For three decades, Japan was the world’s great outlier. Prices barely moved, interest rates sat at zero and security policy remained bound by self-imposed postwar pacifist constitutional constraints. That era is drawing to a close. Across politics, economics and security, Japan is becoming a ‘normal’ country.
Normalisation is unfolding on many fronts at once. Inflation has returned, wages have risen by over 5 per cent annually since 2024 and the Bank of Japan has begun lifting interest rates. Defence spending has moved above its longstanding 1 per cent benchmark, now heading towards 2 per cent of GDP, and Japan has acquired counterstrike capabilities — a security transformation achieved through reinterpreting Article 9 of the Constitution. Prime Minister Sanae Takaichi’s LDP–Ishin coalition, commanding a large lower house majority, is pursuing policies once unthinkable in the political mainstream, including constitutional revision and firmer lines on security and immigration.
External shocks have accelerated these shifts. The Trump administration’s transactional diplomacy has renewed doubts about US extended deterrence, while the 2026 closure of the Strait of Hormuz tested an energy security architecture built for the crises of the 1970s — Japan still relies on the Middle East for over 90 per cent of its crude oil imports although its dependence on oil as an energy source has declined sharply.
