Japan is testing a new approach to development cooperation that favours short-term dynamism over long-term stability.
The last 12 months saw the biggest ever drop in the amount of money governments devote to Official Development Assistance (ODA) – down a quarter globally. Japan’s cuts to foreign aid have been more modest than many of its peers. In real terms, its net ODA flows fell by more than US$5 billion, or 27%, between 2023 and 2025 – a smaller drop than the United States (57% over the same period) or Germany (39%). However, the composition of Japan’s aid portfolio stands out for its high use of concessional loans rather than grants, making it arguably less generous but more financially sustainable.
Tokyo recently announced $10 billion in financial assistance for developing Asian countries to tackle the energy crisis sparked by the Iran war. The package was staggering for its size – a mix of grants, concessional loans, private sector instruments, subsidies and export credits, mobilised to facilitate emergency procurement of crude oil and petroleum as well as invest in stockpiling and storage systems.
That commitment alone is more than double Japan’s annual spending in Southeast Asia in previous years, as shown by the Lowy Institute Southeast Asia Aid Map. And it responds directly, and swiftly, to an urgent and even existential crisis for Southeast Asian governments. Development cooperation, beyond provision of humanitarian assistance, is often criticised for being too slow in orienting to shocks and structural changes in the developing world, but Japan has successfully deployed a large-scale support mechanism within weeks of the onset of the energy crisis.
The cost of that speed will be felt in the long term. The $10 billion package doubles down on fossil fuels, with a passing reference to “diversifying energy sources” the only sign of clean energy investment. Development finance for renewable energy in Southeast Asia is at critical levels, just 6% of what is required according to International Energy Agency estimates even before the collapse in spending since 2023. Making oil and petroleum supplies the focus of the response risks locking in the region’s dependence on fossil fuels.
Less money for renewable energy and economic development, and more money for fossil fuels and defence equipment, is a combination unlikely to contribute to a safer, more stable region.
This kind of trade-off is not new to Tokyo. In 2023 Japan created Official Security Assistance (OSA), a category of spending on international security and defence assistance that is deliberately juxtaposed to ODA. Levels of OSA spending have jumped in real terms from US$13 million in 2023 to US$44 million in 2025, with further rises to come. Grants for monitoring and surveillance equipment for Malaysia and the Philippines, or high-speed patrol boats for Indonesia, squarely address the region’s well-founded anxiety about maritime security. But if this assistance comes at the expense of investments in human development and human security, at a time of the largest military build-up in Asia in decades, the question of whether OSA could have a destabilising effect in the long run is worth taking seriously.
Japan’s bilateral aid to Myanmar provides a country-level example of its pragmatic approach. Virtually all other donors except for China have ceased development projects in the war-torn country to avoid financing the military regime. Yet Japan continues to finance infrastructure projects, usually implemented by Japanese contractors. There is a case to be made for maintaining presence and access, not least to allow dialogue with a pariah state. But the risk of legitimising and resourcing the junta will weigh heavily in the history books.
The thread that ties these aspects of Japan’s development model – the energy financing package, OSA, and the program in Myanmar – is a reckoning with tough new circumstances. In many ways it represents Tokyo’s understandable attempt to tailor its offering to the region’s demands in 2026. But will it be fit for 2036? Less money for renewable energy and economic development, and more money for fossil fuels and defence equipment, is a combination unlikely to contribute to a safer, more stable region.
