Taiwan Strait Crisis and the Strengthening of the Japan-U
China's military pressure around Taiwan has reached its highest level since the Cold War, and the Japan-U.S. alliance has announced its first joint defense plan since the war, marking an irreversible turning point for the security order in East Asia. This development will impact Japan's security policy, semiconductor supply chains, and the structure of the global economy.
── 3 KEY POINTS ─────────
- • The Chinese People's Liberation Army (PLA) increased the frequency of military exercises around Taiwan by approximately 40% year-on-year from the latter half of 2025, with aircraft crossing the Taiwan Strait median line more than 50 times per month on average.
- • In January 2026, the Japanese and U.S. governments officially acknowledged for the first time the existence of a joint defense plan for a Taiwan contingency and announced the establishment of joint operational bases in the Southwestern Islands.
- • Japan's defense budget for fiscal year 2026 reached approximately 8 trillion yen, exceeding 1.5% of GDP. Expenditures related to counterstrike capability (enemy base attack capability) increased by 30% year-on-year.
── NOW PATTERN ─────────
The dominant pattern is a "spiral of conflict" where China's military pressure and the strengthening response of the Japan-U.S. alliance mutually encourage escalation, with domestic political dynamics in each country accelerating this spiral.
── PROBABILITY & RESPONSE ──────
• Base case 55% — Chinese military exercises become routine and their scale fixed, U.S.-China military hotlines reopen, Japanese public opinion does not significantly shift, informal diplomatic channels with Taiwan are maintained
• Bull case 20% — U.S.-China summit arranged, clear reduction in frequency and scale of Chinese military exercises, no accidental incidents around Taiwan and confidence-building progresses, sharp deterioration of Chinese economic indicators
• Bear case 25% — Accidental military incident in the Taiwan Strait, signs of Chinese military action against Kinmen and Dongsha Islands, disruption of U.S.-China military hotlines, rapid rise of nationalist public opinion in China, shift in tone of Xi Jinping's speeches regarding "unification"
📡 THE SIGNAL — What Happened
Why it matters: China's military pressure around Taiwan has reached its highest level since the Cold War, and the Japan-U.S. alliance has announced its first joint defense plan since the war, marking an irreversible turning point for the security order in East Asia. This development will impact Japan's security policy, semiconductor supply chains, and the structure of the global economy.
- Military Trends — The Chinese People's Liberation Army (PLA) increased the frequency of military exercises around Taiwan by approximately 40% year-on-year from the latter half of 2025, with aircraft crossing the Taiwan Strait median line more than 50 times per month on average.
- Alliance Strengthening — In January 2026, the Japanese and U.S. governments officially acknowledged for the first time the existence of a joint defense plan for a Taiwan contingency and announced the establishment of joint operational bases in the Southwestern Islands.
- Defense Budget — Japan's defense budget for fiscal year 2026 reached approximately 8 trillion yen, exceeding 1.5% of GDP. Expenditures related to counterstrike capability (enemy base attack capability) increased by 30% year-on-year.
- Public Opinion Trends — An NHK public opinion poll in February 2026 showed public opinion divided, with 52% "supporting" the strengthening of the Japan-U.S. alliance and 38% considering it "excessive." Among younger generations (18-29 years old), opposition accounted for more than half.
- Diplomacy — The Chinese Ministry of Foreign Affairs condemned the Japan-U.S. joint defense plan as a "product of Cold War thinking" and hinted at economic retaliatory measures against Japan.
- Economic Impact — In response to the heightened risk of a Taiwan contingency, the construction of TSMC's second Kumamoto factory was accelerated, with operations announced to begin within 2026.
- Military Deployment — The Self-Defense Forces completed the deployment of missile units to Ishigaki Island and Yonaguni Island, significantly strengthening the defense posture of the Southwestern Islands.
- International Cooperation — The Quadrilateral Security Dialogue (QUAD) — Japan, U.S., Australia, and India — for the first time explicitly stated in their February 2026 summit meeting that peace and stability in the Taiwan Strait are a "core security interest in the Indo-Pacific."
- Cyber Threat — From late 2025 to early 2026, cyberattacks on Japanese defense-related companies and government agencies tripled year-on-year, with the involvement of Chinese hacker groups being suspected.
- Semiconductor Policy — Based on the Economic Security Promotion Act, the Japanese government further tightened export controls on advanced semiconductors to China, adding 14 types of manufacturing equipment to the list of regulated items.
- Taiwan's Trends — Taiwan's Lai Ching-te administration raised the 2026 defense budget to a record-high 3.0% of GDP, accelerating the development of asymmetric capabilities.
- U.S. Actions — U.S. Indo-Pacific Command conducted its largest-ever exercise, "Valiant Shield," in the Guam-Philippine Sea region in early 2026, with Japan's Self-Defense Forces participating in the integrated command system for the first time.
The current tensions surrounding the Taiwan Strait are not a sudden development. Their roots trace back to the end of the Chinese Civil War in 1949, where the unresolved historical issue of the division between the People's Republic of China and the Republic of China (Taiwan) has re-emerged sharply amidst 21st-century geopolitical structural changes.
During the Cold War, the Taiwan Strait experienced two crises in 1954-55 and 1958, and the U.S. maintained "strategic ambiguity" through the Taiwan Relations Act (1979). This policy served a dual deterrent function: deterring China from forceful unification and dissuading Taiwan from declaring independence. However, since the 2020s, this balance has been rapidly eroding.
The biggest structural factor is the dramatic modernization of China's military power. The PLA has dramatically increased its naval power over the past two decades, with the number of vessels it possesses exceeding that of the U.S. Navy in terms of quantity by 2025. In particular, the improvement of A2/AD (Anti-Access/Area Denial) capabilities has successfully raised the cost of U.S. military intervention significantly in the event of a contingency. The deployment of anti-ship ballistic missiles like the DF-21D and DF-26, Type 055 destroyers, and the Fujian-class aircraft carrier has structurally altered the military balance in the Western Pacific.
The second factor is the domestic political dynamics of the Xi Jinping administration. Having entered an unprecedented third term at the 20th Party Congress in 2022, Xi Jinping has positioned Taiwan's unification as a core task for the "great rejuvenation of the Chinese nation." The goal of "securing the capability for Taiwan's unification" by the PLA's 100th anniversary in 2027 is not mere rhetoric but functions as a concrete timeline linked to military modernization plans. Amidst the ongoing slowdown of the Chinese economy, the mobilization of nationalism has become an indispensable means for maintaining the regime's legitimacy, making compromise on the Taiwan issue politically difficult.
Third, there is a historic shift in Japan's security policy. The revision of the three security documents in December 2022 marked the biggest turning point in post-war Japanese defense policy, explicitly stating the possession of counterstrike capability and a target of 2% of GDP for defense spending. However, the essence of this shift is not merely "strengthening defense capabilities" but rather Japan's transformation from a passive "shield" to an active actor possessing "both spear and shield" in the East Asian security order. The deployment of forces to the Southwestern Islands, the establishment of a new Joint Operations Command, and the recent announcement of the Japan-U.S. joint defense plan are concrete manifestations of this structural transformation.
As a fourth factor, there is the technological hegemony competition over semiconductors. Taiwan's TSMC accounts for over 90% of the world's advanced semiconductor manufacturing, making stability in the Taiwan Strait not merely a geopolitical issue but a systemic risk to the global economy itself. The U.S. CHIPS Act, Japan's semiconductor strategy, and the EU Chips Act all aim to reduce excessive reliance on Taiwan, but the short-term reality of its indispensability has created a structure where all major countries directly link "Taiwan's security" to their own economic security.
Furthermore, following the 2024 U.S. presidential election and Taiwan's presidential election, the political dynamics of each country entered a new phase. The Lai Ching-te administration, while inheriting the Tsai Ing-wen line, has put forth a clearer sense of sovereignty, and the new U.S. administration maintains a tough stance on China. This overlap of political cycles structurally defines the heightened tensions at this point in 2026.
Historically, periods of power transition between great powers correspond to "Thucydides's Trap," when the risk of conflict is highest. The current configuration, where the power shift between the existing hegemon (U.S.) and the rising challenger (China) is concentrated on the geographical focal point of the Taiwan Strait, is a reproduction of a pattern repeatedly observed in the international relations history of the past 500 years.
The delta: The Japan-U.S. alliance's first official acknowledgment of a joint defense plan for a Taiwan contingency signifies a structural shift in post-war Japanese security policy from "implicit understanding" to "official commitment." While this strengthens deterrence against China, it also carries the risk of accelerating the spiral of conflict, meaning the East Asian security order has reached an irreversible turning point.
🔍 BETWEEN THE LINES — What the News Isn't Saying
The "announcement" of the Japan-U.S. joint defense plan is essentially about the political intent behind making it public, rather than the existence of the plan itself. While the Japanese and U.S. governments have secretly formulated Taiwan contingency scenarios for many years, the deliberate decision to publicize it stems not only from a desire to strengthen deterrence against China but also from an intention to "normalize" the shift in Japan's domestic security policy. By making it public, the premise of the discussion shifts from "should a plan be made?" to "how should the plan be operated?", structurally narrowing the room for opposition to defense capability strengthening. Furthermore, this move also reveals an aim for Japan and the U.S. to make a "preemptive move" before the PLA's 100th anniversary in 2027, thereby complicating China's strategic calculations.
NOW PATTERN
Spiral of Conflict × Overextension of Power × Alliance Strain
The dominant pattern is a "spiral of conflict" where China's military pressure and the strengthening response of the Japan-U.S. alliance mutually encourage escalation, with domestic political dynamics in each country accelerating this spiral.
Intersection of Dynamics
The three structural patterns of "spiral of conflict," "overextension of power," and "alliance strain" are interconnected in the Taiwan Strait crisis, creating complex risks.
The more the spiral of conflict accelerates, the more defense spending increases in each country, raising the risk of overextension of power. China, in particular, is compelled to continue its military buildup despite economic difficulties, facing a significant risk of imbalance between domestic and foreign policy. The U.S. also finds it difficult to optimize resource allocation as it is forced to respond simultaneously in multiple theaters.
As the overextension of power progresses, countries increasingly demand greater burden-sharing from allies and partner nations, which heightens internal alliance tensions. The U.S. demanding greater commitments from Japan and Australia will test the legitimacy of security policies within these countries' domestic politics. If alliance strains become apparent, the credibility of deterrence for China will decrease, increasing the incentive for military adventurism—meaning the spiral of conflict will accelerate further.
The most dangerous scenario at the intersection of these three patterns is one where "deterrence is weakened by the overextension of capabilities, and China, exploiting alliance strains, undertakes limited military action (such as occupying outlying islands or imposing a naval blockade), which then triggers an uncontrollable spiral of escalation." As was the case with the path from the 1914 Sarajevo incident to World War I, in a state of accumulated structural tension, minor accidental events can trigger massive chain reactions.
Conversely, these patterns could also act as mutual restraints. A scenario where awareness of the overextension of power slows down the spiral of conflict, and concerns about the cost of maintaining alliances create motivation for diplomatic solutions. What determines this divergence is the strategic rationality of national leaders and the effectiveness of communication channels during a crisis.
📚 PATTERN HISTORY
1914: Alliance Networks and Escalation in Pre-World War I Europe
Spiral of Conflict
Structural similarities with the present: The rigidification of mutual defense alliances and the security dilemma expanded accidental events into a world war. This illustrates the danger of alliance commitments functioning as an automatic escalation mechanism.
1962: Cuban Missile Crisis
Management of the Spiral of Conflict
Structural similarities with the present: Demonstrated the possibility of diplomatic resolution through back channels in a direct military confrontation between nuclear powers. However, "brinkmanship" is extremely high-risk, and the risk of accidental conflict was higher than realized at the time.
1995-96: Third Taiwan Strait Crisis
Military Intimidation and Deterrence
Structural similarities with the present: The U.S. successfully deterred China's missile exercises by deploying two aircraft carriers, but this experience became a catalyst for China to accelerate its A2/AD capability development. This illustrates the paradox where short-term deterrence success can prompt long-term shifts in the military balance.
1930s: Japan's Continental Expansion and International Isolation
Overextension of Power and Alliance Collapse
Structural similarities with the present: Military expansion proceeded beyond the economic base, leading to international isolation and ultimate catastrophe. The linkage between domestic political mobilization of nationalism and military adventurism created a structure that made rational retreat impossible.
2014: Russia's Annexation of Crimea
Fait Accompli Strategy and Alliance Response
Structural similarities with the present: A change in the status quo through limited military action undermined the credibility of the entire international order. This demonstrated the risk that deterrence failure could invite challenges in other regions (including the Taiwan Strait) and revealed a structure where delayed alliance response allowed for a fait accompli.
Patterns from History
The most important lesson from historical patterns is that when the balance between "deterrence credibility" and "escalation management" breaks down in a great power rivalry, the risk of military conflict sharply increases. The lesson of 1914 shows the danger of automatic escalation mechanisms in alliances; the lesson of 1962, the importance of back-channel diplomacy; and the lesson of 1995-96, the paradox that short-term deterrence success can increase long-term risks.
The current Taiwan Strait crisis has a complex structure where all these historical patterns are simultaneously at play. While the strengthening of the Japan-U.S. alliance enhances deterrence, it also inherently carries the risk of 1914-style automatic escalation. China's military modernization increases the possibility of a Crimea-style fait accompli strategy, but the existence of nuclear deterrence leaves room for 1962-style crisis management. History does not dictate "deterministic outcomes," but it has repeatedly proven that when structural conditions are met, minor accidental events can lead to enormous consequences.
🔮 NEXT SCENARIOS
Throughout 2026, tensions in the Taiwan Strait will remain high but will not escalate to military conflict. China will maintain and expand the scale and frequency of military exercises while intensifying economic and diplomatic pressure on Taiwan. The primary approach will be a so-called "grey zone" strategy—a "boiled frog" strategy combining strengthened Coast Guard (海警局) activities, cyberattacks, and economic coercion, without reaching a naval blockade.
Implications for Investment/Action: Chinese military exercises become routine and their scale fixed, U.S.-China military hotlines reopen, Japanese public opinion does not significantly shift, informal diplomatic channels with Taiwan are maintained
Some diplomatic breakthrough will be achieved between the U.S. and China, leading to a meaningful de-escalation of tensions in the Taiwan Strait. The preconditions for this scenario are either that the deteriorating state of the Chinese economy prompts the Xi Jinping administration to make diplomatic compromises, or that domestic political calculations in the U.S. favor stabilizing relations with China.
Specifically, a "new implicit understanding" could be reached at a U.S.-China summit—for example, China curbing the frequency of military activities in exchange for the U.S. adjusting the pace of arms sales to Taiwan. In this case, the number of aircraft crossing the Taiwan Strait median line would decrease to below 2024 levels, and the East Asian market would rebound due to a decline in geopolitical risk premiums.
For Japan, the pressure to strengthen defense capabilities would somewhat ease, allowing for a shift towards regional stabilization through diplomatic means. However, even in this scenario, China's long-term military modernization would continue, meaning the root causes of structural tension would not be resolved. It is important to note that the bull case scenario is likely a "postponement of the crisis" rather than a fundamental solution.
Furthermore, for this scenario to materialize, an environment must be in place where nationalist public opinion within China and Xi Jinping's personal political calculations allow for diplomatic compromise, and the likelihood of this is limited at present.
Implications for Investment/Action: U.S.-China summit arranged, clear reduction in frequency and scale of Chinese military exercises, no accidental incidents around Taiwan and confidence-building progresses, sharp deterioration of Chinese economic indicators
A scenario where an accidental military clash or a planned limited military action by China occurs, rapidly escalating the Taiwan Strait crisis. The most probable triggers are an aerial collision between Chinese military aircraft and U.S. or SDF aircraft around Taiwan, or limited military action by China against Taiwan's outlying islands (such as Kinmen and Dongsha Islands).
Should this scenario materialize, the international community would immediately be forced to make critical choices. The U.S. would be called upon to respond based on the TRA (Taiwan Relations Act), but intense domestic debate would arise over the interpretation and scope of its implementation. Japan would be pressed to make a political judgment regarding the recognition of a "situation threatening Japan's survival" and would face its biggest post-war security decision: the exercise of collective self-defense.
The economic impact would be devastating. A blockade or militarization of the Taiwan Strait would affect approximately 10% of global trade, and the disruption of semiconductor supply would deal a cascading blow to the global technology and automotive industries. Stock markets would crash worldwide, and crude oil prices could surge to over $150 per barrel.
Considering the risk of direct confrontation between nuclear-armed states, it is highly probable that some ceasefire or crisis management mechanism would function, but the economic and human damage incurred before that would be immeasurable. The probability of this scenario is by no means low; it should be recognized not as a "black swan" but as a "grey rhino"—a visible risk that is being addressed too slowly.
Implications for Investment/Action: Accidental military incident in the Taiwan Strait, signs of Chinese military action against Kinmen and Dongsha Islands, disruption of U.S.-China military hotlines, rapid rise of nationalist public opinion in China, shift in tone of Xi Jinping's speeches regarding "unification"
Key Triggers to Watch
- U.S.-China Summit (or lack thereof): April-June 2026 (around the G7 Summit)
- Large-scale PLA military exercises (especially "Taiwan encirclement" type exercises): May-August 2026 (especially around the anniversary of Pelosi's visit to Taiwan in August)
- Japan's House of Councillors election and the securitization of security policy: July 2026 (after the close of the ordinary Diet session)
- Accidental military incidents in the Taiwan Strait (abnormal approach/collision of aircraft/vessels): Year-round (especially during military exercise periods)
- Resolution on the Taiwan issue at the Plenary Session of the Central Committee of the Communist Party of China: October-November 2026
🔄 TRACKING LOOP
Next Trigger: Wording of the joint statement on the Taiwan Strait at the 2026 G7 Summit (June, Canada) — whether language going beyond "opposition to unilateral changes to the status quo" is adopted will be the most important indicator of Western unity
Continuation of this Pattern: Tracking Theme: Taiwan Strait Security and the Structural Transformation of the Japan-U.S. Alliance — The next milestone is the degree to which security policy becomes a focal point in Japan's House of Councillors election in July 2026.
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