Japan set to increase defense budget to 2% of GDP in 2027

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Japanese Prime Minister Fumio Kishida instructed his cabinet ministers to increase Japan's defense budget to around 2% of the gross domestic product in the year starting April 2027.

He gave those instructions to Defense Minister Yasukazu Hamada and Finance Minister Shunichi Suzuki on Monday, as part of Japan's plans to expand its defense budget to meet new security challenges.

The budget aims to cover funding for scientific research, cyber technology, infrastructure, and an improvement of the Japan Coast Guard, while the initial budget for fiscal 2022 accounted for 1% of GDP at 5.4 trillion yen ($39.3 billion).

The government will decide the budget by the end of December, as well as secure financial resources for defense equipment over the next five years, paving the way for a change in Japan's postwar security policy. It is worth noting that this is the first time that Kishida has referred to a specific level of defense spending.

When Prime Minister Takeo Miki was in charge in 1976, the general guideline for Japan's defense spending has been 1% or less. However, the ruling Liberal Democratic Party has been pushing for an increase to 2%, especially since the war in Ukraine prompted a number of NATO members to set their defense spending at that level.

The government will ditch a vertically administered structure to focus more on activities under the Ministry of Defense and move toward a system where all departments will have a role to play in national security. Based on the current GDP, the new defense budget will amount to approximately 11 trillion yen.

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The main pillar of the new defense budget will be the acquisition of counterstrike capabilities, which will be used to attack opponents' missile launch sites and other targets.

The government will extend the range of its missiles and introduce the Tomahawk, a US cruise missile. It will also improve its fighting capability by purchasing additional ammunition, which is currently in short supply.

On the other hand, the Liberal Democratic Party is deeply skeptical about raising taxes to fund defense spending. The question of whether the government will be able to secure a stable source of funding to allow for long-term increases in defense spending remains unanswered.

The Prime Minister has instructed his ministers to secure budget revenue by the end of December and has indicated that he will allow the temporary issuance of deficit-covering bonds until fiscal 2027 to secure financial resources. He also asked them to devise ways to increase financial resources, including through expenditure reform.

Earlier this week, the Japanese Defense Ministry said it was seeking $6.7 billion in additional spending this financial year to accelerate purchases of military equipment, a record in Japan's history, arguing it was due to the "increasingly severe" regional security environment.

The Ministry cited the "challenges" posed by China and North Korea and said the regional security situation was becoming "increasingly severe at an unprecedented speed."