BLUF:
The victory of Japan’s ruling Liberal Democratic Party (LDP) in snap elections portends increased friction with China. However, mutual dependencies are likely to remain a constraint on any move to truly decouple or significantly undermine economic ties.
BRIEF:
Japanese Prime Minister Sanae Takaichi’s political gamble of early elections paid off, with the LDP
returning its strongest showing ever (holding the most seats of any party since World War II). Initial results show the LDP winning 316 out 465 seats in the Feb. 8 Lower House elections, more than two-thirds of the total seats, with the number rising to 352 when including their coalition partner, the Japan Innovation Party (JIP). The LDP reportedly won 330 seats in the election (including both constituency and proportional representation), but their victory was so large they didn’t have enough candidates to fill several proportional seats and had to give seats to other parties. This provides the LDP, and Takaichi in particular, with a strong mandate, which includes her push for a more assertive regional role for Japan, and stronger defense ties with the United States and regional countries.
The LDP victory was met with a note of caution from China, with Foreign Ministry spokesman Lin Jian
noting “We urge those running the Japanese government to take seriously rather than brush aside the concerns of the international community, follow the path of peaceful development rather than return to militarism, and abide by the four political documents between China and Japan rather than go back on commitments made. If Japan’s far-right forces miscalculate and act recklessly, they will be met by resistance from the Japanese people and serious backlash from the international community.”
The election, and Lin’s comments, come amid rising tensions between Japan and China over Takaichi’s Nov. 7 comments in response to parliamentary questioning, where she said that a Chinese move to bring Taiwan under its control could trigger a Japanese response. “If it involves the use of warships and the use of force, I believe that this could be a situation that could threaten the country’s [Japan’s] existence no matter how you look at it. …If an armed attack were to occur, there is a high possibility that it would constitute a situation that threatens Japan's existence.” In Japan, despite its “pacifist” Constitution and renunciation of the right of collective self-defense, a “survival-threatening situation” is one case where Japan would be able to exercise the right of limited collective self-defense.
China interpreted Takaichi’s comments as her threatening to intervene militarily to defend Taiwan from China, a violation of China’s asserted sovereignty and “proof” of Japan’s continued underlying militarist tendencies. In response, Beijing effectively blocked tourists from traveling to Japan, and placed limits on select dual use items including critical mineral exports to Japan, while calling on Takaichi to renounce her comments.
China’s actions were part of a pattern of implementing formal and informal restrictions (or threats thereof) of exports (and tourists) to other countries in response to what Beijing perceives as political affronts. The 2010 “banning” of rare earth element sales to Japan in 2010 is a regularly cited example, though in that case and in the current one, there is quite a bit of ambiguity as to just what China is blocking or limiting, by what means, by what amounts, and whether these are merely delays or true constraints. As a case in point, Japan’s TDK noted in early February that the "procurement of materials has reached an extremely difficult stage” in regards to critical minerals sourced from China, but also highlighted that the constraints had been felt well before China announced a shift in its dual use exports to Japan.
And this brings us to the key point. Despite political friction, and disruptions in select trade areas (more often through informal rather than formal means), neither Beijing nor Tokyo appear anxious to pursue a trade war or impose significant restrictions on trade. In broad terms, Japan was China’s third largest trading partner in 2024, China was (and continues to be) Japan’s largest trading partner, accounting for 20.2% of total Japanese trade in 2024, a 4.7% increase from a year earlier. (In 2024, the United States only accounted for 15.5% of Japan’s total trade). The significance of overall trade acts as a constraint on both governments, but also harbors more focused areas where one side or the other may be able to inflict significant pain, and may be willing to do so for a short while as a tool of geoeconomics coercion.
In the Semiconductor industry, there are many places where these frictional patterns are likely to be felt, but the dependencies also suggest there is little chance of any significant decoupling. For example, a 2025 OECD report Mapping the Semiconductor Value Chain highlights the complexity of the supply chains for semiconductor manufacturing, and the key roles Japan and China (and others) play in different stages. As just one example, a Japanese company, Ajinomoto, utterly dominates the market for the thin films used in organic build-up substrates, which are key for packaging advanced chips like GPU’s; some reports indicate that they have as much as 95% market share. A key strength is Japan’s chemical industry, which often produces gasses and fine chemicals a higher level of precision and purity that most Chinese producers: Without extremely pure gasses, for instance, making advanced semiconductors is impossible For instance, ‘electronics grade’ silane is 99.9999999% pure; achieving such purities is extremely challenging. Photoresists, which are used to pattern semiconductor substrates, are another area of strength for Japan. With these chemicals and films, replacing one vendor with another, even of a product that is substantially similar, can cause defects and can take years to qualify into production.
At the same time, China continues to play a key role in the supply of key raw materials, particularly
minerals such as gallium (98% of the global supply in 2023) and germanium (68% in 2020). China also
produced some 69% of global silicon material in 2023. China is moving up the value chain aggressively, attempting to build out cutting-edge fabrication facilities: Japan is a key player in this space, selling many of the key fabrication tools. For instance, two of the three companies who make 193nm scanners, which are essential for the front-end fabrication from 130nm down to about 7nm; beyond that EUV is required, where ASML holds a monopoly, for the front-end transistor production. But Canon and Nikon make scanners that work for the back-end of even the most advanced processes; Canon, Nikon and ASML are the only companies in the world that do so. And it is possible, by accepting yield hits and reduced power efficiencies, to use less-advanced tools to build chips that enable cutting edge AI capabilities.
Selective use of economic and trade restrictions serves a political purpose, and both Japan and China
engage in these tactics, both through formal processes, and through informal means (often in the
implementation of pre-existing regulation), or through statements that can create ambiguity and concern. By judicious use of these tools, Beijing and Tokyo can influence business interests in one another’s countries (and perhaps even the general public) to put pressure on the government to adjust policies or actions, or otherwise alter behavior. But overzealous implementation leads to progressively decreasing effectiveness, as the target country begins to adapt, modifying manufacturing processes, developing additional international partnerships to disperse vulnerabilities, and enhancing domestic alternatives. The large shift in global mine head production of rare earth elements after the disruptions in 2010 highlights just how risky these tools can be if overused, as has the U.S. restriction of certain chip types and machinery to China, which has led to both the acceleration of new chip types manufactured in China, and ways to produce advanced chips, even if not as efficiently, by using older machinery and accepting a greater amount of failed product.
The economic dependencies between China and Japan, particularly in the high-tech areas, create real vulnerabilities that each exploit, and can thus create disruptions for companies directly or indirectly engaged. However, these same dependencies also often limit the extent to which each country is willing to fully break key nodes in their respective supply chains, as each move can lead to a counter-move that either triggers a domino effect, or drives counter-actions to reduce key dependencies, undermining the economic and political leverage. With Takaichi’s LDP victory, we can expect further friction between Japan and China (and likely increasing friction between Japan and South Korea, another key country in the global semiconductor supply chain). At the same time, we should anticipate closer coordination between Tokyo and both Taipei and Washington, including in the high technology sector. While this may mean periodic disruptions to supply chains, more often than not based on political sensitivities rather than economic realities, all countries involved remain reticent to shift from minor trade adjustments and short-term disruptions to wide scale fractures in key trade patterns.