The United States has demanded that Japan increase its defense spending to 3.5% of its gross domestic product (GDP), prompting the Japanese government to consider including artificial intelligence (AI), infrastructure, and development aid budgets in its defense expenditures.
According to the Nihon Keizai Shimbun (Nikkei) on October 24, the cabinet of Sanae Takaichi is exploring options to expand the categories of government spending that can be counted as defense expenditures in response to U.S. demands.
The Japanese government plans to revise its "three security documents" by the end of this year. Among these, the "Defense Capability Development Plan" will determine the total defense budget for the next five years starting in 2027, including the number of Self-Defense Forces' equipment and necessary expenses.
The existing Defense Capability Development Plan, established in 2022, allocated a total of 43 trillion yen (approximately $363 billion) for defense spending over five years. However, projections indicate that the next plan could significantly increase this amount to between 60 trillion and 80 trillion yen (approximately $506 billion to $675 billion).
The challenge is that even with this increase, it may still fall short of meeting the U.S. requirement of 3.5% of GDP. To align with U.S. expectations, Japan's annual defense spending would need to reach about 20 trillion yen.
In response, the Japanese government is considering including expenditures related to economic security, such as energy, government development aid (ODA), and AI investments that contribute to security in its defense budget.
However, the Japanese government remains cautious about explicitly stating the "3.5% of GDP" figure in its defense budget plans. The Nikkei reported that while the government is mindful of U.S. demands, it intends to calculate defense spending by aggregating necessary expenses individually.
The rising defense budget is also raising concerns about fiscal burdens. The Tokyo Shimbun reported that fixed costs, including repayments for previously signed arms purchase contracts and personnel expenses, are already expected to reach 30 trillion yen (approximately $253 billion) over the next five years starting in 2027.
Additionally, there are concerns that the Japanese government's plan to temporarily reduce the consumption tax on food starting next year could further increase fiscal pressure. However, the Takaichi cabinet has yet to present specific funding measures needed for both the defense budget increase and tax cuts.
Reducing energy subsidies is also under consideration. The Takaichi government and the ruling party are exploring a gradual reduction of subsidies provided to oil companies to maintain gasoline retail prices at around 170 yen (approximately $1.43) per liter following the Middle East crisis. The aim is to adjust gasoline prices to about 180 yen (approximately $1.52) per liter. As the prolonged Middle East crisis reduces the funding for energy subsidies, the combination of expanding defense spending and tax cuts is expected to further strain the Japanese government's fiscal management.
* This article has been translated by AI.
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