Japan’s Katayama vows fiscal prudence on defense funding

Japan will take fiscal sustainability into account as it considers how to fund increased defense spending, the nation’s finance minister said, after local media reported that the government was weighing an additional corporate tax hike to finance the measure.

“The relevant ministries and agencies are currently building up realistic and concrete discussions on the specifics of our defense capabilities and the level of defense spending needed to achieve them,” Satsuki Katayama told reporters on Tuesday.

“As for how to finance this, we will consider the necessary measures, giving due consideration to fiscal sustainability, ensuring stable sources of funding,” she said.

Katayama’s remarks followed reports by Kyodo and others last week that an additional corporate tax hike had emerged as a possible funding source for Japan’s growing defense budget.

Japan is preparing a new five-year defense spending plan, to be released at the end of this year. Kyodo reported that total spending under the new plan could total ¥70 trillion ($441 billion) to ¥80 trillion, citing unnamed administration officials.

The government brought spending to 1.9% of gross domestic product last fiscal year, or roughly ¥11 trillion, including broader security-related outlays such as spending on the coast guard. It was earlier reported that Japan is considering eventually raising defense spending to 3.5% of gross domestic product, in line with a target adopted by NATO and other U.S. allies.

Katayama said that decisions on defense spending would be based entirely on Japan’s own independent judgment.

Debate over defense spending comes as the government prepares to finalize its budget for the fiscal year starting in April. Beyond defense, Takaichi must secure funding for other costly initiatives, including a two-year consumption tax cut on food and a 14-year investment program targeting strategic industries.

Any proposal for further defense-related tax increases is likely to face hurdles. Former Prime Minister Fumio Kishida faced a public backlash after deciding in 2022 to use tax increases to help fund a defense expansion. An income-tax increase included in that package was repeatedly postponed and is only due to take effect next year.