The world entered 2026 amid intense upheaval and uncertainty. The year 2025 marked a significant shift in the international economic order that had sustained 80 years of postwar prosperity. Japan, positioned uniquely between the strengthening powers of the United States and China, must leverage its distinct characteristics to build its own strategy.
John Maynard Keynes' 1930 essay 'Economic Possibilities for Our Grandchildren' predicted that by 2030, technological innovation and capital accumulation would raise living standards eightfold, with three hours of daily work sufficing for life's necessities. In a 2024 column, IMF Managing Director Kristalina Georgieva marveled at the forecast's accuracy: even as the global population quadrupled over the past century, per capita income rose eightfold. She highlighted unprecedented poverty reduction, with 1.5 billion people lifted out of poverty in the last three decades alone, and hundreds of millions entering the middle class, alongside improvements in life expectancy, infant mortality, literacy, and education, especially for girls.
Yet every advance casts a shadow. Post-World War II, the world developed under an interconnected order of rule of law, democracy, and free trade, but these are now faltering, reverting to great-power rivalry. The United States and China together account for 43% of global GDP. The U.S., with 25% of GDP, benefits from the dollar system—60% of international financial transactions and 80% of trade—and leads in AI innovations, with companies like Nvidia comprising 20% of world market capitalization. However, inequality surges in a K-shaped economy, where the top 20% hold 50% of income; political divisions deepen, crime rises, health insurance burdens the poor, and life expectancy stands at 78 years, low for developed nations.
China's state-led capitalism has made it a manufacturing superpower, with 35% of global output—three times the U.S., six times Japan, nine times Germany—fueled by subsidies and industrial policies. Yet domestic stagnation persists: per capita GDP trails developed countries, a real estate slump fuels discontent, youth unemployment is high, birth rates decline amid rapid aging, and a 'lie flat' generation rejects intense competition.
Japan's diligent character and robust manufacturing offer competitiveness: Tokyo Electron leads in semiconductors, Nippon Steel's U.S. Steel acquisition aims for global top spot, and Toyota remains the world's largest automaker. With soft power in animation, advanced healthcare yielding 84-year life expectancy, and safe cities, Japan must solidify political stability, accelerate structural reforms, and engage transparently. Key steps include mutual-benefit ties with the U.S. via a $550 billion investment framework in energy, semiconductors, and more; deepening free trade, rule-of-law cooperation with Europe and Asia; and reviewing China strategy amid deteriorated relations following Prime Minister Sanae Takaichi's Taiwan contingency remarks. Keynes' visions inspire, but in uncertainty, reaffirming Japan's strengths is vital for the next century.
