China rejected Japan's conclusions about what it said was normal military activity, calling them irresponsible.
The Japanese defence review, which was approved by Prime Minister Yoshihide Suga's government on Tuesday, points to China as Japan's main national security concern.
"It is necessary that we pay close attention to the situation with a sense of crisis more than ever," the paper said in a new section on Taiwan.
China's recent increase in military activity around Taiwan has Japan worried since the island lies close to the Okinawa chain at the western end of the Japanese archipelago.
Taiwan's Foreign Ministry expressed thanks to Japan for attaching such importance to security in the Taiwan Strait.
But there was an angry reaction in Beijing which said Japan has "for some time now" been making baseless accusations about China's normal defence buildup and military activities.
Chinese President Xi Jinping this month pledged to complete the "reunification" with Taiwan and in June criticised the United States as a "risk creator" after it sent a warship through the Taiwan Straits separating the island from the mainland.
Japan's deputy prime minister and finance minister, Taro Aso, this month in a speech reported by Japanese media said Japan should join forces with the United States to defend Taiwan from any invasion. Aso later said any contingency over Taiwan should be resolved through dialogue when asked about the remarks, which drew a rebuke from Beijing.
As the military rivalry between the United States and China deepens, their economic competition is fuelling a race to take the lead in technologies such as semiconductors, artificial intelligence and quantum computing.
Japan will also have to spend heavily to keep up with government funding for technology development in the United States, China and Europe.
U.S. Senate lawmakers recently passed the Innovation and Competition Act of 2021, which authorises $190 billion spending on technology including $54 billion to increase chip production.
U.S. House of Representative lawmakers are debating a separate proposal that also promises generous funding, known as the Ensuring American Global Leadership and Engagement Act, or EAGLE Act.
An increase in disasters linked to global warming could also stretch military capabilities, Japan said, while Arctic Sea ice melting could lead to the militarisation of northern waters.