Skip to main content

​
Regional Summary

The Self-Reliance Mirage America’s allies across the Asia-Pacific are learning that self-reliance is easier to demand than to do well. From Tokyo to Canberra, governments are scrambling to fill the gap left by a Pentagon that now asks partners to take on more of their own defence and economic burdens. Yet in each case the scramble is revealing fractures at home, weaknesses in their systems, and political contradictions that American power once papered over. Sanae Takaichi, Japan’s prime minister, has grasped this logic more clearly than most — and more ruthlessly. By dissolving parliament for snap elections while her approval ratings are high, she is betting that voters will reward a leader who matches American pullback with Japanese boldness: ¥39 billion for rare-earth independence from China, a ¥200 trillion public-private investment target by 2040, and continued interest-rate rises even as fiscal spending balloons. The gamble is coherent but precarious. Ms Takaichi is at once loosening the purse strings and tightening monetary policy, counting on wage growth to square the circle. Her opposition, a hastily assembled Centrist Reform Alliance of 172 lower-house members, looks more like a marriage of desperation than conviction — which is itself a sign of how completely one leader has seized the initiative. Taiwan’s semiconductor leverage has bought it something no other American partner got this week: a concrete bargain. The 15% tariff it secured — matching Japan, South Korea and the EU — cost up to $500 billion in investment commitments, including faster expansion of TSMC’s Arizona plants. Lai Ching-te, the president, can claim that Taiwan traded from strength; less than 15% of TSMC’s advanced processes are expected to move to America by 2029, and the TAIEX hit a record high on the news. Yet the deal’s domestic politics are poisonous. The opposition blocked the island’s $39.55 billion special defence budget for an eighth consecutive time, even as Mr Lai promises European visitors that military spending will reach 5% of GDP by 2030. Taiwan has found the price of American partnership but cannot yet persuade its own legislature to pay it. Indonesia and South Korea show the hazards of self-reliance pursued without discipline. Prabowo Subianto, Indonesia’s president, returned from Davos boasting of “Prabowonomics” and 5% growth, then nominated his nephew for a deputy governorship at Bank Indonesia — a move that pushed the rupiah to record lows and sent foreign investors fleeing from blue-chip bank stocks. In Seoul, the Kospi breached 5,000 under Lee Jae-myung, the president, even as GDP contracted 0.3% in the fourth quarter — a split-screen image of chaebol exuberance and household fragility. The Pentagon’s new strategy tells South Korea to take responsibility for deterring the North; Seoul’s defence ministry objected, revealing a gap between American expectations and Korean readiness that neither side has a plan to close. Meanwhile, a former prime minister was sentenced to 23 years for his role in December 2024’s martial-law debacle — a reminder that South Korea’s democratic resilience is real but hard-won. Australia proves that even a country far from the Chinese mainland is not immune to the regional fractures that America’s new posture accelerates. Anthony Albanese, the prime minister, has seen his net approval crater from plus 6 to minus 22 after a muddled response to the Bondi Beach massacre, and the conservative opposition has fractured so badly that its entire Nationals frontbench threatened to resign over hate-speech legislation. Mr Albanese’s cautious hedge on Mr Trump’s proposed Gaza “Board of Peace” — he would “give it further consideration” — captures the broader regional mood: leaders who once followed Washington now hesitate, not from strength but from the sheer complexity of deciding what to do on their own. American pullback has not produced a disciplined, well-organised Asia but rather a continent of improvisation — bold in ambition, brittle in execution, and reliant on individual leaders whose domestic coalitions are thinner than they look.

​
Country Summaries

​
JapanJapan

Prime Minister Sanae Takaichi dissolved parliament for snap elections on February 8, seeking to capitalise on high approval ratings to strengthen her coalition government. (NHK) The move comes as Japan confronts unprecedented alliance uncertainty from President Donald Trump’s administration’s new defence strategy, which reduces focus on countering China and tells allies to handle more of their own security responsibilities. (military.com) Japan is deploying economic statecraft to build resilience against Chinese pressure. The ruling Liberal Democratic Party pledged ¥39 billion in funding for rare earth mine development and refining projects, explicitly countering China’s ban on dual-use exports including critical minerals. (Japan Times) The government will fund the Japan Organisation for Metals and Energy Security to jointly invest in overseas projects, demonstrating willingness to bear significant costs for supply chain diversification. Even as it builds economic defences, Japan is coordinating fiscal expansion with monetary normalisation. Bank of Japan Governor Kazuo Ueda indicated the central bank would continue raising interest rates, emphasising timely decisions as wage hikes drive inflation, despite market volatility over Ms Takaichi’s expansionary fiscal policies. (Reuters) The prime minister secured business support for this approach, with the Japan Business Federation pledging to lead wage increase momentum while supporting public-private investment goals of ¥200 trillion by 2040. (Prime Minister’s Office) The opposition responded to Ms Takaichi’s election call by attempting major consolidation. The Constitutional Democratic Party and Komeito officially launched the Centrist Reform Alliance with 172 Lower House members, led by joint leadership of Yoshihiko Noda and Tetsuo Saito. (Yomiuri Shimbun) The merger represents the largest opposition realignment attempt in years but reflects desperation rather than strength ahead of the snap election.

​
IndonesiaIndonesia

President Prabowo Subianto is making Indonesia’s presence felt on the global stage while deepening state control over the economy at home. Mr Prabowo concluded a working visit to Britain with £4 billion in investment commitments covering the maritime sector, including 1,582 fishing vessels to be produced in Indonesia employing around 600,000 workers, plus education cooperation establishing 10 new campuses in medicine and STEM fields. (Detik.com) Days later at Davos, he promoted his economic philosophy of “Prabowonomics” to the World Economic Forum, emphasising Indonesia’s resilience — 5% growth and 2% inflation — and positioning the country’s sovereign wealth fund Danantara as enabling “equal partnership” globally. He announced plans to rationalise 1,044 state-owned enterprises to around 300 while recruiting foreign executives for better management. (Kompas) The diplomatic charm offensive accompanies a major expansion of state economic intervention. Danantara announced plans to deploy up to $14 billion in 2026, funded by state-owned enterprise dividends, while launching waste-to-energy projects and new Patriot Bond issuances. (Reuters) Even more provocatively, Mr Prabowo nominated Thomas Djiwandono — his nephew and currently deputy finance minister — as one of three candidates for Bank Indonesia deputy governor. The appointment sparked immediate investor concerns about central bank independence and contributed to the rupiah hitting record lows. (Reuters) Markets have responded with alarm. Major Indonesian bank stocks including Bank Central Asia (BCA) fell over 5% in one week amid foreign selling pressure totalling 3.27 trillion rupiah. BCA alone saw 3.97 trillion rupiah in net foreign sales, reflecting broader weakness and currency concerns. (CNBC Indonesia) The pattern suggests Indonesia is pursuing its multi-alignment foreign policy with confidence while intensifying political control over economic institutions — a combination that may test investor tolerance even as it secures international partnerships.

​
TaiwanTaiwan

Taiwan secured a major economic statecraft breakthrough this week, winning 15% US tariff treatment—matching Japan, South Korea and the EU—in exchange for unprecedented semiconductor investment commitments worth up to $500 billion. The trade agreement, announced as Premier Cho Jung-tai welcomed returning negotiators, cuts Taiwan’s US tariff rate from 20% to 15% while committing the island to $250 billion in private semiconductor and technology investments plus $250 billion in government credit guarantees. (Focus Taiwan) The deal includes Taiwan Semiconductor Manufacturing Company’s (TSMC) accelerated expansion of its Arizona operations beyond the existing $165 billion commitment. President Lai Ching-te defended the agreement against opposition claims it could “hollow out” Taiwan’s chip industry, as his Democratic Progressive Party warned against disinformation campaigns targeting the trade deal on social media. (TaiwanPlus) Markets reflected confidence in Taiwan’s technological leverage. Taiwan’s TAIEX index reached a record closing high of 31,639.29 points driven by TSMC performance, with the chipmaker’s shares hitting a record 1,780 New Taiwan dollars (NT$) intraday. Analysts noted that less than 15% of TSMC’s advanced processes are expected to migrate to the US by 2029 despite the expansion, suggesting Taiwan retains its semiconductor advantage. (Focus Taiwan) Even as Taiwan deepened its US economic ties, domestic political gridlock persisted. The opposition Kuomintang and Taiwan People’s Party used their Legislative Yuan majority to block the Executive Yuan’s NT$1.25 trillion ($39.55 billion) special defence budget for the eighth consecutive time. The opposition demands that military pay raises be incorporated into the general budget and insists that the president report to the legislature on defence matters. (Taipei Times) This legislative obstruction continues despite Mr Lai’s commitment to European visitors that Taiwan’s defence spending will reach 5% of GDP by 2030, including a $40 billion budget for the T-Dome air defence system. ([Presidential Office](Government source findings))

​
South KoreaSouth Korea

The Pentagon has signaled it wants South Korea to take “primary responsibility” for deterring North Korea with “critical but more limited US support,” setting up a potential friction point in the alliance. The Pentagon’s 2026 National Defense Strategy described updating US force posture on the Korean Peninsula to give Seoul the lead role in deterrence. South Korea’s defence ministry pushed back immediately, stating that US Forces in Korea “remained central to the alliance and would continue to deter North Korean aggression.” (The Guardian) The exchange suggests Washington wants to reduce its commitment faster than Seoul is prepared to accept, even as President Lee Jae-myung maintains his multi-vector approach of balancing US alliance commitments with pragmatic engagement with China. South Korea’s economy showed familiar contradictions. GDP contracted 0.3% in the fourth quarter, producing full-year growth of just 1% and missing forecasts. Yet the Kospi surged past 5,000 for the first time, hitting a campaign pledge milestone for Mr Lee and reflecting the divergence between export-oriented chaebols and broader domestic performance. (Japan Times) The Bank of Korea also launched what it called the world’s first sovereign AI system for finance. BOKI operates entirely within the Bank of Korea’s internal network using Naver’s HyperCLOVA X model, representing both technological sovereignty and an exception to Korea’s usual network separation rules. (Korea Times) The reckoning from December 2024’s martial law crisis continued with its first cabinet-level conviction. Seoul Central District Court sentenced former Prime Minister Han Duck-soo to 23 years in prison for his role in the martial law declaration, ruling it was insurrection aimed at subverting the constitutional order. (CNN) Mr Lee governs from a position of strength with approval ratings above 50%, while the judicial system continues demonstrating its capacity to hold high officials accountable for constitutional violations.

​
AustraliaAustralia

Australia’s governing coalition is splintering and Prime Minister Anthony Albanese’s approval has collapsed following his government’s response to the Bondi Beach terror attack. The crisis reached a breaking point this week when the entire Nationals frontbench threatened to resign from shadow cabinet positions after Opposition Leader Sussan Ley accepted resignations from three Nationals senators who crossed the floor on hate speech legislation. Nationals leader David Littleproud and all his frontbench colleagues agreed to quit their shadow roles, threatening the future of the Coalition over what they called a breach of cabinet solidarity. (The Guardian) The unprecedented rupture exposes fundamental disagreements within the conservative opposition over how to respond to terrorism. The split emerged over new hate speech laws targeting extremist groups and a gun buyback scheme that parliament passed in response to the December 14 Bondi Beach massacre that killed 15 people. The Coalition fractured, with Liberals supporting a weakened version after Labor dropped racial vilification provisions, while Nationals opposed the entire package. The laws passed 38-22 in a late-night Tuesday vote. (The Guardian) The political turmoil has devastated Mr Albanese’s standing. His net performance rating plummeted from plus 6 in December to minus 22, while populist-nationalist One Nation hit a record high in polling. Labor’s primary support slumped 5 points to 30%, its lowest since February last year. (The Age) The dramatic reversal challenges assumptions about political stability following Labor’s May 2025 landslide victory. Mr Albanese attempted damage control with an emotional apology to families of the Bondi victims during a memorial ceremony at the Sydney Opera House. He said he was “profoundly sorry” for being unable to protect them and acknowledged the particular impact on the Jewish community. (SBS) Even as he managed the domestic crisis, the prime minister showed caution toward new US initiatives, declining to specify Australia’s response to President Donald Trump’s invitation to join a proposed 60-nation Board of Peace for Gaza reconstruction. He said the government would “give it further consideration” — aligning with concerns raised by major allies including France, Sweden, Norway, Canada and Britain. (Guardian Australia)