Japanese defence spending at the fiscal crossroads

Author: Yuki Tatsumi, Stimson Center

Japan’s 2021 defence budget is set to be its largest ever, continuing a near decade-long trend set in motion by former prime minister Shinzo Abe. Under Abe’s watch, Japan has increased its defence budget every year since 2005. The uptick in spending has continued since Abe left office in September 2020 — last December, the Ministry of Defense released its revised budget request for the 2021 fiscal year totalling approximately 5.3 trillion yen (US$50.2 billion).

This upward trend has at times been sensationalised as a return to militarism, with critics pointing to new capabilities introduced during Abe’s tenure. Recent examples include the indigenous development of long-range surface-to-air missiles and other ‘standoff capabilities’ to replace the cancelled Aegis Ashore missile defence program. The Aegis system will be replaced with destroyers and long-range cruise missiles based on the surface-to-air missiles already in use by the Japan Ground Self-Defense Force.

The reality is that Japan’s defence budget now and under prime minister Abe has remained below one per cent of GDP. If one excludes expenses related to relocating US forces in Okinawa, replacing and maintaining the Japanese equivalent to Air Force One, and making the Japan Self-Defense Forces (SDF) and Ministry of Defense more resilient to natural disasters, Japan’s defence budget did not recover to the 2006 level until 2018.

Increases in nominal defence spending since 2013 have been necessary to pay for several big-ticket items, such as enhancing the SDF’s amphibious capabilities and creating more robust space and cyberspace defence systems. Spending increases were also necessary to phase out F-2 fighter jets with next-generation F-X aircraft, and most recently to replace Aegis Ashore. This hardly meets the sensational characterisations of Japanese defence spending. Rather, these moves reflect decisions to address problems introduced by the country’s long period of economic stagnation known as the ‘lost decade’.

The defence budget’s basic ratio has remained largely unchanged. Personnel-related expenses continue to account for nearly 40 per cent of the budget. The remaining 60 per cent is spread thinly across other categories that include education and training, maintenance and repair, and research and development for new acquisition programs.

Future meaningful increases in Japan’s defence spending, however incremental, may not be forthcoming. Abe not only believed in investing in Japan’s defence capabilities to better prepare for tomorrow’s rising national security challenges, but also had the political gravitas necessary to secure the increases. New Prime Minister Yoshihide Suga, by contrast, is already seeing a decline in his public approval ratings due to his government’s indecisive handling of the third wave of COVID-19 infections. It is unclear whether Suga can continue to provide as much political support for a bigger defence budget as his predecessor did.

These factors point to a serious challenge for Japan’s defence planners: the current trajectory of the country’s defence build-up plan is not fiscally sustainable.

There are a couple of ways for Japan to avoid a possible train wreck. One is to accelerate the pace of defence budget increases to keep up with the anticipated rise in acquisition costs. The other is to apply greater scrutiny to all current and future acquisition plans to determine a fiscally-sustainable way forward. This might involve delaying or modifying the acquisition schedule, including considerable cut backs to the scale of the program, or even replacing the program with a more affordable option.

Since accelerating the pace of defence budget increases is likely to be politically untenable for the Suga government, the more plausible way forward for Japan is to opt for greater scrutiny.

Revision of Japan’s National Security Strategy (NSS), first adopted in 2013, is anticipated in the next couple of years. Japan is also at the halfway point of its Mid-Term Defense Program (MTDP), which runs until the end of the 2023 financial year. If the current MTDP does not undertake a mid-course revision by the end of this year, preliminary deliberations on the next program will commence in 2022, likely to occur in tandem with the revision of NSS.

With the anticipated revision of National Defense Program Guidelines (NDPG) happening around the same time, the revision of all three key documents will provide excellent opportunities for the Ministry of Defense as well as Japanese government as a whole to make the hard decisions that greater scrutiny entails.

About the author

Yuki Tatsumi is Senior Fellow, Co-Director of the East Asia Program and Director of the Japan Program at the Stimson Center, Washington, DC.

Image taken by Steve Lynes and sourced from Flickr.

Updated:  25 September 2022/Responsible Officer:  Crawford Engagement/Page Contact:  CAP Web Services Team