HunterNet Newsletter – July 2026
July 2026
July 2026 highlighted the deepening interplay of energy security pressures, industrial strategy, and defence industrialisation in Japan and South Korea. Both countries continued responding to lingering effects of Middle East instability (particularly around Iran and related shipping risks), while advancing proactive economic and security agendas under Prime Minister Sanae Takaichi and President Lee Jae-myung.
Japan: Aggressive Investment Strategy and Energy Resilience Measures
On 21 July, the Takaichi Cabinet approved its first major economic and fiscal policy blueprint. The document prioritises “responsible and proactive” public finances and targets more than ¥370 trillion (approximately US$2.3 trillion) in combined public and private investment by fiscal 2040. Strategic sectors emphasised include semiconductors, economic security technologies, and other growth areas. The government aims for sustained real GDP growth above 1% and nominal growth above 3% “as early as possible,” while stabilising inflation near the Bank of Japan’s 2% target.
Notably, language on fiscal consolidation was softened compared with previous administrations. Officials stressed balancing growth with long-term sustainability and reaffirmed Bank of Japan independence after-market concerns. Japanese government bond yields rose amid jitters over potential debt expansion and monetary policy coordination, though they later retreated. The blueprint positions the next fiscal year (from April 2027) as the start of a more assertive spending phase designed to end decades of under-investment.
Energy security is top of mind. Disruptions linked to the Strait of Hormuz risks has exposed vulnerabilities in naphtha supplies, a key petrochemical feedstock. Imports had already fallen sharply earlier in the year, affecting paints, solvents and related industries. Many news outlets are reporting how companies are removing colours from food packaging to reduce naphtha use.
In mid-July, Industry Minister Ryosei Akazawa confirmed the government was considering reviving naphtha stockpiling (previously discontinued in the 1990s due to cost). A METI working group began examining medium- and long-term measures, including possible storage of crude that could be refined into naphtha and broader diversification of oil product reserves.
On the defence front, Japan’s fiscal 2026 budget (already approved earlier) stands at a record ¥9.04 trillion (around US$58 billion), up roughly 9.4% year-on-year and approaching the 2% of GDP target ahead of the original schedule. The build-up continues to emphasise standoff missiles, unmanned systems and coastal defence. Japan’s Defence Minister visited NATO Headquarters on 22 July, reflecting growing European engagement alongside the core US alliance. Cooperation with the Trump administration on missile defence (including Golden Dome elements), energy security and critical technologies are a focal point.
South Korea: Defence Exports as Growth Engine and Persistent Energy Risks
South Korea’s energy position stayed under pressure. While Seoul has secured crude supplies and avoided acute shortages, the government continued monitoring risks from renewed fighting, potential Houthi maritime actions in the Bab el-Mandeb Strait, and secondary inflation effects. On 15 July, the Prime Minister urged measures to shield ordinary households from energy cost pass-through amid heatwaves and other pressures. Diversification efforts, including alternative oil sources, remain active.
Business performance showed mixed signals. Semiconductor exports and overall trade remained robust in early July, supporting growth forecasts around 3% for 2026, driven by AI-related memory demand. However, late-July earnings from SK Hynix, while record in absolute terms, missed some forecasts and contributed to sharp stock-market volatility, with the KOSPI experiencing notable swings. Policy continues to prioritise expanding semiconductor capacity, AI infrastructure and next-generation technologies, with large-scale fab investments planned. Samsung shares went up 9% on the back of a 20x jump in profit on the back of AI chips.
Korea is on track for record defence exports in 2026, with projections around US$24 billion (a substantial rise from the previous year). The sector is explicitly framed as a national growth engine linking domestic procurement, exports, R&D and industrial policy. Gov’t aims for at least a 5% global market share and a place among the world’s top four defence exporters. Contracts with European and other partners continue to expand, supported by competitive pricing, rapid delivery and technology-transfer offers. President Lee has actively promoted the industry at NATO-related forums.
Trilateral and Bilateral Coordination
A significant development occurred on 7 July on the margins of the NATO Summit in Ankara. The foreign ministers of the United States, Japan and South Korea signed a Memorandum of Cooperation on accelerating small modular reactor (SMR) deployments in third countries, with an initial Indo-Pacific focus. The framework seeks to leverage complementary strengths in nuclear technology, support fleet-style deployments for economies of scale, streamline licensing and optimise supply chains while upholding high safety and non-proliferation standards. The US committed more than US$10 million in new funding for technical support and workforce development through its FIRST program. An industry example involving GE Vernova, Hitachi and Samsung entities was also highlighted.
Broader Japan–South Korea practical cooperation on energy (crude, LNG swaps and regional stockpiles) and security continues, even as historical sensitivities occasionally slow formal agreements such as logistics pacts. Trilateral coordination with the United States remains the main stabilising framework.
Mike Newman.
