Japan’s Indo-Pacific Strategy

Introduction

A Brief History of Japan’s Official Development Assistance

Since the end of the Cold War, dramatic changes in the security environment in the Indo-Pacific region have transformed Japan’s official development assistance (ODA) strategy, as evidenced by revisions to the ODA Development Cooperation Charter. This paper examines the evolution of Japan’s development cooperation in recent years in response to international factors, the results of those development efforts, and potential policies to be considered in the future.

Japan entered the field of development cooperation when it joined the Colombo Plan in 1954. It then experienced an extended period of rapid economic growth. The scale of its ODA continued to expand, and by 1989 it had surpassed the United States to become the world’s top donor in terms of volume. After World War II, Japan branded itself as a peaceful nation and imposed strict restrictions on the use of military force, including prohibitions on military aid to other countries. The Japanese government also avoided providing assistance that could be perceived as interfering in the internal affairs of recipient countries or making political conditionalities for development assistance, such as maintaining a liberal democracy or respect for human rights.

After the Cold War, however, issues emerged for Japan’s ODA, such as support for the democratization of former socialist countries or for state building in fragile states. In April 1991, Japan introduced four guidelines that officials should consider when making decisions about ODA: (1) trends in military expenditures; (2) trends in the development and manufacture of nuclear weapons and other weapons of mass destruction and missiles; (3) trends in arms imports and exports; and (4) efforts to promote democratization, introduce a market-oriented economy, and guarantee basic human rights and freedoms. The four ODA guidelines reflect Japan’s first use of the political conditionality principle and were incorporated into the first ODA charter, approved by the government on June 30, 1992.

Shortly thereafter, Japan’s economy collapsed and entered a prolonged slump, placing a severe strain on government finances. In 1997, the government shifted its emphasis from quantity to quality in ODA and reduced the budget; in 2001, Japan lost its status as the world’s top donor. This financial situation led to a decline in public support for ODA, and in an attempt to demonstrate accountability to taxpayers, the government released a revised ODA charter in August 2003 emphasizing that ODA would be clearly connected to the national interest.

Japan’s ODA in the Indo-Pacific

An increasingly complex security environment in Asia over the last decade has affected Japan’s approach to ODA strategy. China’s maritime aggression in the East and South China Seas has prompted a renewed focus on the rule of law as a core principle in the securitization of ODA, meaning more openness to supporting capacity building in the security realm. Japan became wary of China’s coercive tactics in the mid-2000s, ahead of the West. Since Chinese president Xi Jinping took office in 2013, China has not only attempted to unilaterally change the status quo by force in the East China Sea (Senkaku Islands) and the South China Sea (Paracel Islands and Spratly Islands) but has also sought to enhance its influence in Pacific Island nations, exemplified by a security agreement with the Solomon Islands announced in 2022. China has also increased development aid to expand its footprint across the region. In 2010, for example, China surpassed Japan to become the top aid donor to Cambodia. China has also adopted a multilateral approach to aid via the Belt and Road Initiative (BRI) — originally called the One Belt, One Road Initiative — announced in 2013; the establishment of the New Development Bank (NDB) with the BRICS countries (Brazil, Russia, India, China, and South Africa) in 2014; and the creation of the Asian Infrastructure Investment Bank (AIIB) in 2016. These new multilateral aid institutions are expected to challenge the existing development cooperation architecture dominated by developed countries.

China’s maritime aggression in the East and South China Seas has prompted a renewed focus on the rule of law as a core principle in the securitization of ODA, meaning more openness to supporting capacity building in the security realm.

Faced with an increasingly assertive China committed to challenging norms across the security and diplomatic realms, Japan, under the leadership of Prime Minister Abe Shinzo, unveiled its first National Security Strategy (NSS) in December 2013, which detailed how Japan would manage in an increasingly complex security environment. The NSS was significant in that it was not limited to foreign and defense policy but clearly stated that ODA should be part of Japan’s security policy. The NSS built on the revised ODA charter of 2003 by: (1) emphasizing the national interest; (2) adding the rule of law to a list of universal values including freedom, democracy, and fundamental human rights; (3) addressing development issues not only through ODA but also by mobilizing various government resources; and (4) flexibly applying the principle of non-military assistance in order to facilitate military capacity building for like-minded developing states. The government then released a Development Cooperation Charter in 2015 to reflect these new realities. Moreover, in response to China’s massive infrastructure development initiative, the Abe administration launched the Free and Open Indo-Pacific (FOIP) vision in 2016, with the main goal of countering China’s rise.

China’s assertiveness in the Indo-Pacific has since intensified, as has Japan’s commitment to preserving the international order after Russia invaded Ukraine in February 2022, which has threatened the rule of law, upended global supply chains, and exacerbated economic strife and poverty in developing countries. In December 2022, Japanese prime minister Kishida Fumio accelerated the securitization of ODA in a new NSS, which noted, “Japan will strategically utilize ODA to maintain and develop a free and open international order and to realize coexistence and coprosperity in the international community.” Following the revision of the NSS, the Development Cooperation Charter was also revised in June 2023 to declare “Japan’s national interests” as the core objective of ODA, with particular emphasis on security and multilateralism. The new charter declared that the purpose of development cooperation is “to contribute even more actively to the formation of a peaceful, stable, and prosperous international society” and at the same time “contribute to the realization of Japan’s national interests, such as securing peace and security for Japan and its people and achieving further prosperity through economic growth.” This was the first time that the “realization of Japan’s national interests” was explicitly stated as one of the direct objectives of development cooperation.

New priorities for development cooperation emerged in parallel with a new version of the FOIP vision Kishida released in March 2023, dubbed the New Plan for a “Free and Open Indo-Pacific (FOIP).” According to the Ministry of Foreign Affairs, this plan is based on the following four pillars of cooperation:

1. Principles of Peace and Rules for Prosperity: (1) Reaffirm and promote the minimum basic principles the international community should observe (sovereignty, respect for territorial integrity, and opposition to unilateral changes in the status quo by force) to build international peace, and (2) create rules to prevent opaque and unfair development finance.

2. High-Quality Infrastructure: Encourage Japanese companies to expand overseas and revitalize both the local and Japanese economies.

3. Multilayered Connectivity: Enhance connectivity in various realms to enable growth, as reliance on any single country can increase risk or lead to political fragility.

4. Efforts to Expand Security from Sea to Air: Cooperate, emphasize, and communicate with other countries and regional organizations that share the principles of FOIP, and promote the sharing of principles and knowledge to ensure the rule of law at sea.

The Kishida government also worked closely with the United States and other like-minded nations to introduce a range of initiatives reaffirming shared commitment to the global order, including support for the developing world. In May 2023, Kishida hosted the Hiroshima G7 summit, which produced a Leaders’ Communiqué including international principles and common values such as the rule of law, an initiative on global food security, and a commitment of up to $600 billion in financing for quality infrastructure development through the G7 Partnership for Global Infrastructure Investment (PGII). Prime Minister Kishida also explained his New Plan for a “Free and Open Indo-Pacific,” emphasizing support for the Global South, and G7 leaders agreed to help realize the FOIP vision.

Key Issues: Results of Japanese Strategies and Policies

This section examines the effectiveness and impact of Japan’s development aid policies in the context of strategic competition with China.

Components of FOIP

FOIP may be described as an umbrella concept that incorporates numerous components such as norms, rule setting, infrastructure development, and capacity building. The first component is an emphasis on universal values, such as the rule of law. The first Abe administration (2006–07) introduced a concept known as the Arc of Freedom and Prosperity to defend liberal democracy in the region spanning from Asia to Europe and prevent the rise of authoritarianism, with China in mind. However, some Association of Southeast Asian Nations (ASEAN) member countries, concerned about interference in their internal affairs, negatively evaluated this initiative, which failed to generate regional support for global norms as a result. Therefore, Japan’s focus on promoting universal values shifted from liberal democracy to broader principles such as the rule of law and freedom of navigation.

Compliance with universal values is neither a condition for aid nor an excuse for interference in internal affairs. Even in the FOIP era, Japanese assistance has not changed significantly from previous policies in terms of its approach to political conditionality.

To be sure, the original FOIP and Kishida’s New Plan refer to democratization and human rights. However, the 2023 revision of the Development Cooperation Charter, while paying sufficient attention to democratization, rule of law, and human rights conditions, states that development cooperation will be implemented based on comprehensive assessment of a partner country’s development needs, economic and social conditions, bilateral relations, and efforts to improve governance and democratization by partner governments’ initiatives. In other words, compliance with universal values is neither a condition for aid nor an excuse for interference in internal affairs. Even in the FOIP era, Japanese assistance has not changed significantly from previous policies in terms of its approach to political conditionality. This universalization with a rather narrowly focused emphasis on rule of law is an essential agenda-setting mechanism for expanding support for FOIP among like-minded countries. Thus, both the West and emerging and developing countries have widely supported and endorsed the normative aspects of FOIP.

The second component of FOIP focuses on international rulemaking and reaffirmation of global norms. This theme featured in former prime minister Abe’s foreign policy prior to FOIP. For example, Abe delivered the keynote speech at the 2014 Shangri-La Dialogue, attended by defense and security ministers from Asia-Pacific countries, and stressed principles related to the rule of law in the context of Chinese assertiveness over its maritime sovereignty claims in the region. Japan also accentuated rules and norms related to infrastructure development in response to worsening debt sustainability associated with massive Chinese infrastructure investment. The G7 summit in 2016 and the G20 summit in 2019 — both of which Abe hosted — introduced principles for quality infrastructure development such as openness, transparency, economic efficiency in terms of life-cycle costs, and debt sustainability, as well as the importance of providing support that avoids the “debt trap” for recipient countries.

The emphasis on norms was directly connected to Japan’s interests in promoting infrastructure development, which is the third component of FOIP. It seeks to address the most pressing needs of developing countries in the Indo-Pacific region, but it is also a countermeasure to China’s BRI. Both initiatives focus on infrastructure and connectivity to provide public goods, but there are differences. The revised Development Cooperation Charter noted that some developing countries are experiencing debt problems due to loans that do not sufficiently consider debt sustainability and that other forms of assistance do not lead to independent and sustainable growth in developing countries. Thus, the issue of debt sustainability was included for the first time in the “implementation principles for ensuring appropriateness in development cooperation” in the revised charter in 2023. The G7 Hiroshima Summit in 2023 reiterated that international standards such as transparency, good governance, anticorruption, labor, environment, climate, finance, and debt sustainability were included under the PGII framework. In addition, the G7 countries are to use an online database of infrastructure-related information called SOURCE, the G20 Compendium of Quality Infrastructure Investment Indicators, the Debt Management and Financial Analysis System, and other multilateral tools that improve the quality, standards, and governance of infrastructure projects.

In support of FOIP’s objective to uphold the international rule of law and freedom of navigation in the air and at sea, the Japan International Cooperation Agency (JICA) has been providing capacity-building assistance to maritime law enforcement agencies in the Indo-Pacific region.

The fourth component is the securitization of ODA. In support of FOIP’s objective to uphold the international rule of law and freedom of navigation in the air and at sea, the Japan International Cooperation Agency (JICA) has been providing capacity-building assistance to maritime law enforcement agencies in the Indo-Pacific region. This is intended to contribute to the overarching goal of enhancing the deterrence of countries in the Indo-Pacific region against China and, ultimately, strengthening Japan’s security. Relatedly, on April 5, 2023, the Japanese government announced an official security assistance (OSA) policy and targeted four countries for the first phase of OSA: Bangladesh, Fiji, Malaysia, and the Philippines. However, the OSA budget for FY 2023 was only ¥2 billion (approximately $12.8 million), which is a small amount compared to the $19.6 billion ODA budget that year.

Economic security and connectivity constitute the fifth component of FOIP. The Ministry of Foreign Affairs has promoted development cooperation that contributes to Japan’s economic security and supports the overseas expansion of Japanese companies, with particular emphasis on strengthening and diversifying supply chains, sustainable development of critical mineral resources, and the stable supply and securing of food. FOIP is designed to provide support for private sector business activities, international rulemaking in the area of trade, and assistance for individual projects that will help improve connectivity in the Indo-Pacific region.

The sixth component is a shift in the core principle of Japanese ODA from request-based cooperation, whereby Japan provides assistance upon receiving a request from the recipient country, to offer-type cooperation, referenced in the revised Development Cooperation Charter, in which the Japanese government proposes initiatives. OSA, in particular, has the direct objective of contributing to Japan’s security, and there is a limit to what can be achieved under the request-based approach alone. In other words, if Japanese aid focuses on direct national interests, active encouragement and guidance from the donor side will be necessary.

The seventh and last major component is the strengthening of recipients’ capacity to counter China. For example, to address debt sustainability, it is essential to have guidelines for lender behavior and capacity building in fiscal policy and public debt management on the part of recipients. For example, Japan has dispatched fiscal experts to Laos, the Maldives, Zambia, and other countries to improve their capacity to formulate and implement fiscal policy, with the aim of developing capacity for sustainable macroeconomic management and debt management. Furthermore, senior officials of the finance ministries of each country have conducted seminars and lectures on public debt management to strengthen their capacity in public debt and risk management.

FOIP is not a vision Japan can complete alone but one that necessarily requires a multilateral approach with allies and partners. Japan’s ODA budget has been halved from a peak of ¥1.2 trillion in FY 1997 to just above ¥500 billion, and the budget for FY 2022 was only ¥510.5 billion — about 0.5 percent of general account expenditures, or about 10 percent of defense expenditures (¥5.4 trillion for the same period). Therefore, to effectively achieve the objectives of FOIP, coordination with other countries and cooperation between the public and private sectors will be essential.

The FOIP vision is supported not only by Western countries, such as members of the European Union and G7, but also by India and ASEAN countries. Moreover, Australia, India, South Korea, the United States, and some ASEAN countries have introduced their own Indo-Pacific strategies based on the FOIP concept. While major powers such as China are challenging the status quo through force and economic coercion, countries across the Indo-Pacific are increasingly embracing normative principles such as the rule of law. This is the basis of support and expectations for FOIP in the region.

Has Japanese Aid Been Successful?

For the time being, Japan’s development assistance strategy appears to have transformed dramatically under the FOIP framework, which succeeded in elevating Japan’s leadership role. FOIP’s impact, thus far, has been largely normative in encouraging standards for infrastructure development, but the effects of Japan’s development aid under FOIP is not fully known. Moreover, in the context of strategic competition with China, the value of the FOIP framework can only truly be evaluated over a long time horizon.

For the time being, Japan’s development assistance strategy appears to have transformed dramatically under the FOIP framework, which succeeded in elevating Japan’s leadership role.

The juxtaposition of Japan’s FOIP and China’s BRI suggests, arguably, a convergence in their economic and infrastructure development strategies. While Sino-Japanese aid competition has increased infrastructure funding, there is also concern that it has reduced discipline and quality control over development funds. In 2013, immediately after the launch of the AIIB, the Asia Development Bank (ADB), over which Japan has maintained influence, passed a reform proposal that expanded its lending facility by 50 percent, including a “high-quality infrastructure” component cofinanced by Japan, and accelerated the loan approval process, reducing the project approval period from 21 months to 15 months. This menu of reforms appears to have been a response to competition from Chinese aid and an attempt to distinguish Japan’s approach through its emphasis on quality infrastructure development. But in 2015, the Japanese government amended the law governing its main economic cooperation bank, the Japan Bank for International Cooperation (JBIC), to increase the bank’s risk tolerance, which could invite “a race to the bottom” as competition between Japan and China intensifies.

However, Sino-Japanese aid competition in recent years has centered increasingly on “quality infrastructure.” The AIIB has developed more mature aid practices due to cofinancing with the World Bank and ADB, and it has become more careful in judging the environmental and social impacts of development projects. The BRI seems to have moved to “BRI 2.0,” with increased emphasis on debt sustainability. Overinvestment in unprofitable transportation infrastructure and real estate is rampant in China, and China is realizing that sloppy loan evaluations are worsening its debt sustainability. As a result, China is beginning to understand that it is imperative to adopt a more rigorous evaluation of loan projects that reflects international standards and takes debt sustainability into account. This process may be synonymous with the loss of the comparative advantage (via quick and massive loans) enjoyed by China-led development finance institutions. At the same time, Japan’s insistence on high-quality infrastructure may not appeal to developing countries in the future. Therefore, Japan must take the lead in rule setting under FOIP while remaining open to further refinement in anticipation of continued competition with China.

Japan’s insistence on high-quality infrastructure may not appeal to developing countries in the future. Therefore, Japan must take the lead in rule setting under FOIP while remaining open to further refinement in anticipation of continued competition with China.

Japan’s emphasis on its “national interests” may also need to be examined in terms of development effectiveness. It is possible for Japan’s national interest and the international public interest to coincide. However, there is also a risk of Japan’s national interest superseding the international public interest. In order to incentivize Japanese firms to support Japan’s strategy to increase infrastructure exports, government aid projects imposed strict conditions regarding technical capabilities and deadlines that are expected to exclude bidding competitors. A former JICA official recalls that this approach has had the significant side effect of undermining the trust Japan has built with developing countries. This concern could also materialize under the revised 2023 Development Cooperation Charter. The charter calls for Japan to achieve greater prosperity through economic growth. To realize this, a significant portion of the yen loans mobilized for quality infrastructure development are tied to aid.

Nevertheless, no matter how much the Japanese government has tied aid to Japanese companies involved in FOIP projects, the deals have tended to be high cost. Essentially, ODA is intended to assist local economic and social development and improve the welfare of the people. As put in the Asahi Shimbun, “If this guiding principle for development aid is undermined by a policy change driven by a myopic and ill-advised pursuit of short-term national interests, Japan could lose the trust of numerous countries it has spent years helping to develop through aid.” At a time when aid has become an important instrument of international politics and security, there is a risk that international development will be neglected.

Policy Recommendations: How Japan’s Assistance to the Indo-Pacific Region Should Evolve in the Future

Continually refine FOIP principles.

FOIP development cooperation is too often discussed in the context of international politics and security discourse, making it necessary to redefine development cooperation in the context of international development. In addition to debt sustainability, which has been the focus of FOIP, it is necessary to address the food security crisis and energy price hikes associated with the Covid-19 pandemic, as well as Russia’s war of aggression in Ukraine — all of which undermine progress on the UN Sustainable Development Goals. In addition, the simultaneous pursuit of national and international interests has been taken for granted, though it is similar to the win-win principle in Chinese aid. But just as China’s interests still outweigh those of developing countries in a win-win situation, which can build frustration in developing countries, Japan’s overt focus on national interests may undermine the trust of recipients if it becomes too prevalent. The relative weight of international development in FOIP must be strengthened, and the core principles of international development should redefine FOIP in a broader context. Thus, FOIP’s approach must reflect the development goals of developing countries.

Maintain Japan’s leadership role in the Indo-Pacific.

It will be necessary to create an environment in which more developing countries can support and participate in FOIP. Japan should therefore continue to downplay democracy and human rights as a political conditionality for development aid and instead advocate for freedom, openness, diversity, inclusiveness, and rule of law as the basis of international order. This should help gain support from emerging and developing countries averse to interference in their internal affairs.

Japan should also pursue cooperation with more developing nations and emerging powers under FOIP, including members of ASEAN, countries in Southwest Asia, and Pacific island countries. Under FOIP, the Ministry of Foreign Affairs is considering cooperation in a wide range of areas, including climate change, maritime issues, connectivity, digital technology, and economic security. These activities can serve to boost regional resilience while enhancing the autonomy of each Pacific island country.

The Indo-Pacific region is also home to countries such as Indonesia, Malaysia, and Thailand — countries which were once classified as developing but that are now emerging as donors. These emerging donors understand the needs of developing countries and share interests with Japan, such as maintaining the rule of law. Working with emerging donors would help strengthen FOIP in the context of international development. Fortunately, Japan has more experience working with emerging donors than other Development Assistance Committee donors in development cooperation, particularly in Southeast Asia. Graduates of Japanese aid have been assigned to government agencies in Southeast Asian countries, and as the Ministry of Foreign Affairs mentions, “These human resources are important human assets who understand the culture and values of our country and are therefore newly positioned as partners to strengthen solidarity in order to strengthen networks after their return to their home countries.” Thus, they are important assets to the expansion of FOIP.

Engage China.

Introducing tied projects to Japanese firms under the banner of “quality infrastructure” will not necessarily improve the performance of Japanese firms, which are inferior in terms of cost competitiveness. Instead of providing immediate, material national interests, the medium- to long-term benefits may be greater in designing, disseminating, and establishing international rules for infrastructure development assistance and debt issues. For example, if FOIP could successfully lead to a harmonized institutional framework for infrastructure development and finance, it would be easier to avoid the debt trap caused by China’s infrastructure support, which will also benefit Japan. Efforts to incorporate China into such international rules are to be expected, though China, of course, may not easily join. However, the large scale of and lack of transparency in China’s infrastructure financing have resulted in international criticism and declining interest in Chinese loans. Restructuring China’s development aid practices under the guiding principles of openness, transparency, sustainability, and multilateralism will help transform the BRI initiative into an international public good.

Promote cooperation with the United States and other partners.

As the United States is the cornerstone of Japanese diplomacy, U.S. involvement in development cooperation is indispensable to multilateral cooperation in the Indo-Pacific region under FOIP. For example, to address the vulnerabilities of the Pacific island countries, the United States could partner with Taiwan on aid within the framework of FOIP. Taiwan has a record of assistance to Pacific island countries, shares a commitment to universal values, and is an original member of the ADB. Although the United States does not have official diplomatic relations with Taiwan, the two parties signed a memorandum of understanding in November 2022 regarding U.S.-Taiwan development and humanitarian assistance cooperation, under which the United States and Taiwan would mutually invest $600,000 in the South Pacific in the areas of health, climate change, and cybersecurity.

Conclusion

This paper overviews the development and future of FOIP as a strategic interest for Japan in the Indo-Pacific region. As a result, Japanese aid, once focused narrowly on economic benefits, has become more focused on security, and the logic of international politics has become more important than aid and development effectiveness under FOIP. Japan has taken a leadership role in setting norms and rules for connectivity, infrastructure investment, and maritime security under FOIP, and these norms and rules have become international public goods that benefit all countries.

The Development Cooperation Charter formulated in 2023 emphasizes (1) proactive contributions to the formation of a peaceful, stable, and prosperous international community, and (2) contributions to the realization of Japan’s national interests. The two are not mutually exclusive but directly linked. Japan’s resolve to strengthen security places FOIP in the context of diplomacy and international politics, but too much emphasis on broader strategic dynamics could reduce the impact of development aid. New versions of FOIP that focus more intently on the needs of developing countries will be necessary to sustain Japan’s leadership role into the future.

Kondoh Hisahiro is a professor at the Graduate School of Humanities and Social Sciences at Saitama University.