Japan's Defense Ministry has requested about 8.9 trillion yen (about 76 trillion won) for the next fiscal year, a record high and 0.9% more than this year. The figure still falls well short of the government's target of 2% of gross domestic product, or 13.8 trillion yen (about 118 trillion won). The budget could grow further if Prime Minister Sanae Takaichi puts together a new military buildup plan before the end of the year.
The ministry set the budget for the fiscal year beginning in April at that level, Bloomberg reported on the 31st. The request is part of Takaichi's plan to strengthen the country's defense capabilities.
Behind the gap between the target and the actual budget was a rise in nominal GDP. The Japanese government had earlier set a goal of lifting defense-related spending to 2% of GDP by fiscal 2027, and Takaichi pledged to move that timeline up by two years. Including defense-related spending such as the Japan Coast Guard budget, the government reached 1.9%, or about 11 trillion yen (about 94 trillion won), in the last fiscal year.
The problem is that nominal GDP for fiscal 2022, the baseline for the target, was estimated at 560 trillion yen at the time but has since grown to about 688 trillion yen. The weaker yen also played a role. The ministry said it based its request on an exchange rate of 149 yen to the dollar, but the currency has recently traded near 160 yen.
Priorities in the budget include unmanned platforms such as aerial and maritime drones, projects applying artificial intelligence to military intelligence gathering and decision-making, and better working conditions for service members. The ministry allocated 292 billion yen for 17 MQ-9B maritime surveillance drones and 167 billion yen for hypersonic missiles and related equipment. Funding for missiles capable of striking enemy targets from long range is also included, part of a new strategy aimed at deterring an adversary from launching an attack in the first place.
The request covers one year, and Japan plans to unveil a new medium-term defense spending plan by the end of the year. The current five-year plan, which began in 2022, called for spending of about 43 trillion yen (about 368 trillion won). The ministry said additional funding needs would be addressed during budget talks later this year. The next medium-term plan is expected to be larger, as regional security challenges mount with more frequent Chinese military activity around Japan and expanding security cooperation between Russia and North Korea.
How the spending will be financed remains uncertain. Former Prime Minister Fumio Kishida, who in 2022 decided to fund the defense expansion through tax increases, ran into public backlash. Pressure from the United States is also continuing. Washington has called on allies to raise defense spending to 3.5% of GDP, which at current GDP levels would amount to 24 trillion yen (about 206 trillion won) a year.
The increase in defense spending adds to the strain on Japan's finances. The Takaichi government has also proposed cutting the consumption tax on food for two years and rolled out a large-scale growth strategy, but has not fully explained how it will pay for them. Concerns about the fiscal outlook are already reflected in government bond yields, with the 10-year yield rising to its highest level in about 30 years that day.
