Japan Weighs Curbing Defense Spending Increase From ¥70 Trillion to ¥60 Trillion... Over Tax Hike Backlash and Concerns About Undermining Consumption Tax Cuts

[Financial News] The Japanese government is reportedly leaning toward setting total defense spending for the five years beginning in FY2027 at around ¥60 trillion (about 500 trillion won)—below the Ministry of Defense’s initial request—in the three key security documents it plans to revise by the end of this year.
On the 14th, local media including The Asahi Shimbun and Kyodo News reported this, citing multiple government officials. The current three security documents set total defense spending at ¥43 trillion (about 360 trillion won) for FY2023–FY2027.
The Ministry of Defense initially sought a budget in the upper ¥70 trillion range (about 587 trillion won), citing the worsening security environment, including Russia’s invasion of Ukraine and China’s expanding military capabilities. The Ministry of Finance (Japan), by contrast, held firm at around ¥50 trillion (about 419 trillion won), citing limits on securing funding, and the ministries have remained sharply divided.

Opposition to large-scale tax hikes lies behind the decision to keep the increase in defense spending to around ¥60 trillion. A substantial increase in defense spending would make a further hike in corporate taxes unavoidable, which could directly increase the burden on the public through weaker corporate competitiveness and rising prices.
In particular, the Prime Minister’s Office judged that tax increases to fund higher defense spending would directly conflict with the “food consumption tax cut policy” that the TAKAICHI Sanae administration is making its top priority. An official at the Prime Minister’s Office said, “An increase in defense spending must not hinder the administration’s growth strategy,” drawing a clear line against large-scale tax hikes and budget expansion. The government is also considering putting on hold plans to establish an agency to support retired JSDF personnel and their families, in order to ease the burden of securing funding.
However, Japan’s policy of curbing defense spending is set to face considerable headwinds amid intense pressure from the Donald Trump administration to increase defense spending. The United States is demanding that allies including South Korea and Japan spend around 3.5% of gross domestic product (GDP) on defense; for Japan, that would amount to about ¥100 trillion (about 838 trillion won) over five years. The United States is also reportedly seeking total host-nation support payments for United States Forces Japan (USFJ) of ¥3 trillion (about 25 trillion won) over the next five years, or an annual average of ¥600 billion (about 5 trillion won)—three times the current annual average of about ¥211 billion (about 1.75 trillion won). Accordingly, Japan is reportedly unlikely to specify a concrete defense spending target as a percentage of GDP in the revised security documents.

Separately from its efforts to curb total defense spending, the Japanese government is stepping up institutional reforms to upgrade its domestic defense industry and open up export opportunities.
The Japanese government has decided to establish a “Task Force on Defense Equipment Transfers and the Defense Industrial Base” as part of the revision of the three key security documents. Chaired by the National Security Secretariat (NSS) and involving the Ministry of Economy, Trade and Industry, the Ministry of Defense, the Ministry of Foreign Affairs and the Ministry of Finance (Japan), among others, this command center will oversee expanded defense equipment exports, technological innovation and stronger production capacity.
The task force plans to actively promote the adoption of the government-owned, contractor-operated (GOCO) model, in which the state owns production facilities and private contractors operate them, to strengthen “sustainment capability (the ability to continue combat operations)” in preparation for a prolonged war. It also plans to formalize a “Defense Industrial Base Strategy” as a sub-strategy under the security documents to encourage investment by private companies reluctant to enter the defense industry, as well as by startups, universities and financial institutions.
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