May 6, 2026
Japan – A Delicate Balance
Asia at the Center of Global Fragmentation — where are the investment opportunities?
Previously, we covered how investors can play “offense” by investing into “defense”-related beneficiaries, and how investors can play “defense” through hedging downside growth risks and portfolio diversification through alternatives. In this paper, we revisit the former, but with a focus on Asia and how its economic and national security priorities are undergoing similar changes as in the U.S. and Europe, and how these shifts could present opportunities for global investors looking to capitalize.
Globalization used to prioritize efficiency – companies built supply chains that stretched across continents to find some of the lowest-cost inputs and the fastest growth. But that era is fading. The world economy is increasingly organizing into competing blocs, where security, resilience, and political alignment matter more than the lowest-cost producer. This shift—which we describe in our 2026 Outlook as global fragmentation—changes how countries trade, how companies invest, and how investors experience inflation, shortages, and market volatility.
Asia sits at the center of this story. Economies such as China, Japan, Taiwan, and South Korea are deeply connected to global trade and advanced manufacturing, yet each faces distinct security constraints and policy priorities. As governments respond, they are redirecting capital and incentives in three practical areas.
The three themes in global fragmentation: security, energy and supply chains
First, national security is shifting from a “background issue” into critical budget and industrial planning decisions. defense procurements are rising, with potential beneficiaries in related suppliers (including dual-use industrial manufacturers) and cybersecurity.
Second, energy security is becoming a strategic objective. The Middle East conflict has highlighted the vulnerabilities in many Asian economies in terms of energy dependency. Policy priorities include efforts to diversify the energy mix, modernize grids, improve storage facilities and raise efficiency.
Third, supply chain resiliency is shifting from pure efficiency improvements to a national security and corporate risk-management imperative. There could be a “resilience premium” that results from near-shoring/friend-shoring and supplier diversification, with benefits accruing to advanced manufacturers, component and material providers and industrial automation leaders. All of this is taking place against the reality of heavily concentrated production of key inputs in specific geographies, such as advanced semiconductors in Taiwan and South Korea, and rare earths in China.
In this paper, we draw observations from some Asian economies and their policy actions related to global fragmentation—and how those choices can redirect the flow of capital and boost business activity in specific sectors within and beyond those economies, in turn creating beneficiaries and opportunities for global investors across the themes of national defense, energy security, and supply chain resilience.
China
“Self-sufficiency” has long been a core strategic objective underpinning China’s industrial and technology policies. While the concept has existed for decades, its salience has increased materially in recent years—particularly since 2018, when the escalation of U.S. export controls and sanctions exposed China’s dependence on foreign “chokepoint” technologies. Since then, self-sufficiency has been progressively clarified, formalized, and elevated from a broad developmental aspiration to a central organizing principle of economic and industrial policymaking.
This shift is clearly articulated in the 15th Five Year Plan, the full text of which was released in March 2026. The plan explicitly frames technology and industrial self-reliance as a strategic pillar for navigating an increasingly fragmented and competitive global environment. While the framework does not represent a wholesale rejection of globalization, it marks an important transition from a largely reactive policy stance to a baseline planning assumption for the coming decade. The focus is on reducing structural vulnerabilities arising from external dependence, particularly in sectors deemed critical to economic security and national resilience. Priority areas include semiconductors, advanced manufacturing, artificial intelligence, aerospace, quantum computing, biotechnology, energy equipment, and critical materials.
High end manufacturing & self sufficiency related products are growing faster
Year-over-year growth % (3-month rolling average)
Sources: China National Bureau of Statistics, Haver Analytics. J.P. Morgan Private Bank. Data as of February 2026.
Consistent with this objective, the plan further entrenches a shift toward state directed capital allocation, the cultivation of large national champions, and mission-oriented research and development. Reliance on foreign technology transfer is de-emphasized in favor of domestic innovation and substitution. This approach is reinforced by the concept of “new quality productive forces,” which reframes technological progress and innovation capacity as components of national power and security, rather than as drivers of productivity growth alone.
From a market perspective, this policy orientation implies a closer alignment of state capital, public procurement, and the regulatory framework with the objective of reducing exposure to foreign technological bottlenecks. Sectors aligned with self-sufficiency priorities are therefore likely to benefit from greater policy support, including increased subsidies, more predictable captive demand, and preferential access to financing. Over time, this is expected to reshape competitive dynamics both within China and across global supply chains, with implications for capital allocation, returns, and trade relationships.
In terms of investment opportunities, China’s markets contain selection of leading companies in materials, semiconductor equipment, and AI-related innovation. We recently covered our positive view on China’s tech sector.
Japan
In recent years, Japan has implemented a broad set of measures spanning national defense buildup, supply chain security enhancement, and efforts to reduce energy dependence. Both the pace and scope of these initiatives have accelerated materially since Prime Minister Takaichi took office.
On national defense, Japan has fast tracked its spending expansion from the long standing 1% of GDP cap to 2% of GDP by FY2025, reaching the target two years ahead of schedule and effectively doubling defense outlays through 2027. In parallel, the government has moved to revise its three core security documents—the National Security Strategy, National Defense Strategy, and Defense Buildup Program—by end 2026, breaking from the traditional once per decade review cycle. The overarching objective is to pivot Japan toward a more proactive security role in the Indo Pacific from a largely defensive posture, while remaining firmly anchored to the U.S.–Japan alliance. These shifts imply a sustained expansion in defense capabilities and the domestic defense industry, including looser constraints on arms exports and a stronger defense industrial base to improve self-reliance and interoperability with allies.
Alongside defense expansion, the government has proposed establishing a centralized national intelligence council, with a mandate to tighten screening of foreign investment into sensitive sectors, land purchases, and strategic technologies. On supply chains, the 2022 Economic Security Promotion Act materially strengthened the legal framework governing critical supply chains—covering areas such as semiconductors, rare earths, and storage batteries—backed by substantial subsidies to encourage firms to relocate or expand domestic production capacity.
Energy security remains a long standing pain point for Japan. The country’s energy self-sufficiency rate stands at around 13%, among the lowest within developed markets. Following the Fukushima accident, the shutdown of large portions of the nuclear reactor fleet forced a renewed reliance on imported fossil fuels. LNG now accounts for a significant share of Japan’s power mix, but declining long term contract volumes raise risks around supply stability and price volatility. Progress toward renewable energy has also faced constraints, with underdeveloped domestic manufacturing capacity for solar and wind equipment. While authorities have begun exploring hydrogen as a future energy source, infrastructure gaps and high costs remain key bottlenecks.
In terms of investment opportunities, Japan contains some global leaders in industrial automation, energy infrastructure equipment and select parts of the semiconductor supply chain.
Taiwan and South Korea
The global AI buildout – while centered on the U.S. – has benefitted the Taiwanese and South Korean markets. We estimate that close to 30% of total AI capex makes its way to these two economies, which has been a tailwind for growth amidst trade uncertainty across Asia. This is consequential enough to drive an earnings upgrade cycle in Asia ex-Japan. It is worth noting that companies across the Asia ex-Japan market with meaningful AI exposure now represent approximately 30% of the index and they are a key driver of near-term earnings growth.
Taiwan’s dominance in advanced semiconductor manufacturing has made it one of the clear winners in this AI buildout, as computing needs are likely to continue growing on the back of AI demand. However, this also presents a critical concentration for the global economy – a risk that many economies are trying to diversify through self-sufficiency pushes in advanced semiconductor manufacturing. However, some of these other projects have not come close to the efficiency of chip production in Taiwan.
The U.S. semiconductor supply chain is meaningfully reliant on Taiwan
U.S. semiconductor reliance on Taiwan, %
Sources: China National Bureau of Statistics, Haver Analytics. Data as of March 2026.
South Korea is also well-positioned to benefit from a number of secular developments such as: 1) leading the world in the increasingly important role of memory in AI applications and workloads; 2) possessing expertise in specialized engineering fields such as building of nuclear facilities and high voltage electrical grid equipment; 3) growing its role as a leading global provider of defense equipment, and possessing shipbuilding talent with a large potential market opportunity to help modernize the U.S. naval fleet.
What to do
Global fragmentation is reshaping policy priorities, and Asia is at the center of these paradigm shifts. Incentives and capital flows are being reshaped with defense, energy and supply chains being some of the clearest channels through which national security is being pursued. Though some of the beneficiaries linked to those areas have performed well and the immediate tactical opportunity set may vary, we see these as playing a critical role in long-term, diversified portfolios as part a broader thematic trend that will likely persist for years. Bottoms-up stock selection is key in identifying the winners and losers amid these changes.
Reach out to your J.P. Morgan team for advice how these winners can fit into your portfolio.
Important Information
Global fragmentation is rewriting the rules of trade, investment, and supply chains—with Asia at the center. Our latest piece outlines three policy-driven opportunity sets: defense & security, energy security, and supply-chain resilience.
Weiheng Chen
Global Investment Strategist
Published Apr 22, 2026
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