The apparent beheading of two Japanese hostages by Islamic State militants poses a stark diplomatic test for pacifist Japan, underscoring how Tokyo's image as a benign aid donor offers no immunity from violence, analysts say.

Tokyo has long avoided getting embroiled in tinderbox conflicts across the Middle East and is rarely the target of religious extremism, something many ordinary Japanese see as a far-away problem.

But the dangers came into focus after IS militants on Saturday posted a video in which they claimed to have beheaded Japanese war correspondent Kenji Goto, after last week saying they had killed another hostage, self-styled contractor Haruna Yukawa.

The drama erupted after Abe pledged $200 million in aid for refugees fleeing IS-controlled areas during a tour of the Middle East last month -- militants had demanded the same amount in exchange for the pair, whom it had been holding for months.

The IS video warned the killings marked the start of a "nightmare for Japan" and its "reckless" government.

"People thought Japan had little to do with Middle East and the Islamic State has nothing to do with Japan," said Tomoaki Iwai, a politics professor at Nihon University.

"Now, people realise that terrorists can be anywhere and they can target anyone, Japanese or not."

Complicating matters is Prime Minister Shinzo Abe's push to alter his country's pacifist constitution to allow Japan to fight in defence of allies, a move largely aimed at countering China's rising regional influence.

The shift has raised fears it could pull Japan into military conflicts that it had previously avoided, including the US-led fight against IS.

The group rules swathes of Iraq and Syria under an extreme form of Islamic law, and has killed both locals and foreigners -- including two US journalists, an American aid worker and two British aid workers.

- Japanese now targets -

The hostage crisis may force Abe to "tone it down a little", said Takehiko Yamamoto, professor emeritus at Japan's Waseda University and vice president of the Center for Contemporary Islamic Studies in Japan.

"This... has been a great shock to the public, and a majority of people may feel that Japan should keep a low profile rather than becoming more vocal on global issues, which could pose risks to Japanese citizens," he said.

The Japanese public, usually isolated both geographically and politically from overseas conflicts, have been left reeling by the round-the-clock news coverage of the crisis and frightened that it could signal more violence against nationals overseas.

"It is so frustrating, so disappointing," said 80-year-old Hideko Kamijima. "I cried over it this morning. I couldn't hold back my tears."

University student Kyosuke Kamogawa, 21, said the thought that the jihadists would now target more Japanese people "sends chills down my spine".

Maki Sato, secretary-general of the non-profit Japan Iraq Medical Network, said the incidents would do little to convince a wary public on the merit of Japan's wider involvement overseas.

The 2011 Fukushima quake-tsunami disaster turned the public gaze inwards, with people more preoccupied by the nuclear catastrophe at home, he added.

"Ever since the huge earthquake disaster, I think Japanese people have become less interested in the world affairs," Sato said.

But the captured pair's decision to visit a violence-plagued region has also tempered the public's sympathy, added Iwai from Nihon University.

"They were no ordinary tourists, so the impact of the news might have been lessened to a certain degree," he said.

- 'Never forgive terrorists' -

The hostage crisis appears to have done little to sway Abe's resolve to change Japan's status as diplomatic bit player.

On Sunday, a visibly upset Abe denounced the claims that Goto had been killed, slamming it as a "heinous and despicable" act, and vowed not to back down in the face of threats.

"We will never forgive terrorists," the premier, who appeared on the verge of tears, told reporters after news of the video broke early Sunday in Japan.

"We will cooperate with the international community to make them atone for their crimes... Japan will never yield to terrorism... (and) is firmly resolved to fulfil its responsibility in the international community's fight against terrorism."

Since sweeping to power in late 2012, Abe has embarked on a high-octane diplomatic offensive. He has visited more than 50 countries, including oil-rich Gulf nations, to promote Japanese infrastructure and forge partnerships as he tries to build an economic and defense counterweight to China.

"It could be problematic for Abe if the hostage-takers deliberately used his visit to the Middle East and Israel to publicise the crisis. That directly touches on the cost and risks of a greater diplomatic presence," Iwai said.

"When he originally announced (the aid), he said the money was to help countries 'contending with IS'. Was that a wise way to phrase it?"

The Japanese public has also yet to be captivated by Abe's move to deepen Tokyo's military alliance with the United States and ease self-imposed rules on arms exports.

"Japan's (aid) assistance has been greatly appreciated and we need to continue that. Japan should do what it does well, helping people in need and avoiding a military role," Sato said.

Australia, Britain slam IS hostage killing at defence talks
Sydney (AFP) Feb 1, 2015 - The Australian and British foreign ministers Sunday slammed the killing of a Japanese journalist by the Islamic State (IS) group as they vowed to tackle the jihadist threat at defence talks in Sydney.

British Foreign Minister Philip Hammond is in Australia for the annual meeting with his counterpart Julie Bishop, with efforts to counter terrorism and foreign fighters high on the agenda.

"I wanted to extend Australia's deepest condolences to the people and government of Japan," Bishop told reporters.

"The depraved behaviour that has led to the killing of two Japanese nationals is an unspeakable atrocity and we are united in our resolve to counter terrorism in all its forms wherever it occurs."

Hammond echoed the foreign minister's words and said the allies were committed to combating the "growing challenge of Islamist extremism seeking to break down the structures of nation states".

IS claimed in a video released online that it has killed a Japanese hostage, the second beheading of a Japanese captive in a week.

Earlier Sunday, Australian Prime Minister Tony Abbott condemned the purported killing as a "terrible shock" for Japan.

"This just demonstrates how important it is that all countries do what they reasonably can to disrupt and degrade this death cult which has ushered in a new dark age over parts of the Middle East," he said.

Also on the agenda was Russia, with Hammond describing Moscow's actions in Ukraine as "ignoring all the rules of the post-Cold War settlement", and the fight against the spread of the Ebola epidemic.

Australia is helping to staff a 100-bed British-built Ebola treatment centre in Sierra Leone.

The pair will be joined by Britain's Defence Secretary Michael Fallon and his Australian counterpart Kevin Andrews in Sydney on Monday.