Meru pieces together a slow-building flashpoint just off Taiwan. On May 28, Japan and the Philippines opened formal talks to draw an EEZ boundary between Japan's southernmost Ryukyu islands (Yonaguni sits 110km from Taiwan) and the northern Philippines. Beijing is furious: it argues the water is also Taiwan's, Taiwan is China, so the deal tramples China's rights, and since early June it has pushed coast guard and government ships in as a show of force. But the talks aren't a bolt from the blue. They're one piece of a rapidly upgrading Japan-Philippines alliance: a 2024 reciprocal access pact, Japan scrapping its arms-export limits in April, Marcos's May state visit lifting ties to a strategic partnership, and Japan handing over five Abukuma-class frigates from 2027. China sees encirclement, not fishing rights. The waters east of Taiwan are exactly the corridor US forces would use in a Taiwan contingency, and Japan is hardening the first island chain with missiles on Yonaguni. Meru's one-liner: since PM Takaichi called a Taiwan-Strait conflict a 'survival-threatening situation' for Japan in November 2025, China has retaliated with a travel halt, a seafood-import ban, and, the market's real nerve, rare-earth and critical-metal export controls. Now the EEZ fight adds fresh fuel, and the odds of an armed clash tick up.
Why it matters · The first island chain is where semiconductor supply and Chinese leverage meet. Every notch of Taiwan-Strait tension is a tail risk investors quietly price into chips and defense, and China's rare-earth curbs show the lever is already being pulled.
Worth asking · Taiwan-Strait tension: already priced into chips, or still ahead?