Interesting question. I am going to talk about mostly the historical decision that led to it, rather than the practicality as that is sufficiently addressed. It's going to be a bit dry.

One must understand that the theory and the subsequent policy of expansion into South-East Asia is a thought that predates the Russo-Japanese war. In fact, it is a thought that was born primarily during the time after the Meiji reforms.

Mainly, 南進論, the theory of southern expansion. (The expansion into Manchuria, China and anti-communism had a separate origin) It was under the same train of thought of Pan-Asianism that was so prominent in Japan after the Meiji reforms. As in, with Japan now secure and now modernized, we should start expanding our sphere of influence (By diplomacy or force) into the Greater East Asia!

The origin of the theory came about around end of the Shogunate era, heralded by Sakuma Jyousan. That the Japan should develop colonies in South-east Asia.

The theory later gained popularity in the aftermath of the Satsuma Rebellion. That Japan should expand into more territories in order to compete with the west, and that it should be included among the new policies of the Meiji government.

In this era, it was actually mostly proposed by civilian economic philosophers rather than the military. Proponents such as Yokoo Tousaku (Who famously claimed Iwo Jima as Japanese territory in 1887), Taguchi Ukichi, Suganima Teifu (Who was a Economy Historian) were all economists that suggested that expanding into the southern regions will benefit Japan.

Among those argue for the expansion, capturing Taiwan as a economic base was suggested practically. Especially during the First Sino-Japanese War, Kawakami Souroku, a Japanese lieutenant general at the time famously written a letter to the Diet suggesting to capture the island for use as a colony. (I am biased towards this though, and I must say I am personally thankful for that decision.)

Right after the Russo-Japanese war though, the theory failed to gain more prominence among the military factions. At the time the "Theory of Northern expansion 北進論,(mainly into China, Manchuria, and Soviet Siberia) was the dominant thought among the military advisers and the southern expansion policy was not pursued after acquiring Taiwan. Not to mention, the dominant thoughts regarding the expansion is mostly limited to economic expansion, such as trading, and immigration.

Although as a side note, during the Philippine Revolution in 1898, the Imperial government was contemplating on supporting the independence to secure it as a potential expansion, but later decided against it due to internal conflicts among the military factions about a proxy war with America.

In the aftermath of World War 1, the Imperial government acquired the south-east islands that were owned by the Germans. Although, at this point the main theory is still dominated by economists and by extension economic expansion.

However, this all changed in the aftermath of the Manchurian incident. In the aftermath of the incident, and the worsening relationship between the Imperial government and the US and the UK, Southern expansion by force was finally an option now.

On 1936, in a meeting between the ministers and prime minister Hiroda Kouki. The decision was made that the empire's main policy would be "Using diplomacy, and force if necessary, to maintain the empire's standing in Eastern Asia, at the same time expansion into the Southern seas". This decision heavily influenced the new focus on the Navy, which while a main force of the armed forces was never the focus during Japan's expansion into China.

In 1940, with Nazi Germany's blitz into the Neatherland and France, therefore causing their colonies to be in disarry. And the isolation of British colonies in South-east Asia.The army decided to open up a new front in order to bring in more resources for the war in China, while halting the advances. The war in China at this point has been going on for years and the fighting seems dragged on.

And that brings us into the actual military expansion that started 1940, starting from the France owned colonies of Indochina.

And with that in 1941 and Nazi Germany's force into Soviet Russia, the Northern expansionists proposed a open war with the soviets despite the Soviet-Japan neutrality pact. (See? Things that happen across the continent has effects!) They had huge internal conflicts with the Southern expansionists. However, following the loss off military support both from the Army and the Navy, the Northern expansionists quit their government positions.

As a side note, Nomohan incident happened anyway because the Kwangtun Army decided to attack the soviets, without orders from the main Government. They wanted to pull off the same thing during Manchurian incident to force support from the government, but this time they took a bite too hard to chew and had to face Zhukov and his tanks.

With the Southern expansionists fully in force in June, and the subsequent American embargo in July that followed almost immediately. The military expansion into South-East Asia became inevitable. And war with the USA and UK closes in.

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The northern expansion theory came about in around the same time, and gained prominence mainly through the fight against the soviets. There was virtually no significant resource that could be gained with a war in that direction.

The main rivalry between the Navy and the Army was also formed over the disagreement between which doctrine to follow. With the army suggesting a northern route, and the Navy suggesting a southern route. The army later past 1940 suggested an equal expansion, but was soundly rejected by the Navy with good reasons. With the American embargo on oil, the Imperial war machine could only last 1-2 year at most with their reserve.

The theory really only remained in force in the Army, and even then only partially after 1940.

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Sources:

帝国南進策 - Empire's policy of southern expansion, 副島八十六, 1916

大日本商業史 - Japan's trading history, Suganuma Teifuu, 1892

南洋 - The southern seas, Inoue Masani, 1915

防衛庁防衛研究所戦史 - Military history, The defense ministry research center, 1958

昭和史 - History of Showa Era, Tooyama Shigekazu, 1959

There are two sides to this; the practical and the ideological. The practical reasons for their attempts to dominate SE Asia are pretty easy to understand. Japan is in almost every respect a beautiful but incredibly resource poor country. It lacks significant reserves of all the things a real industrialized economy of the mid-20th century needs. That meant it had to import a great deal of it's resources from outside, including food. For a country like Japan, who modernized while seeing the rest of SE Asia first dominated then mostly colonized by European powers, this was perceived as a real threat. The early 20th century was not like today; although international trade was important, the inability to have secure control over vital resources meant that you were at the whim of policy from other countries even on the ability to produce basic necessities. Today's globalized economy means that one has to go to great lengths to lose access to such resources, but in the early 20th century it didn't even take maliciousness to happen. Maybe a war happens somewhere and your trade partner needs those resources themselves? The point is it hampers your ability to decide your own destiny.

Speaking of destiny, this is the ideological part. The Japanese in the early 20th century definitely felt that they had a destiny. I think that comparing it to Manifest Destiny is pretty appropriate, in that it placed Japan as the (self-imposed) protectors of the people of Asia, and thus the Japanese were destined to LEAD (i.e. rule) SE Asia.

This is primarily going off of memory. The source I relied on the most was this was Dillemas of growth in prewar Japan; other sources provided as needed.

I feel that much of the atmosphere of the 1930s was shaped by the 1920s. 1920s for Japan was an experiment in liberal democracy. For instance, universal male suffrage for those over 25 was introduced in 1925. The country was also undergoing economic changes: it came out of WW1 stronger than it went in; for example, their foreign exchange reserves between 1913 and roughly 1921 grew by over 400%; their stock of long-term assets in that period grew by 250%; and the net worth of their banks grew by 55%. They had a rapidly growing economy during and immediately after WW1.

Considering that, Japan was for most of the 1920s nothing really phenomenal. The banking sector, for instance, did not see huge growth and in fact many small banks were either closing or shutting down. The Back of Japan released this review of the economic situation in the 1920s: http://www.boj.or.jp/en/research/wps_rev/rev_2009/data/rev09e02.pdf

The economic situation was quite dim then, because as you can see the country was struggling with low growth and deflation. This, by the way, led Japan to being one of the first nations to abandon the gold standard completely (some countries, who had previously done away with it, went back to it as a remedy for economic problems).

Much of the reason for the economic troubles could be explained by the Great Kanto Earthquake of 1923. It caused devastating damage in Tokyo and much of Japan, and later financial instability can be linked to economic losses caused by that disaster. Further, during the Great Depressio, there were a number of corruption scandals that were brought to light. The most famous is the Teijin Scandal of 1933, which involved the Prime Minister himself in shady stocks dealings with the Bank of Taiwan. In general, there was little trust in the liberal democracy.

The military was also facing done difficulties. There were concerns that Japan would not be able to defend itself. Kato Takaaki, for instance, said in an interview for the New York Times that Japan's Navy is hopelessly behind the times (I don't have a link, but if you search for him in their archives you'll find the interview). Kato Takaaki, by the way, would serve as Prime Minister in the early 1920s. Part of this was related to the Washington Treaty, which limited the size of the Japanese Navy, but even then there were concerns that their ships in general weren't adequate in quality.

These economic problems and military woes ate the perfect storm; however they are simply one piece of the puzzle. The Japanese did indeed use heavy military spending to fight off deflation and show growth (I THINK Patrick Hugh stated that Japan's military in the 30s took about 25% of GDP; however, I am not 100% on that, but I am confident about every other statistic here [because I have those ones written down]. For comparison, the modern US military is about 5% of GDP). This of course would explain the military expansion, but unfortunately not entirely.

Japan in the 30s also had a huge problem with secret societies. The most infamous is the Sakurakai, who would stage numerous coups and assassination attempts. Part of their motivation was eliminating corruption; the Teijin Incident, then, was a huge factor. However, the Japanese government also couldn't control its army; the Kwangtung Army invaded Manchuria in 1931 entirely on its own desire. Part of this could be explained by the large influence of the military in Japanese politics; nearly every single prime minister was either from the army or the Navy. The army and Navy had somewhat of a rivalry for the government budget, and this may have influenced the Sakurakai because as far as I know it was composed mostly of army officers.

Lastly, there was a genuine concern, at least by the elite (PMs, Admirals, and Generals; go figure on that one!), for their national security. After WW1, the British cancelled their alliance with the Japanese. This was mostly at the urging of the United States, who did not trust the Japanese. We also have the Washington Treaty, which put limits on the size of the Japanese Navy.

In sum, Japan sought to expand overseas because many felt that the internal growth of the 1920s was a failure; the reason for wanting to grow was a perseved threat from overseas. Unfortunately it could be argued (as someone else posted here) that those threats only existed because is their actions. Not a bad point, but Great Britain's refusal to renew their alliance was seem by the Japanese that they had to fend for themselves.

(I don't v think you should take this as a final answer; I primarily study economic history [I'm not professionally trained, just well read], so obviously my answer will focus in that).