The annual exercise was Taiwan's first since Beijing passed a law in March threatening force if Taiwan moves toward independence.
Taiwan President Chen Shui-bian observed the two-hour exercise at Yuanli, a beachside town in central Taiwan.
"Despite their inferior equipment, the (Chinese) troops fought the Japanese bravely and regarded death as a natural ending in an endeavor to safeguard the nation and the territory," Chen said in a speech to the troops.
Beijing has increased pressure on Taiwan, using both threats and diplomacy, in an effort to prevent the island from a formal declaration of independence from China.
Chen maintains that Taiwan is already an independent nation, as China has not exercised sovereignty over the island since the civil war ended in 1949.