Defense buildup push faces financial roadblocks

Japan’s push to accelerate its defense buildup is facing another challenge — money. Its military ambitions are growing, but so are competing demands on the public purse.

Discussions at a state-run advisory panel on Tuesday illustrated that tension as the government seeks to revise its three key security documents by year-end. 

Participants called for higher defense spending and stable funding, with some arguing that tax increases should remain an option.

“Tax increases should not be ruled out. Relying solely on government bond issuance is inappropriate,” Atsuko Higashino, a University of Tsukuba professor and one of the expert panelists, told The Japan Times.

She cautioned against starting with numerical targets, such as a share of gross domestic product, saying the government should first assess threats and necessary capabilities, then calculate the costs.

Japan’s existing buildup plan sets aside about ¥43 trillion for fiscal 2023, which began in April 2023, to fiscal 2027. Its replacement is expected to cover fiscal 2027–31, with one senior official noting the budget could reach as high as ¥70 trillion to ¥80 trillion, according to Kyodo News. 

Funding for the existing buildup combines spending reforms, budget surpluses, tax increases and nontax revenue. Measures involving corporate, tobacco and income taxes are expected to generate just over ¥1 trillion in fiscal 2027.

“Public understanding rarely comes naturally,” Higashino said. “It will come down to how much effort the government and experts are willing to put into winning public understanding.” 

For Prime Minister Sanae Takaichi — who seeks to revamp the country’s defense industrial base — securing more money for national defense comes at an awkward moment. 

Her administration is simultaneously pursuing a two-year food consumption tax cut from next April along with accompanying benefits that would require around ¥5 trillion annually.

Although China’s rapid military expansion, North Korea’s growing capabilities and closer military ties with Russia have added urgency to Japan’s overhaul, a weak yen has raised imported equipment costs as tax relief and growth investment compete for funding.

Resistance to higher corporate taxes, for instance, already reflects the difficulty of distributing that burden. Further increases have emerged as a possible funding source, but Keidanren, Japan’s largest business lobby, has made clear its opposition.

With resources stretched, Higashino said deterrence through denial — convincing a potential adversary that an invasion would be costly — should be prioritized. That requires ammunition, fuel, serviceable equipment and sufficient personnel, as well as advancing and securing missiles and drones, she added.

At Tuesday’s meeting, panelists also outlined plans to establish a new body to coordinate support for domestic production, overseas transfers of defense equipment and technological innovation, giving the government a more active role in supporting private companies.

The initiative forms part of a broader push to bring civilian firms and dual-use technologies into defense production with the aim of bolstering domestic capacity to develop home-grown critical technologies and manufacture critical components.

Satoru Nagao, a nonresident fellow at the Hudson Institute, said such public-private partnerships would take considerable time and investment to mature, but technologies and research developed by Japanese companies and universities held significant potential for military use.

“Examples overseas show that civilian technologies can be adapted for military use, depending on how they are employed,” he said, citing semiconductors developed for video game consoles as an example of technology that could support precision missile guidance.

Still, Nagao added that challenges remain as few Japanese firms specialize in defense, while military contracts account for less than 10% of revenue at most major domestic defense contractors.

The panel is expected to finalize its report and submit it to the government in early December.