Picture this: China held the world’s largest forex reserves, totalling $3.3579 trillion, in December 2025. Amid uncertain ties with America, however, it is fast reducing its US Treasury holdings and diversifying its foreign exchange reserves towards gold, non-US currencies, and overseas equity investments. In just one month, its US Treasury holdings fell from $688.7 billion in October 2025 to $682.6 billion a month later, its lowest since 2008.
In contrast, Japan’s holdings in the US Treasury rose by $2.6 billion to $1.2 trillion, while the UK’s pool rose by $10.6 billion to $888.5 billion.
Beyond headlines and routine geopolitical brouhaha, this subtle movement of gold as god indicates changing power dynamics in the Eastern Hemisphere: both Japan and the UK are part of this hemisphere—and they have fought to retain their empires in the 20th century.
By 1905, when the British Empire started declining, Japan surfaced as the ‘West in the East’. Tokyo took only 50 years to rival London’s geopolitical influence.
Japan is amazingly fast. After the US Navy’s Commodore Matthew Parry ‘opened’ up the Shogun-controlled feudal islands in 1853, the isolated nation quickly ended its centuries-long seclusion and began trade with America and the world at a breakneck speed. Japan rapidly industrialised and decisively defeated Tsarist Russia in a naval war in 1904-5.
It was a landmark conflict that forced Russia to cede influence in East Asia, marking the first time a rising Asian power defeated a European one in modern times. It surprised the world, galvanised anti-colonial movements against Europe, and sparked internal Russian unrest that led to the Communist Revolution in 1917…
With the US’ nuclear bombing of Hiroshima and Nagasaki in August 1945, however, Japan quickly scaled down its geopolitical ambitions. Recovering fast under the US’ security umbrella, it didn’t have to spend on defence; so, it focused solely on the economy and became an industrial giant. In 1968, it emerged as the world’s second-largest economy, surpassing (West) Germany, until China overtook it in 2010. In the 1980s, Japan entered an era of massive wealth and property bubbles… and its economy ‘downgraded’ like China’s has now.
But China is not only the world’s second largest economy, it’s also a ‘threat’ to America’s global power.
That makes a difference to the Eastern Hemisphere—and the Western.
No Free Lunches!
That’s why the US is ‘rediscovering’ Japan to pit it against its ancient enemy: China, which has not forgotten what Japan did to it in the 1940s.
Since the Second World War, power dynamics gradually transitioned in favour of the Western Hemisphere. Until recently, the US was spending heavily to shield Europe against Russia. For example, the US contributed nearly 16 per cent ($750 million) of the overall Nato defence budget in 2024 ($4.7 billion). The EU countries spent 343.2 billion euros in 2024 on defence, a 19 per cent rise, and planned to hike it by another 11 per cent in 2026 to 381 billion euros—all because of the ongoing Russia-Ukraine war and under persistent US pressure to ‘defend yourself’.
Many Americans, especially Republicans, complained that the US taxpayers’ money was being used ‘unproductively’ to secure Europe from Russia. Most US presidents, for ideological reasons and the Second World War promises and hangovers, did not do much to reverse the policy of protecting Europe.
Then Donald Trump, businessman and self-proclaimed dealmaker, happened.
In his post-Truth Social era, he offers no free lunches—not even to Pakistan’s “Field Marshal” Syed Asim Munir! The Maga president has overturned all conventional apple carts, traditions, diplomatic subtlety and finesse; he has rudely woken up the world from its so-called UN-flagged and vetoed ‘World Order’ siesta by pushing through the long-held American deep state’s agenda and revived the ‘Donroe Doctrine’.
Since his return to the White House in January 2025, for example, Trump has refurbished the nearly forgotten US agenda in Canada, Panama, Mexico, Venezuela… and is now fighting on multiple fronts to eject China from geodynamics—while accommodating Russia for the time being.
In these wide-picture sweepstakes, neither Iran nor the Arabs nor the Turks nor the Pakistanis would matter—one way or another, each one of them could face regime change. Only their sequence, not fate, would likely change. Sabka time ayega!
In this no-nonsense ‘New World Order’, there is no moral, ethical, or ideological dilemma. Each country will be treated as a grown-up kid. Pay if you want to stay with us. Even Israel is not excluded! Period.
“The chief business of the American people is business,” US President Calvin Coolidge famously told journalists in 1925. Others went much further, claiming that business was nothing less than America’s religion!
A century later, Donald Trump represents the Age of Digital and Dollar Diplomacy, volatile like a stock market!
Realpolitik
This is a humongous transformation from the laidback politics, diplomacy, and wars of the feudal era. Ask the ‘Kingdom of Denmark’, which claims Greenland!
The problem with Europe is that it has failed to move on after the Second World War era’s ‘ideological battles’. America has fast-forwarded.
After the fall of the USSR in 1991, Nato increasingly became rather irrelevant; America started distancing itself from Europe. The Russia-Ukraine war, beginning in February 2022, exposed the faultlines between the US and the 27-member European Union; in January 2026, the EU even dispatched symbolic ’troops’ to guard Greenland from America!
Although there seems little immediate threat to Greenland from Russia or China, consider this: Russia has been actively militarising the Arctic, reviving Cold War-era bases and expanding its naval presence, which directly affects the security of the North Atlantic (specifically the GIUK gap between Greenland, Iceland, and the UK). Russia also plans a new shipping route next to Greenland.
And China considers itself a “near-Arctic” state; it has pursued a “Polar Silk Road” strategy, investing in infrastructure, mining, and research, with roughly $90 billion in investments in the Russian Arctic. China is a major investor in Greenlandic rare earth mining, with firms like Shenghe Resources holding significant stakes (12.5 per cent) in the Kvanefjeld mine project, according to media reports.
Greenland is a crucial node at the crossroads of North America and Europe, with its strategic importance growing as melting ice opens new routes. The US views it as critical to its national security; unlike his predecessors, the current US President has openly advocated purchasing or strengthening Greenland to counter Russian and Chinese influence.
Greenland has now become a pawn, even a flashpoint, between the US and its frenemies Russia and China. It is among the last of the European colonies, being decolonized by America!
Enter Japan!
In this era of post-ideology and post-religion geodynamics, Japan re-entered America’s overall strategy, not now but over a decade ago when China’s Belt and Road Initiative (BRI) and the Polar Silk Road strategy began to take shape.
From 1945 to 1990, Japan’s defence budgets were generally constrained by its pacifist constitution (Article 9) and the US security umbrella; largely unburdened with defence spending, Japan focused on the economy. In the early 2000s, however, a gradual increase in the defence budget began, and Japan started funding new equipment like warships and stealth jets.
As the four-nation Quadrilateral Security Dialogue (Quad) began to emerge in 2007—a worried China has since denounced it as “Asian Nato”—Japan became an active member of the US’ new security policy in the Indo-Pacific Region.
America has since been pushing not only Europe but also Japan to fund their security and ‘outsource’ to them the overall security of the Eastern Hemisphere. In this ‘franchisee’ and part-self-financing model of US-led collective security of the Eastern Hemisphere, Japan fits well.
Between 2021 and 2025, Japan’s defence budget increased from $51.7 billion to $58 billion and is now racing towards meeting Nato’s 2 per cent of GDP goal by 2027, a major policy shift. Next year, Tokyo plans to increase its defence budget by 9.4 per cent. This will fund long-range strike, missile defence, drones, and naval expansion (like F-35B integration on Izumo-class carriers) to counter regional threats, especially from China and North Korea, a significant change from its post-war pacifist constraints. In essence, Japan is undergoing a major defence overhaul, increasing budgets and capabilities to become a more capable security partner in the Indo-Pacific.
Spreading its net far and wide, Japan is also expanding its Official Security Assistance (OSA) across Southeast Asia, with Thailand as the 11th recipient by March 2026, and Cambodia, Vietnam, and Laos as priorities. Launched in April 2023, the OSA provides military support to strengthen the security and deterrence capabilities of developing nations that Japan hopes to partner with on security.
A strong supporter of Taiwan’s independence, Japan’s Prime Minister Sanae Takaichi’s diplomatic debut at the Asean Summit in Kuala Lumpur in October 2025 was significant. She specified the OSA as a vital policy tool to achieve their shared objective of a Free and Open Indo-Pacific (FOIP). That’s why her Cabinet allocated 18.1 billion yen (S$147.6 million) for the OSA in 2026, a sharp increase from previous budgets.
Dragon is worried!
These subtle moves by the US to “remilitarise” Japan have rattled China.
For example, on January 6, 2026, Chinese Foreign Policy spokesperson Mao Ning said, “It reflects the dangerous trend of Japan ‘remilitarising’ itself faster, which is bound to undermine regional peace and stability. The international community must stay on high alert.”
China, which tried to assert itself in East Ladakh in 2020 and has been claiming parts of Indian territory—indeed, it has simmering border disputes with many of its 14 neighbours!—then parroted international law, including the Cairo Declaration and the Potsdam Proclamation, requiring Japan to be “completely disarmed” and not to maintain such industries as “would enable her to re-arm for war”.
She even cited Japan’s Constitution, which made strict restrictions on the country’s military forces, the right of belligerency and the right to war.
However, in recent years, right-wing forces in Japan have been expediting military buildup and gradually breaking free from post-Second World War norms, such as the exclusively defence-oriented principle and a series of international rules, which constitutes a challenge to the post-war international order, Mao Ning noted.
“What’s the difference between their practice and what the Japanese militarists did in the last century?” Mao asked.
Indeed!
Japan is rising again.
(The author is a senior journalist. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.)
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