This article originally appeared in the Japan Times.
By Stephen Nagy, July 31, 2025
Standing in Budapest’s bustling Monori Center, which serves as the Hungarian capital’s Chinatown, the contrast is stark. Chinese electronics shops neighbor Korean beauty stores while BYD electric vehicles glide past restaurants serving authentic Sichuan cuisine. K-pop music drifts from a nearby cafe where Hungarian teenagers discuss the latest South Korean drama.
Yet amid this vibrant Asian commercial ecosystem, Japan’s presence is conspicuously absent. This void represents not just missed business opportunities but a fundamental strategic miscalculation as Tokyo struggles to navigate between Washington and Beijing while their strategic competition deepens.
The principle of seikei bunri — separating politics from economics — has been Tokyo’s foreign-policy cornerstone since the 1970s. This doctrine enabled Japan to maintain robust trade with China while anchoring its security to the U.S. In a world characterized by heightened great-power rivalry, this delicate balance is increasingly untenable. The Trump 2.0 administration’s transactional diplomacy treats allies as profit centers, demanding protection payments and threatening tariffs regardless of longstanding security commitments.
In contrast, Japan faces economic interdependence with China. With the Asian giant being this nation’s largest trading partner at around $350 billion annually, it creates vulnerabilities that China’s leaders frequently exploit whenever territorial disputes or historical grievances resurface or when Tokyo makes security decisions Beijing does not like.
Yet as Japanese policymakers agonize over this binary choice, they overlook a compelling alternative hiding in plain sight. Central Europe offers Japan a pathway to increased strategic autonomy, providing economic diversification, diplomatic leverage and technological partnerships without the geopolitical baggage of the superpowers. The tragedy is that while China and South Korea aggressively court the region, Japan remains passive, squandering an opportunity that aligns perfectly with its stated goals of economic security and strategic autonomy.
The evidence of Japan’s absence is overwhelming. Chinese investments in Central Europe exceed €10 billion, with flagship projects like CATL’s €7.3 billion battery plant in Hungary employing thousands. The China-CEE Institute in Budapest shapes regional discourse, while the Confucius Institutes proliferate across universities.
South Korea’s presence is equally impressive, with Samsung’s Hungarian battery plant, Hyundai’s manufacturing facility in the Czech Republic and the cultural influence of K-pop seen in sold-out Seventeen concerts in Warsaw and Blackpink performances filling Budapest’s Puskas Arena.
Japan? Beyond legacy automotive investments and scattered sushi restaurants (many run by Chinese or Vietnamese entrepreneurs), Tokyo’s footprint is virtually invisible. This despite Central European officials explicitly stating — as multiple Hungarian and Polish investment authorities have confirmed — that Japanese businesses qualify for identical incentives offered to their Asian competitors, including 10-year tax holidays, infrastructure support and expedited permitting.
This absence is particularly baffling given Central Europe’s strategic advantages. The region offers EU single market access, lower costs than Western Europe, highly skilled technical workforces and governments eager for Asian investment that doesn’t compromise their sovereignty.
Hungary’s “connectivity strategy,” promoting economic neutrality and bridging East and West, aligns closely with Japan’s desire to avoid choosing sides. Poland’s growing defense industry seeks partners for advanced technology. Romania’s energy sector requires precisely the clean technology expertise Japan possesses.
The cost of Japan’s Central European absence extends beyond lost commercial opportunities. It weakens Tokyo’s leverage with both Washington and Beijing. A Japan more deeply integrated into European value chains would be less vulnerable to U.S. economic coercion or Chinese supply-chain pressure. It would strengthen Japan’s voice in global governance, provide alternative markets during geopolitical tensions and create constituencies in Europe invested in Japan’s success.
So why does Japan remain absent? Cultural distance plays a role as Japanese firms find Central Europe more foreign than Southeast Asia or even America. Risk aversion in corporate culture prioritizes familiar markets over new frontiers. Government support for commercial expansion lacks the strategic coherence of China’s Belt and Road Initiative or South Korea’s New Southern Policy. Most fundamentally, Japanese strategic thinking remains bilaterally focused, failing to recognize how multilateral engagement enhances rather than dilutes bilateral relationships.
But change is both necessary and achievable.
First, Japan should establish a €5 billion Central Europe Investment Fund. Create a government-backed fund specifically for Japanese companies entering Central European markets, offering risk insurance, market research and co-investment opportunities. It could be modeled on the Japan Bank for International Cooperation but with dedicated regional focus and streamlined procedures, with priority going to crucial sectors including green technology, semiconductors, robotics and advanced manufacturing.
Second, Japan needs to launch at least three innovation centers. Establish technology and business incubation centers in Warsaw, Budapest and Prague. These should not be traditional cultural centers but dynamic spaces combining co-working facilities, technology demonstration labs, business matchmaking services and cultural programming. Staff them with bilingual professionals who understand both Japanese corporate culture and local business environments. Each center should host no less than 50 events annually connecting Japanese technology with Central European talent.
Third, create a so-called Tokyo-Central Europe Strategic Dialogue. Immediately institute an annual high-level forum rotating between Tokyo and Central European capitals, bringing together ministers, CEOs and thought leaders to discuss economic integration, technology cooperation and regional security. Unlike existing EU-Japan dialogues, this would focus specifically on Central Europe’s unique opportunities and challenges. This would include establishing a permanent secretariat and research fund producing actionable policy recommendations.
Fourth, Japan needs to develop integrated supply-chain partnerships. Move beyond simple manufacturing investments to create integrated supply chains linking Japanese technology with Central European production capacity. Cooperation could start with electric-vehicle batteries where Japan has technology but lacks European production scale then expand to semiconductors, renewable energy components and medical devices. Tokyo could also offer technology transfer agreements that create local expertise while maintaining quality standards.
Fifth, Japan would be wise to fund a Japan-Central Europe strategic research institute. Establish a world-class think tank in Budapest or Warsaw (or both) with a €50 million endowment, focusing on economic resilience, connectivity strategies and technological cooperation. Unlike Chinese institutes promoting Beijing’s narrative, this would be genuinely collaborative, producing research benefiting both regions. Key to its success would be fellowship programs bringing Central European researchers to Tokyo and Japanese scholars to the region.
These initiatives would transform Japan’s regional presence while strengthening its global position. A Japan deeply engaged in Central Europe becomes a more valuable partner for the United States; not as a dependent ally but as a globally engaged power with diverse economic relationships and strategic options. This would demonstrate to Washington that Japan takes seriously its responsibilities for economic security and burden-sharing. Paradoxically, by developing alternatives to U.S.-dependence, Japan would become a stronger alliance partner.
For Central Europe, Japanese engagement offers technology, investment and partnerships without the political strings attached to Chinese capital or the unpredictability of American policy. It validates their connectivity strategies and economic neutrality concepts while providing concrete benefits in jobs, technology transfer and market access.
The window for action is narrowing. As U.S.-China competition intensifies, pressure will mount on third countries to choose sides. Japan’s traditional strategy of muddling through and trying to maintain seikei bunri while hoping tensions ease is no longer viable. Strategic autonomy requires strategic choices and Central Europe represents a feasible and meaningful opportunity for Japan to create genuine options beyond the Washington-Beijing binary.
Stephen R. Nagy is a professor of politics and international studies at the International Christian University in Tokyo, a visiting fellow at the Hungarian Institute for International Affairs and a visiting fellow with the Japan Institute for International Affairs.
