Historically, I think it’s to signify Mongolian indifference to the Sino-Japanese war, and its animosity towards both countries (Japan attempted an invasion in 1939 I think, and were repelled with Soviet assistance, and the Mongols had been ruled by the Qing dynasty for so long, and their brethren in inner Mongolia were still being subjugated by the Chinese). For the strategic purposes of the game, Hobbes is correct, Mongolia serves to separate the northern and central routes of the Japanese advance on Moscow, same as what the Himalaya territory does in the south.