Writer: Aidan Chan | Editor: Andrew Ho
Japan occupies a critical position in global internet infrastructure, acting as a key hub for undersea fiber-optic cables that facilitate connectivity between Asia and North America. As digital economies expand and geopolitical tensions shape technological dependencies, undersea cables emerge not only as communication conduits but as strategic assets with profound economic and political implications.
The Structure and Importance of Undersea Cable Infrastructure
Undersea fiber-optic cables form the foundations of global internet connectivity, transmitting over 99% of international data traffic. These cables, composed of optical fibers encased in protective layers, stretch across oceanic floors, linking major economic centers worldwide.
Data moves through these fiber strands at speeds approaching that of light, minimizing latency and ensuring seamless digital communication. In simple terms, this means there is less lag as we transmit data through these networks. Compared to alternatives like satellite-based internet, fiber-optic cables offer superior bandwidth and significantly lower costs, further cementing their status as the lifeline of modern digital economies.
Japan’s role as a central hub for undersea cables in the Asia-Pacific reinforces its influence on global digital infrastructure. Key trans-Pacific networks such as the Asia-Pacific Gateway, Japan-Guam-Australia North (JGA-N), and FASTER establish direct links between Asia, North America, and Oceania. These networks facilitate instantaneous cross-border financial transactions, optimize supply chain operations, and ensure real-time data exchange, solidifying Japan’s position as a key player in the digital economy. This dominance is further supported by rapid advancements in Japan’s domestic fiber-optic sector, which is projected to expand from USD 567.03 million in 2023 to USD 1.25 billion by 2032, with a 9.2% compound annual growth rate (CAGR). Government-backed digitalization efforts, rising broadband demand, and especially the widespread adoption of fiber-to-the-home (FTTH) services—already reaching 36.6 million out of Japan’s 43.8 million broadband subscribers—drive this growth.
European Digital Sovereignty and Undersea Cable Investments
As undersea cables continue to shape the backbone of global digital connectivity, their strategic significance extends beyond mere infrastructure. Countries are not only investing in these networks for economic efficiency but also as a means of asserting digital influence and sovereignty. While Japan’s role in trans-Pacific undersea cables exemplifies a market-driven approach to expansion, Europe has taken a markedly different path, prioritizing regulatory oversight and state involvement in its digital infrastructure investments. Understanding these contrasting strategies provides insight into the broader geopolitical and economic implications of undersea cable development.
While Japan’s undersea cable infrastructure dominates trans-Pacific connectivity, Europe plays a similarly strategic role in linking North America to the European and African continents. The Atlantic subsea network, including major cables such as AEC-1, Dunant, and Grace Hopper, provides crucial interconnectivity for financial hubs like London and New York. However, what distinguishes Europe’s approach is its emphasis on regulatory oversight and multinational coordination, particularly within the European Union’s digital sovereignty policies.
Europe’s push to consolidate control over its digital infrastructure has reshaped its approach to undersea cable investments. Unlike Japan, which actively invests in its undersea networks to strengthen its trans-Pacific foothold, the EU has largely focused on fortifying its internal digital resilience rather than asserting control over global data routes. The GAIA-X initiative exemplifies this shift, emphasizing state-backed cloud infrastructure to keep data within European jurisdictions and shield it from foreign legal oversight, such as the US CLOUD Act. However, this regulatory posture, while reinforcing sovereignty, places Europe’s infrastructure strategy at odds with the globalized model that has traditionally governed internet connectivity.
The EU’s stance on undersea cable development further underscores this inward-looking strategy. While Japan’s corporate-led model, led by private enterprises like NTT, Sumitomo Electric, and Furukawa Electric, is rooted in market-driven expansion, Europe largely relies on public-private partnerships (PPPs) with substantial state involvement. This divergence illustrates a fundamental difference: Japan’s undersea cable projects are shaped by competitive telecommunications markets, where investment decisions prioritize efficiency and commercial demand. By contrast, Europe’s regulatory-driven approach prioritizes strategic autonomy, potentially at the cost of flexibility and foreign investment dynamism.
This difference in governance models has tangible economic consequences. Japan’s reliance on corporate investment and selective government subsidies enables pricing flexibility and responsiveness to market trends. Conversely, the EU’s regulatory-driven framework, with its focus on data localization and digital sovereignty, has led to fragmented networks. This raises concerns over inefficiencies in cross-border data flows and increases compliance costs, discouraging foreign tech firms from entering the European market while consolidating the position of domestic incumbents who benefit from regulatory protection. Governments, therefore, are encouraged to intervene to finance and develop these projects, but this reliance on public funding can place a long-term fiscal burden on national budgets. Drawing from Endogenous Growth Theory, such investments can enhance productivity and innovation, yet their fiscal sustainability depends on whether the economic gains translate into proportional tax revenues. If the return on investment is insufficient, the debt overhang effect may emerge, deterring private sector participation and exacerbating financial constraints.
While Japan distributes financial risk across both corporate investors and government support, Europe’s infrastructure model remains highly dependent on EU subsidies and national investments, raising concerns over long-term fiscal sustainability. Japan’s market-driven investment structure ensures that its fiber-optic networks remain globally competitive while mitigating financial strain on public budgets. Undersea cables represent a strategic asset in the global information economy, their development must be weighed against short-term risks and long-term economic viability.
Cables and Controversies
The divergence between European and Japanese approaches carries significant geopolitical and trade implications. The EU’s focus on regulatory sovereignty has already fueled tensions with the United States, particularly over digital taxation and data governance. Restrictions on data flows, combined with the introduction of digital services taxes in several European countries, have raised concerns over whether European digital policies disproportionately disadvantage US technology firms. Meanwhile, China’s expansion into global telecommunications infrastructure through projects like the Digital Silk Road presents a growing challenge. While Japan continues to integrate into US-backed trans-Pacific networks, Europe’s insular focus may inadvertently create space for Chinese investment in global data routes, further altering the balance of digital infrastructure control.
These competing models underscore the broader debate on digital sovereignty and the future of Internet governance, with long-term implications for global data flows, investment patterns, and international trade in digital services.
The Strategic Use of Undersea Cables: Economic Theory and Policy Implications
Economic leverage in the digital age stems from the ability to control access to critical infrastructure. The undersea cables managed by Japan function as a form of an essential facility, a concept in industrial organization that describes a scenario where control over a necessary input enables an entity to set market terms. By dictating access to this infrastructure, Japan has the potential to influence international digital trade flows by manipulating factors such as bandwidth allocation and cross-border transmission costs. Given the increasing reliance of digital services and platforms on stable internet connectivity, Japan’s role as a gatekeeper in this infrastructure grants it considerable economic sway—especially since it bridges together America and the Asia-Pacific.
This strategic position could also serve as a foundation for Japan to cultivate a new industry centered around advanced network management and cybersecurity services. By capitalizing on its existing infrastructure and investing in cutting-edge digital logistics, Japan could position itself as a leader in secure and efficient global data flows, fostering a high-value sector that may aid in mitigating its ongoing economic stagnation.
Empirical evidence supports this potential influence. Trade data indicate that countries with stable and direct access to undersea cables experience higher digital trade volumes, reduced latency costs, and enhanced investment in digital infrastructure. In contrast, economies with constrained access often face disproportionately higher data transmission costs, impeding competitiveness. To illustrate Japan’s strategic leverage in the undersea cable sector, a case study of Nippon Telegraph and Telephone Corporation (NTT) provides insight into the economic and technological ramifications of corporate investment in undersea infrastructure. NTT, one of the largest telecommunications companies globally, has heavily invested in submarine cable networks, including the Japan-US Cable Network and the FASTER system. These investments have positioned NTT as a leading force in international data transmission, influencing the flow of global internet traffic and ensuring Japan’s infrastructural dominance in the digital economy.
NTT’s expansion has had tangible effects on both domestic and international markets. By reducing latency and improving bandwidth availability, its networks have bolstered Japan’s digital exports, particularly in cloud computing and AI-driven technologies. Moreover, the company’s ability to dictate access conditions has allowed Japan to secure preferential partnerships with global tech firms, reinforcing its strategic importance in internet governance. From an economic standpoint, NTT’s operations demonstrate how corporate control over undersea cables translates into competitive advantages for Japanese digital industries, enhancing innovation, market share, and international influence.
Economic Spillover, Digital Trade, and Regional Connectivity
The economic spillover effects of Japan’s undersea cable infrastructure extend well beyond direct trade benefits. By serving as the primary conduit for digital connectivity in the Asia-Pacific region, Japan enhances regional economic integration and attracts investment in complementary industries. Countries linked to Japan’s cable networks—such as Singapore and South Korea—benefit from lower transaction costs in digital services, facilitating deeper integration into global technology supply chains. Japan’s strategic emphasis on 5G infrastructure, smart city development, and AI-driven cloud computing ensures that its digital infrastructure remains future-proof and adaptable to emerging technological demands.
As global markets grapple with the balance between self-sufficiency and interconnectivity, Japan’s strategic role in digital infrastructure presents an alternative to the growing trend of economic fragmentation. Rather than isolating industries in a bid for complete domestic autonomy, regions like Europe could consider a more integrated approach—leveraging existing transnational networks to enhance economic security while reinforcing strategic digital partnerships. By adopting a framework that prioritizes cooperation over isolation, Europe could strengthen its position in global digital trade without the inefficiencies of duplicating infrastructure or severing key economic ties.
