Opinion

Tokyo and New Delhi: A Strategic Partnership Reshaping Asia

• ByStartupStory     |    July 30, 2026

Asia’s strategic landscape is changing rapidly, and at the center of this transformation is the growing partnership between India and Japan. What began as a strong economic relationship is now expanding into defence, technology, finance, and security. Together, New Delhi and Tokyo are quietly building a long-term partnership that reflects their shared concerns over China’s growing military and economic influence in the Indo-Pacific.

Japan’s recent defence decisions illustrate this shift. In March 2026, Tokyo deployed its first long-range Type-12 missiles at military bases in Kumamoto and Shizuoka, marking a historic departure from its post-World War II self-defence doctrine. With a range of nearly 1,000 kilometres, these missiles can reach parts of mainland China. Japan described the move as necessary in response to an increasingly complex security environment, while China viewed it as a significant break from nearly eight decades of Japanese military restraint.

However, the India-Japan partnership extends far beyond defence. During the 16th India-Japan Annual Summit held in New Delhi in July 2026, the two countries announced plans to establish a yen-rupee settlement mechanism. The new system will allow businesses to settle trade directly in Japanese yen and Indian rupees, eliminating the need to route transactions through the US dollar.

Today, trade between Indian and Japanese companies requires multiple currency conversions—from yen to dollars and then dollars to rupees—adding costs and exposing businesses to exchange-rate fluctuations. Direct settlement simplifies the process, lowers transaction costs, and strengthens financial ties between the two economies.

While India has already introduced similar local currency arrangements with countries such as Russia, the UAE, and Indonesia, Japan’s participation is particularly significant. It signals that two of Asia’s largest democracies are exploring financial systems that provide greater flexibility and reduce dependence on the dollar without directly challenging its global role.

The numbers involved are modest by global standards. Bilateral trade between Japan and India stood at $27.47 billion in FY 2025-26, with Japan alone shipping $21.43 billion worth of goods to India. That is a fraction of India’s trade with the US or China. But the initiative’s importance lies less in scale than in intent: two of Asia’s most consequential economies signalling that dollar intermediation is no longer indispensable — even for a partial slice of their commerce.

Japan’s willingness to explore such financial cooperation is rooted in history. The 1985 Plaza Accord where coordinated devaluation of the dollar against the yen, engineered largely to address US trade deficits led to a sharp appreciation of the yen, hurting Japanese exports and contributing to the country’s prolonged economic slowdown, often referred to as the “Lost Decade.” That experience made Tokyo cautious about relying excessively on externally driven currency arrangements. Partnering with a fast-growing economy like India offers Japan an opportunity to deepen economic engagement while maintaining greater control over its financial interests.

Defence cooperation is also reaching unprecedented levels. Japan has proposed local production of its advanced Mogami-class stealth frigates in India under the Make in India initiative. If finalized, it would represent Japan’s first major defence platform transfer to India and one of its most significant defence exports ever.

The proposal reportedly includes technology transfer, local manufacturing, and integration of India’s BrahMos supersonic cruise missile. Built in Indian shipyards, these advanced warships would significantly strengthen India’s naval capabilities while allowing Japan to expand its defence-industrial partnerships beyond traditional allies.

The timing is no coincidence. Both countries have become increasingly concerned about China’s growing naval presence in the East China Sea, South China Sea, and the wider Indo-Pacific. As regional security dynamics evolve, India and Japan are investing in stronger bilateral defence cooperation to maintain a stable balance of power.

Economic cooperation is expanding just as rapidly. Japan has reaffirmed its commitment to invest 10 trillion yen in India over the coming decade. The latest India-Japan summit witnessed more than 120 new business agreements covering sectors such as semiconductor manufacturing, clean energy, artificial intelligence, and advanced manufacturing. These investments reinforce India’s position as one of Japan’s most important long-term economic partners.

Another important development is Japan’s changing investment strategy. Japanese investors have begun reducing their holdings of US Treasury securities while domestic bond yields continue to rise. Although Japan remains the largest foreign holder of US government debt, higher returns at home are encouraging capital to stay within Japan or seek opportunities elsewhere. India, with its rapidly expanding economy, growing manufacturing base, and stable policy environment, is emerging as one of the most attractive destinations for Japanese investment.

Taken individually, these developments—a missile deployment, a local currency settlement system, defence technology transfers, and increased investment—may appear to be routine bilateral initiatives. Together, however, they point to something much larger.

India and Japan are steadily building a comprehensive strategic partnership based on shared security interests, economic resilience, technological collaboration, and supply-chain diversification. Their cooperation is not directed at creating a formal alliance or confronting any one country. Instead, it reflects a common objective: reducing strategic vulnerabilities while ensuring a stable, secure, and multipolar Indo-Pacific.

As China’s influence continues to expand across Asia, the partnership between New Delhi and Tokyo is becoming one of the defining geopolitical relationships of the decade. By combining India’s growth potential with Japan’s technological and financial strengths, the two democracies are shaping a regional order built on resilience, cooperation, and strategic balance.

Article researched and written by Mayank Sati

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