Key Points
- A “Tokyo Effect” is emerging as countries around the world look to Japan as a model for economic security and effective public-private cooperation
- Corporate self-interest is a key factor driving the integration of economic security into the strategies of Japanese firms, while the government helps bring firms together to identify and diffuse firm-tested corporate economic security best practices
- Economic security will need to drive growth in order to be sustainable over the long term; Japan’s experiences so far offer important lessons for like-minded partners, even those with different structures of business-government relations
The Tokyo Effect
Japan is widely recognized as a global economic security leader. It was the first country in the world to designate a cabinet-level economic security minister, the first to pass a comprehensive economic security law, and has led the way in reforming its bureaucracy for a new era of intensified geoeconomic competition. As governments around the world scramble to develop their own economic security programs, references to concepts like “strategic autonomy” and “strategic indispensability” that Japan pioneered have emerged as just one of many signs of a “Tokyo Effect” shaping the development of international economic security best practices.
While there are many distinctive elements of Japan’s economic security program, perhaps the most often remarked upon by foreign partners is the effectiveness of Japanese public-private cooperation. Japanese firms are more trusting of their government, more compliant with its mandates, more open in sharing information, and more willing to take on burdens on behalf of the national interest – or so the narrative goes. As one European government colleague remarked to this author, everyone accepts that economic security is national security but Japan seems to be the only advanced democracy to have figured out how to actually “make companies follow” the national de-risking strategy.
There is no doubt that public-private partnership is a core element of Japan’s economic security strategy. Japan’s approach has been to establish flexible legal frameworks and to work collaboratively with the private sector through a dense network of informal governance mechanisms to test and refine approaches to incremental corporate de-risking, and then share the resulting knowledge as best practices for economic security. Takashi Ito of DCER refers to this as an example of an “informal governance mechanism.” As used here, the term refers to a form of non-institutional governance that complements the institutional void created when the pace of geopolitical change outstrips legislative and regulatory reform, or when diplomatic and trade considerations make it difficult to specify every necessary response through hard-law measures alone. Rather than relying solely on formal institutions, Japan has sought to manage this gap through continuous dialogue, information sharing, and mutual coordination between government and industry. Under this framework, companies incorporate into their internal rules and management systems those foreign regulations with extraterritorial effect that are relevant to their business, thereby helping to ensure both business continuity and legal compliance. In turn, the government provides guidance and information based on developments in overseas regulatory regimes. Together, these efforts complement areas where formal legal frameworks alone are insufficient, thereby sustaining the effectiveness of Japan’s economic security policy.
The establishment of dedicated economic security teams at many global firms is a key part of the system’s operating logic. Such organizational arrangements not only enable operational flexibility and support organizational learning around economic security but also, where appropriate, allow the Japanese government and companies to coordinate their geopolitical risk management practices with a degree of plausible deniability. By preserving some distance between government guidance and individual corporate decisions, this can reduce the risk of unnecessary political or diplomatic friction while also empowering firms. Such flexibility is particularly valuable when firms must navigate conflicting legal, regulatory, and political pressures across jurisdictions, as illustrated by China’s Anti-Foreign Sanctions Law and related measures.
Still, it would be a mistake to rely on imaginings of a unified “Japan Inc.” to explain Japan’s success. Japanese firms are commercial actors, not government policy vehicles. Direct Japanese government ownership of firms has been in secular decline for decades. The past decade of Japanese corporate governance reforms and foreign capital inflows have reinforced the market orientation of Japanese businesses, putting many under increased pressure to focus on core business lines and improve return on equity. In many respects, these reforms have even gone so far as to push against the very transition from “just in time” to “just in case” business practices that economic security requires.
Despite these headwinds, economic security has nonetheless become an important—and, increasingly, expected—part of good corporate governance. This makes it all the more valuable to understand why Japanese firms are taking on the challenge of economic security and how the Japanese public-private model actually works.
Economic Security for Corporate Advantage
In the 1990s and even into the 2000s, the PRC market offered Japanese firms cheap labor, a growing domestic market, and a friendly environment for foreign firms. The addition of foreign capital, technology, and brands was an easy recipe for growth.
But signs that the PRC would be a revisionist economic power were already evident in the Hu-Wen Era from 2003-2013. Japanese firms in sector after sector found their intellectual property stolen, domestic rivals favored at their expense, and their PRC market shares and profitability eroding. The famous Made in China 2025 industrial policy plan and the rise of standard-bearing firms like Huawei, CATL, BYD, and DJI may have been a wake-up call for Washington and Brussels but the direction of Chinese economic strategy was obvious much earlier, with roots in the policies of even the famous “reformers” that led the PRC into the WTO.
By the 2010s, Japanese firms faced a conundrum. The PRC domestic market remained large and profitable in many sectors, but the government had made clear its determination to reduce dependence on foreign firms while strengthening domestic champions. PRC labor had become both skilled and essential; there was no scalable alternative in sight, but overreliance was a clear long-term risk. The PRC had become an innovator not only in science and technology but also in mass production systems, despite ideological protests that innovation under authoritarianism was impossible.
Meanwhile, with the arrival of the first Trump Administration, the United States was beginning to push for decoupling but without a clear long-term plan that Japanese firms could treat as investable. And any firm that made clear intentions to leave the Chinese market on its own terms invited a pressure campaign from Beijing and the process of an ugly and expensive exit.
Japanese government and corporate leaders arrived at the importance of economic security on a similar timeline, and as an answer to the more general matter of how Japanese firms could adapt to better compete amidst a decaying international order. The first step was about changing mindset. Japanese often use terms like “heiwa boke” or “seikei bunri” to describe a tendency that grew up in the late postwar period to keep the business of international affairs as separate as possible from the business of making money. This inattention to geopolitics can be overstated, but many Japanese firms were in fact blindsided by the return of geopolitics as a key variable in corporate decisionmaking. They not only lacked geopolitical risk awareness at senior levels of management but had underdeveloped processes for incorporating geopolitical risk into corporate strategy and had not built pipelines for developing middle management and entry-level talent to support these efforts.
The matter of talent remains acute for many firms, but the problem of awareness has now largely been solved (at least for large global corporations). The next step has been to define tasks.
At leading firms, Japanese economic security teams have generally coalesced around three areas of responsibility: intelligence collection and distribution; supply chain risk management; and sensitive data protection. Fulfillment of these cross-cutting missions must then be coordinated horizontally between the relevant departments, such as corporate planning, legal, human resources, procurement, and cybersecurity, as well as vertically from senior management down to the “gemba” where value is created.
These practical initiatives are being implemented in parallel with integration of economic security considerations into more strategic business decisions, including mergers and acquisitions. At the same time, many Japanese firms are accelerating efforts to diversify the geographic distribution of their operations and reduce dependence on higher-risk markets.
In the corporate world, economic security is also about what not to do. Firms that prioritize public policy objectives over corporate interest, get too far ahead of industry peers, or become too averse to geopolitical risk lose market opportunities, lose access to low-cost suppliers, and can face retaliation from foreign governments.
New companywide training programs, new supplier screening regimes, or new employee monitoring programs are expensive to implement, benefits are difficult to measure, and missteps can easily generate opposition, whether from employees, third-party partners, senior management, or regulators (domestic and foreign). Done incorrectly, an economic security program can marginalize itself before generating business-relevant results. This remains an area where many Japanese firms—especially those with the highest exposure to China or most exposed to sudden shifts in US economic policy—are continuing to find their way.
Economic Security as Growth Strategy
The true test for any national economic security program is whether it can deliver a more robust and resilient economy without too great a penalty to relative economic growth. If economic security is incompatible with economic growth, sooner or later the resource advantages that compound in favor of faster-growing economies are likely to translate into strategic or military advantages that outweigh or overwhelm whatever supply chain resilience an economic security program can buy.
The restatement of this dilemma in a corporate context is to ask whether investments in economic security capabilities confer or undermine long-run corporate advantage. If economic security programs do not generate returns, the laws of the market dictate they will ultimately have to be abandoned. Among the advanced industrial economies, Japan has been one of the earliest to confront this challenge and to explore ways of reconciling economic security with corporate competitiveness.
The best example of this is the economic security best practices compendium released by the Ministry of Economy, Trade, and Industry (METI), currently in its second edition. The content is based on the experience of economic security teams at leading companies, covering topics ranging from identifying critical technologies to practical measures for securely sharing information with third parties.
In February 2026, METI went a step further, releasing non-binding economic security management guidelines designed to set clear benchmarks for what a high-performing economic security program looks like. Recognizing the need for more effective intra-industry information sharing, METI partnered with the Japan Fair Trade Commission to release advice on how to cooperate in managing economic security risk without undermining competition or running afoul of anti-monopoly rules.
Japan has also been an innovator in continuously adapting policy instruments to changing circumstances even as it has been loathe to compromise certain longstanding principles of its foreign economic policy (such as compliance with WTO obligations). In areas such as critical mineral extraction and processing, Tokyo recognized early that relying solely on market forces would not be sufficient to counter the PRC’s non-market practices. It therefore developed a framework that combines long-term government financing, private-sector technology and expertise, and guaranteed offtake agreements to link supply with demand.
Likewise, amendments to the ESPA enacted in June 2026 expanded the framework beyond domestic production by supporting overseas production and by maintaining capabilities not only in manufacturing but also in related services – including transport, repair, and installation – needed to ensure the stable supply of critical goods and services. Economic security has also been incorporated into Japan’s Corporate Governance Code, marking an important step toward establishing economic security as a standard expectation for corporate leaders.
Conclusion
Japan’s economic security program is incomplete, and the role of the private sector continues to evolve. How to engage small and medium-sized enterprises, which often possess world-class technologies but lack the resources to invest in economic security, remains a critical issue.
The financial services sector needs to be better integrated into Japan’s overall economic security strategy. Until financial institutions appropriately incorporate companies’ economic security efforts into corporate valuation frameworks, non-financial corporates will struggle to integrate economic security into business strategies. Strengthening economic intelligence capabilities is another priority. Japan has a strong institutional foundation for collecting firm-level commercial intelligence, The next challenge is to aggregate and analyze the tactical information accumulated by individual companies and transform it into strategic intelligence that can support policy decision-making.
Japan’s economic security capabilities nonetheless offer useful lessons for like-minded partners, especially in the United States and Europe.
Japan’s experience is also a reminder that economic security will not come free. The depth, diversity, and flexibility of the Japanese industrial base are a core national advantage in the pursuit of economic security.
Part of how Japan has maintained the diversity of its domestic industrial base has been to tolerate a certain degree of inefficiency and even redundancy in the name of protecting autonomy. More countries are now confronting this same efficiency-autonomy tradeoff. The challenge is how to minimize the resulting deadweight loss and in doing so, translate greater resilience into stronger long-term productivity. This should become an important topic for discussion among like-minded countries.
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