense capabilities Japan should acquire. So at that time, The government pledged to rapidly increase defense spending to about 2% of Japan's GDP. Up to that point, there was sort of an unofficial cap of 1%, so you can understand that's quite a leap. And fast forward to Takahichi, the environment is deteriorating even further. So Japan is facing an aggressive China with rapidly advancing defense capabilities. capabilities. You still have the North Korea problem with a nuclear weapons program and thousands of ballistic missiles pointed at Japan. Russia, although some might argue is a declining economic power and more focused on Europe, is coordinating more with China. We've seen multiple joint exercises around Japan. And of course, is flirting with North Korea in the context of getting support for the war in Ukraine. So Japan looks at this picture, not surprising then that they need to accelerate further. So the current defense budget for this year is aiming for $58 billion, which is a record high for Japan just for fiscal 26. And at the end of this calendar year, the Takaiichi government will unveil another defense strategy, outlying more ambitious increases in defense spending, perhaps up to 3.5% of GDP on the high end. So this is a practical response to a rapidly deteriorating security environment. But there are a lot of questions around it. You know, if Japan has more money to spend, what is it going to spend it on? And what makes the most sense And that debate is going to accelerate now that Takaiichi has more political power and a longer window in which to pursue this objective And was defense spending a big part of the campaign Clearly, a lot of Japanese have supported her and given her their votes to support her agenda. But I wonder, you said, that's going to presumably involve some difficult decisions about what to cut back on if you're increasing the defense spending. So is that going to be smooth sailing for her to increase it? Or are there still going to be real challenges there, do you think? Well, recent public opinion polls show that the Japanese public understands the threat environment around Japan and supports, generally speaking, increases in defense spending. But now comes the hard part. Takahichi has to not only explain what Japan's spending priorities should be, but she also has to explain how they're going to pay for it. And that's the issue that has not really been addressed in detail. and Japan has fiscal challenges, has a huge debt overhang. Is the prime minister in the wake of a landslide election victory going to announce tax increases to pay for defense? I'm saying this in a flippant way, but it's a really serious question. And so now the details have to be fleshed out. What are the priorities? And she needs to have a candid conversation with the public about why they're important and how Japan has to make the sacrifice to resource that strategy. So fiscal policy and security policy are inextricably linked going forward, in my view. Yeah. And so on the security side, you mentioned China already. And clearly there have been rising tensions between Japan and China since the start of Prime Minister Takeuchi's tenure, I think. Do you expect now that she has such a strong domestic political situation, will that get even worse? Or do you expect China to actually ease off a little bit now that she is in a stronger position coming out of these elections? China has applied coercive pressure on Japan for many years, dating back to 2012, when there was a lot of tension over sovereignty of the Senkaku Islands and the East China Sea. And I think when when Takaichi talked about the potential implications of a Taiwan contingency for Japan's national security in the parliament last fall, China immediately pulled out its playbook and applied all kinds of coercive pressure on Japan. discouraging tourism, threatening rare earth, a cessation of rare earth exports, and military pressure. And so Japan is very familiar with this. But China's objective was to try to isolate Sakai-chi politically and weaken her political standing, and also see if that kind of pressure might drive a wedge between Japan and the United States. And that's China's ultimate its strategic objective in Asia to make the U.S. alliance network weak. As a result of this election, the campaign to isolate Takai Chi and weaken her clearly failed. And China now faces a strong political leader, and I think a strong Japan. And China can't ignore that. So I anticipate continued coercive pressure on Japan, because China knows nothing else. But I think over time, we'll see some stability in Japan-China relations. Again, because there's a certain amount of economic interdependence between the two countries, and Japan is a serious player in Northeast Asia, and China can't ignore that. And back in 2012, when there was another period of heightened tension, Takahichi's mentor, former Prime Minister Shinzo Abe, responded to Chinese pressure by strengthening Japan's defense capabilities strengthening the relationship with the U.S., and thereby demonstrating that Japan could not be isolated. And I think Takahichi is going to follow that same strategy. So on the U.S. part, I saw, I think, a warm post from President Trump about maybe it was in the lead up to the election and then maybe another one after the election Clearly he seems quite happy with this outcome What do you think it means for the US relationship going forward Does this set the stage for an even closer relationship Or are there still big issues that they'll have to try and work through? Well, not to be too flippant, but Trump likes winners. She's clearly a winner. And she's going to be around for a while. So I think that generates great momentum for further strengthening U.S.-Japan relations. Trump and Takahichi met in Tokyo last October. They released some framework agreements related to economic security. The two governments reached a trade and investment deal last year. So a lot of the emphasis was on the economic pillar of the relationship. But there were also good optics. So, Takahichi appeared with him jointly on the USS George Washington, and they demonstrated a personal rapport. So, that's important. But it was also a strategic signaling effect to that. Getting back to what I said earlier, that the U.S.-Japan alliance is stronger than ever. And so they generated momentum already. But now in the wake of this election victory, Takai Chi, when she comes to Washington next month, presumably, really has an opportunity to reaffirm Japan's value as an ally and get the president to remember that Japan is stepping up. but most importantly, perhaps, have a really good conversation with him about China and the challenges it poses for Japan and other U.S. allies in Asia, because that meeting will take place right before the president goes to China to meet with Xi Jinping. Oh, in April. Bilateral ties, but strategically really significant in trying to shape the way the president thinks about the region before his next trip. Definitely. I wonder if we'll see any of these, maybe not drumming together like she did with the South Korean president, but maybe some kind of something like that. So maybe to finish with then, what do you think this means for Japan's overall strategy? You mentioned that Prime Minister Takahichi is kind of protégé of late Prime Minister Shinzo Abe. Should we expect her to follow in his footsteps? Is it possible for her to do that in this changing environment? What are you looking out for? Well, we talked about Abe's legacy with respect to investments in defense spending, strengthening the U.S.-Japan alliance. The third important part of his foreign policy strategy, which I still think is fundamental to Japan's strategic trajectory today, was networking with like-minded countries in the Indo-Pacific. He created an umbrella term for that. It was called the Free and Open Indo-Pacific Strategy, fundamentally about shaping rules and norms to ensure stability and prosperity in the future throughout the region. So I think Takaiichi now, with this political power that she's acquired, really has a chance not only to strengthen connections with Washington, but with other players. And that in turn reminds the international community about Japan's leadership role in the international system. And that could be anything from defense cooperation, development assistance, support for agenda setting in regional institutions, thinking about the future of global governments. Japan is a player in all of those things. And so I think Takaiichi now can be a little more forward leaning and confident about Japan's leadership role strategically. And now she has some time to put her own imprint on the strategic trajectory that Japan established. I think the one question mark, though, and this is obvious, but it all comes down to Japan's economic power. She's all about comprehensive national power, using all the tools to demonstrate Japan's leadership credentials. But she's got to define and implement an economic strategy for Japan that can support this very ambitious agenda that Abe laid out So I would expect her to focus on economic strategy initially because that what people are wondering about most domestically and internationally But I also think you see a very confident Takahichi finding a variety of ways to demonstrate Japan's strategic weight on the international stage. And just to dive a little bit into that, you mentioned earlier potential tax increases. I I don't know if you're joking or not. When we think about a conservative party or conservative leaders anywhere in the world, we don't typically think about increasing taxes. But is that really on the agenda? Is that something that you think she now has the political capital to pull off and the desire to do as well? Well, she was fairly general in the context of the election campaign and not getting into too much detail. I think the general assumption is that as a conservative, her instinct will be to increase government spending, to stimulate the economy, which is a traditional tactic of her liberal democratic party. So I think that will probably be her instinct. But as you know, in any system, there are multiple bureaucratic players. And the finance ministry in Japan wields a great deal of power. And I suspect that while they understand the instinct for economic stimulus, there's probably another camp that wants to prioritize fiscal consolidation. And that's where potential tax increases and other policy levers come into play. So we're going to see a very vigorous debate over economic strategy in the coming weeks and months. And the markets have already been reacting. When Takai, she talked about tax cuts. Bond markets reacted very negatively during this election campaign. So you have the markets a little unsure about her direction. You have bureaucratic players in Japan who might want to shape the direction of the economic debate. And you have questions about where Takaichi will ultimately land. So some uncertainty, but also a very dynamic environment in which to observe Japanese economic policy going forward. And I should say to our listeners that if you want to dive deeper into the domestic piece, you should watch the event that Nick, you moderated on the morning of the 9th of February, early at 8am, and you've got graphs and you can see all the latest analysis of the results. So I would recommend people to listen to that. But thank you so much, Nick. So you've said, okay, we should look for higher defense spending, but there are real questions about where that will come from. You've said China really failed in its effort to isolate Takahichi. They tried to drive a wedge between the US and Japan, but that also seems to have really failed. And so perhaps we should be looking towards more stability in the Japan-China relationship, even if tensions will endure. And then on the US side, real momentum for the US-Japan relationship. President Trump likes a winner. He clearly sees a winner in Prime Minister Takeichi, as she's probably going to come to Washington in the next month. And that will be important just before President Trump's trip to China that's scheduled for April. And then finally, on the broader strategic side, you've said this is now a moment for Japan to take new leadership in various issues, shaping the global agenda for for governance, different kinds of partnerships that Japan can strengthen. So I think really important results of these elections. Thank you for walking us through just an early taste of what we should expect going forward. Of course, we will have to come back to you as all of this evolves and see how it does indeed play out. and if she's able to really increase spending to those ambitious targets. But thank you so much, Nick, for joining me on this special episode. Thanks, Will. Appreciate the opportunity. Thanks for listening to State of Play. If you enjoyed this episode, subscribe to it wherever you heard it. And you can find more analysis at www.csis.org forward slash geopolitics. Until next time. you
