For global investors, this reshapes the risk–reward paradigm: sovereign debt faces greater scrutiny, while protectionism disrupts supply chains and corporate behaviour. At the same time, rising geopolitical tensions and regional conflicts drive higher volatility and risk premiums across markets.
Market participants concentrated on Asian markets face particular challenges of their own. Here, we consider Japan’s role within this “new world order” amidst its efforts to transform the energy and technology sectors and scale climate transition investments. We especially focus on the utility sector, which is relevant to fixed income investors due to its exposure to these overarching themes. Investors should look for opportunities in companies that benefit from Japan’s strategic push for energy security, technological sovereignty, and the buildout of critical digital infrastructure, especially those aligned with the GX[1] and DX[2] policies and the government’s priority investment areas.
Energy dependence
Japan has survived oil embargoes, OPEC shocks — even nuclear shutdowns. Each crisis has exposed the same truth: energy dependence is a strategic weakness. The recent Iran conflict highlights Japan’s exposure to disruptions in energy supply chains. Japan’s energy destiny will be determined by how well it can innovate and adapt under the new world order.
Japan’s policy response
Since the Russia-Ukraine conflict, Japan’s strategy has been to embrace its GX and DX policies, which bind energy security, industrial policy, and technological innovation together. Given the country’s low energy self-sufficiency and vulnerability to external shocks, the immediate focus has been on diversifying fossil supply (especially LNG), restarting nuclear generators, and gradually increasing renewables.[3] As this strategy has unfolded, Japanese utilities and trading houses have hedged with upstream and regional LNG/power investments that reduce carbon emissions compared to coal but create a different fossil fuel lock-in risk. This diversification of fossil supply is now being put to test.
US-China tensions and Japan’s role
In the US-China dynamic, Japan positions itself as a key ally to the US in balancing China’s power. However, China and Japan are economically integrated (China is Japan’s largest trading partner)[4] and Japan relies on its larger neighbour for the smooth operation of supply chains and inward investment. To reduce that concentration risk, Japan is working to build greater self-reliance in its supply chains, particularly in critical minerals.
Technology as a strategic asset
Japan frames semiconductors, AI, advanced manufacturing, and clean energy supply chains as strategic assets, aligning closely with US and EU partners. The country subsidises domestic fabs under the GX/DX policies to anchor its digitally enabled industrial base while pushing for increased energy generating capacity to meet rising electricity demand from data centres and critical technologies.[5] For rare earth materials, Japan is also trying to diversify its sources.
Japan’s advantage in the semiconductor industry is its dominance in materials, equipment, and highly specialised components in upstream semiconductor manufacturing — including photoresist, silicon wafers, and some advanced packaging materials.[6]
Technology sovereignty
Since 2021, METI, Japan’s Ministry of Economy Trade and Industry, which has a role to design and implement Japan’s economic, trade and energy policy, has pursued a semiconductor revitalisation strategy covering 5G, AI, IoT, and autonomous vehicles. In November 2024, Prime Minister Ishiba announced a JPY10 trillion tech sovereignty package by FY2030 to subsidise semiconductor fabs and AI startups,[7] a direction continued under their successor Takaichi. Her cabinet on March 10 released a draft investment plan for 17 strategic areas including semiconductors, AI, quantum technology, and shipbuilding.[8]
What about the current situation in the Middle East?
The US/Israel and Iran war illuminates the new world order — one that impels energy self-sufficiency, supply chain control, and domestic reshoring of strategic assets. For Japan, a stable energy supply means a geopolitically stable and accessible supply. This may mean stronger energy ties to the US, the acceleration of nuclear restarts, or the rapid deployment of renewables. Ultimately, an ‘all of the above’ option should be the end goal.
Key themes and policy and investment implications
1. Energy Security: Diversification of sources and fuels while working on renewables to ensure stable supply. Energy as the key input for technology, industrial, and manufacturing processes.
Policy & Investment Implications
- Gas upstream & infrastructure investments
- Long term gas procurement contracts
- Gas global trading
- Nuclear restart drive & next generation advanced reactors
- Grid and power investments
- Renewable as a third priority
- Target Perovskite solar cells production
- Self-sufficiency for renewables
Key Players & Sectors
- Gas utilities and other electric utilities (Tokyo Gas, JERA, J-Power)
- Trading companies (Mitsco, Sumitomo Corp, Mitsui)
- Renewable companies
- Construction companies (Hitachi, Toshiba)
2. Technology: Enable technology as a comparative advantage and build resilient supply chains while aligning with the US and its partners for technology build. Autos (using technology): in-line with semiconductor push — inputs for automated electric vehicles (EV)
Policy & Investment Implications
- Semiconductor national strategy for basic production capacity; next generation (2 nm) chips; advanced packaging and power devices investments
- National subsidies for chips (Micron in Hiroshima, TSMC in Kumamoto, Rapidus fab construction in Hokkaido)
- Establish supply chain, diversify sources and investments for critical minerals
- Explicit policy target for Japanese automakers to capture 30% of EV sales around 2030-2035
- Major Japanese automakers to collaborate to develop technology and software
Key Players & Sectors
- Data/infrastructure (NTT, Softbank, Toshiba, Hitachi, Mitsubishi Electric)
- Semiconductor/Memory
- (Rapidus, TSMC/Micron/Kioxia/Tokyo Electron)
- Advanced packaging/others (NEC/Toshiba)
- Robotics (Fanuc/Yaskawa etc.)
- Automakers (Toyota, Honda, Nissan, Subaru etc)
- Auto suppliers (Denso)
*************************************************************************************************************************************************************
[1] Green transformation policy (GX) is the national strategy of Japan to shift from a fossil-based energy and industrial system to a cleaner energy focused growth model. For more analysis on this please see Japan’s transition bonds.
[2] Digital transformation policy (DX) is Japan’s government drive to use digital technologies including cloud and AI to maintain and improve public services and productivity in an aging society.
[3] "Electric Power Industry in Japan 2025", Jpn. Electr. Power Inf. Cent., Jul 2025.
[4] "Japan-China Economic Relationship and China’s Economy", Minist. Foreign Aff. Jpn., 25 Jun 2025.
[5] "Basic Semiconductor Revitalization Strategy in Japan", Int. Coop. Semicond., 28 Apr 2023.
[6] "The renaissance of the Japanese semiconductor industry", Brookings, 3 Jun 2024.
[7] "Japan unveils ¥10 trillion plan to aid domestic chip industry", Jpn. Times, 11 Nov 2024.
[8] "Japan’s Investment Targets Include AI, Quantum Computing", Bloom. Finance LP, 10 Mar 2026.
