Escalation of Military Drills in the South China Sea
With large-scale military exercises conducted simultaneously by both the US and China in the South China Sea, Japan is being forced to make one of its biggest strategic choices since the war, caught between "deepening its alliance with the United States" and "economic dependence on China." This tension is not transient but a sign that a structural spiral of conflict is irreversibly progressing.
── Understand in 3 points ─────────
- • From January to March 2026, the U.S. Navy's 7th Fleet conducted "Freedom Edge 2026" exercises in the South China Sea. Deploying two carrier strike groups, it was the largest exercise in the past decade.
- • The Chinese People's Liberation Army Navy (PLAN) conducted large-scale live-fire exercises simultaneously around the Paracel and Spratly Islands in the South China Sea. The exercise area covered approximately 150,000 square kilometers.
- • In February 2026, the Japanese government issued a Foreign Minister's Statement on the situation in the South China Sea, expressing deep concern over "attempts to unilaterally change the status quo by force."
── NOW PATTERN ─────────
As the "spiral of conflict" between the US and China self-reinforces, the dichotomy between deepening the Japan-US alliance and economic dependence on China harbors the risk of "alliance fissures," bringing post-war Japan's security policy's "path dependency" to a turning point.
── Probability and Response ──────
• Base case 55% — Expansion of JMSDF IPD deployment training areas, regularization of Japan-US-Philippines trilateral joint exercises, track record of using the US-China military hotline, continued distinction by the Japanese government between "training" and "exercises"
• Bull case 15% — Issuance of a joint statement on the South China Sea at the US-China summit, voluntary reduction in the scale and frequency of China's military exercises in the South China Sea, official announcement by the ASEAN Secretary-General regarding substantial progress in COC negotiations, decrease in US FONOP frequency
• Bear case 30% — Increased frequency of abnormal close encounters between US and Chinese military aircraft and vessels, occurrence of physical clashes between China Coast Guard and Philippine vessels, malfunction of the US-China military hotline, establishment of an ADIZ (Air Defense Identification Zone) over the South China Sea by China, simultaneous military intimidation in the Taiwan Strait
📡 THE SIGNAL — What Happened
Why it matters: With large-scale military exercises conducted simultaneously by both the US and China in the South China Sea, Japan is being forced to make one of its biggest strategic choices since the war, caught between "deepening its alliance with the United States" and "economic dependence on China." This tension is not transient but a sign that a structural spiral of conflict is irreversibly progressing.
- Military — From January to March 2026, the U.S. Navy's 7th Fleet conducted "Freedom Edge 2026" exercises in the South China Sea. Deploying two carrier strike groups, it was the largest exercise in the past decade.
- Military — The Chinese People's Liberation Army Navy (PLAN) conducted large-scale live-fire exercises simultaneously around the Paracel and Spratly Islands in the South China Sea. The exercise area covered approximately 150,000 square kilometers.
- Diplomacy — In February 2026, the Japanese government issued a Foreign Minister's Statement on the situation in the South China Sea, expressing deep concern over "attempts to unilaterally change the status quo by force."
- Security — In early 2026, the Japan Maritime Self-Defense Force (JMSDF) conducted the Indo-Pacific Deployment training (IPD26), centered around the destroyer "Izumo," in the vicinity of the South China Sea. This included joint training with the US and the Philippines.
- Economy — If freedom of navigation in the South China Sea is threatened, approximately 40% of Japan's trade volume would be affected. Goods worth about $5 trillion annually pass through this sea area.
- Politics — Japan's defense budget for fiscal year 2026 reached approximately 8 trillion yen, exceeding 1.5% of GDP. It was primarily allocated to the defense of the Nansei Islands and the development of "counterstrike capabilities."
- Diplomacy — At the Japan-US summit in February 2026, a transition to a "new stage" of security cooperation in the Indo-Pacific, including the South China Sea, was confirmed.
- Regional Affairs — By the end of 2025, the Philippines expanded the number of bases covered by the Enhanced Defense Cooperation Agreement (EDCA) with the United States to nine. This formed the basis for an increased US military presence in the South China Sea.
- International Law — Ten years after the 2016 Permanent Court of Arbitration ruling (South China Sea Arbitration Award), China still dismisses the ruling as "a piece of paper" and continues the militarization of artificial islands.
- Technology — China is said to have already deployed integrated air defense and missile defense systems, including anti-ship ballistic missile (ASBM) launch capabilities, on its artificial islands in the South China Sea.
- Alliance — Multiple diplomatic sources report that Japan's participation in advanced technology cooperation under Pillar II of AUKUS (US, UK, Australia) is being informally considered.
- Energy — The South China Sea is estimated to hold 11 billion barrels of oil and 190 trillion cubic feet of natural gas, placing it at the core of China's energy security strategy.
The intensification of US-China confrontation in the South China Sea did not begin suddenly in 2026. This tension is the culmination of structural changes spanning at least a quarter-century, and understanding its roots requires tracing back the transformation of the post-Cold War Asia-Pacific order.
After the end of the Cold War, the United States maintained a security order in the Asia-Pacific region based on a "hub-and-spoke" network of bilateral alliances. In the 1990s, China's economic growth was welcomed as a "peaceful rise," and US policy toward China was based on "engagement." However, the 2001 Hainan Island incident (EP-3 incident) already suggested that the South China Sea was a potential point of friction between the US and China.
A turning point came around 2012. China effectively seized Scarborough Shoal from the Philippines in the South China Sea, and from 2013 onwards, began unprecedented large-scale artificial island construction in the Spratly Islands. 3,000-meter-class runways were built on Fiery Cross Reef, Subi Reef, and Mischief Reef, and militarization rapidly progressed. This was an attempt to establish de facto China's sovereignty claims over almost the entire South China Sea, enclosed by the "Nine-Dash Line."
In 2016, the Permanent Court of Arbitration, in its South China Sea Arbitration Award initiated by the Philippines, completely rejected China's claims of historical rights based on the Nine-Dash Line. However, China rejected this ruling as "a piece of paper" and accelerated the militarization of its artificial islands. This open challenge to the international legal order fundamentally shook the credibility of the rules-based international order.
The US response has also escalated incrementally. The Obama administration's "pivot to Asia (rebalance)" was important as a statement of strategic intent, but with continued engagement in the Middle East, the actual shift in military presence was limited. The first Trump administration adopted a tough stance on China, increasing the frequency of "Freedom of Navigation Operations (FONOPs)," but coordination with allies was unstable. The Biden administration promoted the construction of a multi-layered alliance and partnership network, including AUKUS, QUAD (Japan, US, Australia, India), and Japan-US-Philippines trilateral cooperation, which has been maintained to some extent under the second Trump administration.
For Japan, the South China Sea is not a "distant sea." Approximately 80% of Japan's imported crude oil and a significant portion of its liquefied natural gas (LNG) pass through the sea lanes of the South China Sea. Alongside the Taiwan Strait, the stability of the South China Sea is a lifeline directly linked to Japan's economic survival. The 2015 amendment to security legislation introduced the concept of "situations threatening Japan's existence," allowing for the exercise of collective self-defense even if Japan is not directly attacked, should an armed attack on a closely related foreign country threaten Japan's existence. This change in the legal framework dramatically expanded the possibility of Japan's involvement in a South China Sea contingency.
Russia's invasion of Ukraine in 2022 fundamentally altered perceptions of the security environment in East Asia. The realization of "unilateral changes to the status quo by force" in Europe rapidly heightened vigilance against similar scenarios in the Taiwan Strait and the South China Sea. At the end of 2022, Japan revised its three key security documents—the National Security Strategy, National Defense Strategy, and Defense Buildup Program—deciding to double defense spending (targeting 2% of GDP) and acquire counterstrike capabilities. This marked the largest shift in Japan's post-war security policy.
As of 2026, the simultaneous conduct of US-China military exercises in the South China Sea indicates that this quarter-century of structural confrontation is reaching a new critical point. The United States seeks to contain China's maritime expansion as "revisionist behavior," while China strengthens its military presence in defense of its "core interests." Within this escalating spiral of conflict, Japan is placed in a position where it can no longer remain a bystander, geographically, economically, or strategically.
The delta: The simultaneous US-China military exercises in early 2026 signal a qualitative shift in the South China Sea from a "gray zone" to "military confrontation." The core change for Japan is that it is structurally no longer possible to remain a bystander to the South China Sea issue, treating it as "someone else's problem." Three converging trends—increased defense spending, expanded application of security legislation, and deeper integrated operations with the United States—mean Japan faces a moment of active strategic choice, caught between the risks of "entanglement" and "abandonment."
🔍 BETWEEN THE LINES — What the Reports Aren't Saying
Behind official statements emphasizing "freedom of navigation" and a "rules-based order," the true driving force is a rehearsal for a Taiwan contingency. The intensification of US-China military exercises in the South China Sea indicates that both sides are anticipating a theater expansion in a Taiwan Strait scenario and are preparing the South China Sea as a "second front." The inconvenient truth that Japan does not articulate is that deepening its involvement in the South China Sea is building an automatic mechanism for participation in a Taiwan contingency, which signifies a strategic shift inexplicable within the framework of "exclusively defensive defense" (専守防衛). Internally, the Ministry of Defense already shares the understanding that the "Southwest Shift" effectively regards the Taiwan Strait and the South China Sea as a single operational area, but this fact is not publicly stated due to domestic political reasons.
NOW PATTERN
Escalation Spiral × Alliance Fissure × Path Dependency
As the "spiral of conflict" between the US and China self-reinforces, the dichotomy between deepening the Japan-US alliance and economic dependence on China harbors the risk of "alliance fissures," bringing post-war Japan's security policy's "path dependency" to a turning point.
Intersection of Dynamics
The three dynamics—"escalation spiral," "alliance fissure," and "path dependency"—do not operate independently but form a complex structure that mutually reinforces itself. It is at this intersection that the inherent danger of the South China Sea situation in 2026 lies.
The more the "escalation spiral" between the US and China intensifies, the more Japan is compelled to deepen its alliance with the United States. However, deepening the alliance expands the first fault line of "alliance fissures"—the risk of "entanglement." Simultaneously, Japanese industries dependent on economic ties with China fear the deterioration of relations with China accompanying alliance deepening, exacerbating the second fault line—the divergence between economy and security.
"Path dependency" exerts a dual effect on these two dynamics. On one hand, post-war self-restraint norms act as a brake on rapid policy shifts, creating a gap between US expectations and Japan's actual actions. This accumulates dissatisfaction within the alliance, potentially widening "alliance fissures." On the other hand, precisely because the "path" of security policy centered on the Japan-US alliance is established, it is institutionally impossible for Japan to adopt a neutral stance, inevitably drawing it into the "escalation spiral."
Even more dangerous is that the interaction of the three dynamics forms a feedback loop. A cyclical structure exists: escalation spiral → pressure for alliance deepening → partial departure from path dependency (strengthening defense capabilities) → increased Chinese vigilance → acceleration of the escalation spiral. Japan's increased defense spending and acquisition of counterstrike capabilities, while defensive measures from Japan's perspective, appear to China as a strengthening of the US-led encirclement of China. This invites further military responses from China, creating a vicious cycle that further deteriorates Japan's security environment.
This complex dynamic suggests the reality that Japan's position in the South China Sea issue is not one that can be stabilized by a single policy decision, but rather a persistent strategic challenge deeply embedded in structural dynamics.
📚 PATTERN HISTORY
1914: Anglo-German Naval Arms Race on the Eve of World War I
Escalation Spiral
Structural similarities with the present: The arms race between two major naval powers pushed the security dilemma to its extreme, and an accidental incident (the Sarajevo incident) escalated into a large-scale war. The US-China military presence competition in the South China Sea has a similar spiral structure. The crucial lesson is that once the spiral crosses a certain threshold, escalation proceeds automatically regardless of the parties' intentions.
1950-53: Korean War and Japan's Rearmament / Japan-US Security Treaty
Origin of Path Dependency
Structural similarities with the present: Japan's rearmament and the establishment of the Japan-US security system, triggered by the Korean War, decisively defined the "path" of post-war Japanese security policy. The model of "light armament under the US nuclear umbrella" established at that time has continued to dictate the basic structure of policy choices for over 70 years. Japan's involvement in the South China Sea issue is also an extension of this path.
1996: Taiwan Strait Crisis and Redefinition of Japan-US Security
Interplay of Escalation Spiral and Alliance Strengthening
Structural similarities with the present: In response to China's missile exercises in the Taiwan Strait, the United States dispatched two aircraft carriers to confront it. This crisis prompted a "redefinition" of Japan-US security, leading to the 1997 New Guidelines. While strengthening the alliance contributed to regional stability, it also had the dual effect of accelerating China's military modernization. The situation in 2026 is repeating this pattern on a larger scale.
2012: Senkaku Islands Nationalization and Structural Deterioration of Japan-China Relations
Partial Departure from Path Dependency
Structural similarities with the present: The deterioration of Japan-China relations triggered by the Senkaku nationalization accelerated a shift in Japan's security policy. The path of maintaining the status quo through "shelving" (棚上げ) collapsed, and a new path of strengthening the defense of the Nansei Islands was formed. This experience demonstrates that once a "path" is altered, it is extremely difficult to revert.
2022: Russia's Invasion of Ukraine and Japan's Revision of Three Security Documents
Disruption of Path Dependency by External Shock
Structural similarities with the present: The invasion of Ukraine proved that "unilateral changes to the status quo by force" can indeed happen, bringing about a decisive shift in Japan's security policy. The decision to double defense spending and acquire counterstrike capabilities was the largest departure from post-war path dependency. The intensification of tensions in the South China Sea is making this transformation even more irreversible.
Patterns Revealed by History
The most important lessons revealed by historical patterns are threefold. First, military competition between two major maritime powers creates a self-reinforcing spiral structure regardless of the parties' intentions, and accidental incidents can trigger uncontrollable escalation. The lesson of 1914 applies directly to the South China Sea in 2026. Second, alliance relationships are strengthened in response to crises, but this strengthening itself has a dual nature: it heightens the adversary's perception of threat, sowing the seeds for the next crisis. The redefinition of Japan-US security after the 1996 Taiwan Strait Crisis was precisely this pattern. Third, shifts in Japan's security policy are gradual, but once a direction is set, they proceed irreversibly. Two external shocks—the 2012 Senkaku issue and the 2022 Ukraine invasion—have progressively dismantled post-war path dependency. The South China Sea situation in 2026 could be a third shock that further accelerates this irreversible transformation. History repeatedly teaches that at such structural turning points, "maintaining the status quo" is the riskiest option.
🔮 NEXT SCENARIOS
Military tensions between the US and China remain high, but a "managed confrontation" continues without escalating into direct military conflict. Japan gradually deepens its involvement in "joint training" in the South China Sea but maintains a cautious stance on official participation in full-scale "joint military exercises."
Specifically, the Japan Maritime Self-Defense Force's Indo-Pacific Deployment training (IPD) expands its operational scope in the South China Sea, conducting bilateral and multilateral "navigation training," "communication training," and "search and rescue training" with the US Navy and Philippine Navy. However, the Japanese government positions these as "training" rather than "exercises," avoiding the political label of "participation in military exercises" in the South China Sea. This is to consider domestic public opinion and maintain strategic ambiguity to avoid a complete rupture of diplomatic relations with China.
Ahead of the House of Councillors election expected in the latter half of 2026, the ruling party needs to appeal to both defense strengthening and economic stability. "Active but cautious involvement" in the South China Sea issue aligns with this political balance. The US side is also likely to accept gradual expansion of involvement rather than demanding excessive burdens from Japan and causing friction within the alliance.
In this scenario, tensions in the South China Sea become a "new normal," and while the risk of accidental clashes remains, both sides' crisis management mechanisms function to some extent. Japan's defense spending approaches 2% of GDP in fiscal year 2027, and the defense of the Nansei Islands and deployment of long-range missiles accelerate.
Implications for Investment/Action: Expansion of JMSDF IPD deployment training areas, regularization of Japan-US-Philippines trilateral joint exercises, track record of using the US-China military hotline, continued distinction by the Japanese government between "training" and "exercises"
A provisional agreement on a "Code of Conduct" in the South China Sea, or a substantial agreement on military confidence-building measures (CBMs), is reached between the US and China, leading to a gradual de-escalation of tensions. The premise of this scenario is that both the US and China share the understanding that the costs of military escalation significantly outweigh the benefits, despite domestic political constraints.
Specific triggers could include agreements at the US-China summit expected in the latter half of 2026 (on the sidelines of the G20 summit or bilateral) on strengthening mechanisms to prevent accidental clashes in the South China Sea, introducing a prior notification system for military exercises, and establishing a framework for joint management of fishery resources in specific areas. Negotiations for the South China Sea Code of Conduct (COC) with ASEAN also show substantial progress, paving the way for a legally binding framework.
In this scenario, Japan's need to take the "loyalty test" (踏み絵) of participating in joint military exercises in the South China Sea diminishes, allowing it to maintain a wider range of diplomatic options. Stabilization of economic relations with China would also be pursued, improving the business environment for Japanese companies. However, the probability of this scenario materializing is low. For the Xi Jinping administration, concessions in the South China Sea risk being perceived as a display of weakness domestically, and significant compromise is difficult given that a tough stance on China is a bipartisan consensus in US domestic politics.
The realization of the bull case scenario requires creative diplomatic solutions that allow both sides to declare "victory," which is possible but unlikely.
Implications for Investment/Action: Issuance of a joint statement on the South China Sea at the US-China summit, voluntary reduction in the scale and frequency of China's military exercises in the South China Sea, official announcement by the ASEAN Secretary-General regarding substantial progress in COC negotiations, decrease in US FONOP frequency
An accidental military clash occurs in the South China Sea, and tensions between the US and China rapidly escalate to a critical level. Specifically, scenarios include collisions or contact incidents between US and Chinese warships, incidents involving casualties between China Coast Guard and Philippine vessels, and accidents due to dangerous close approaches by Chinese military fighter jets to US reconnaissance aircraft.
While such an accidental incident is unlikely to directly lead to a large-scale military conflict, it would trigger a diplomatic crisis, leading to a renewed halt in US-China military exchanges, reciprocal economic sanctions, and demands for allies to "show their colors." Japan would be strongly urged by the US to participate in joint patrols and logistical support in the South China Sea, making intense domestic political debate over the recognition of a "situation threatening Japan's existence" inevitable.
In the worst-case sub-scenario, China simultaneously intensifies military intimidation in the Taiwan Strait, raising a "two-front" issue in the South China Sea and the Taiwan Strait. In this event, Japan would face direct security threats, being compelled to immediately strengthen its defense posture in the Nansei Islands, expand the use of US bases in Japan, and potentially initiate logistical support activities based on the recognition of a "situation of grave importance."
The economic impact would also be immense. If the South China Sea sea lanes are even temporarily disrupted, it would lead to a surge in energy prices, supply chain disruptions, and significant volatility in financial markets. The Japanese stock market could experience a sharp decline of 10-15%. This economic shock risks destabilizing domestic politics and exacerbating public opinion divisions over defense policy.
This scenario is the most dangerous outcome of the "escalation spiral" becoming uncontrollable, and while difficult to predict due to its high contingency, a 30% probability is by no means an overestimation given the current level of military tension.
Implications for Investment/Action: Increased frequency of abnormal close encounters between US and Chinese military aircraft and vessels, occurrence of physical clashes between China Coast Guard and Philippine vessels, malfunction of the US-China military hotline, establishment of an ADIZ (Air Defense Identification Zone) over the South China Sea by China, simultaneous military intimidation in the Taiwan Strait
Key Triggers to Watch
- Handling of South China Sea agenda at US-China summit (G20 sidelines or bilateral): July-November 2026
- Announcement of activities and participating countries for Japan Maritime Self-Defense Force Indo-Pacific Deployment training (IPD26): April-June 2026
- Success or failure of the next round of ASEAN South China Sea Code of Conduct (COC) negotiations: May-August 2026
- Announcement of security policy pledges by each party for Japan's House of Councillors election: May-July 2026
- Scale, timing, and scope of China's next large-scale military exercises in the South China Sea: April-September 2026
🔄 TRACKING LOOP
Next Trigger: Announcement of details for Japan Maritime Self-Defense Force IPD26 deployment training (April-May 2026) — The participating countries, operational areas, and training content will be a decisive indicator of whether Japan's involvement in the South China Sea enters a "new stage."
Continuation of this Pattern: Tracking Theme: Gradual Expansion of Japan's Military Involvement in the South China Sea — Next milestones are the IPD26 activity report (May-June 2026), followed by progress in ASEAN COC negotiations (Summer 2026), and the success or failure of the US-China summit (Autumn 2026).
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