Japan's defense budget "shrinks": 80 trillion to 60 trillion, contractor orders may be halved

Four people familiar with the matter said Japanese officials have warned defense contractors that their expected orders will be sharply cut. The reason is fiscal constraints, which may force what Prime Minister Sanae Takaichi's government calls a necessary military buildup to shrink. The people familiar with the matter said Ministry of Finance officials proposed last week that defense spending be set at JPY50 trillion to JPY60 trillion (about USD313 billion to USD376 billion) over the five years starting in April 2027. Although that figure is higher than the JPY43 trillion in the current five-year plan, it is far below the JPY80 trillion budget that some defense officials and lawmakers of the ruling Liberal Democratic Party had previously assumed, which was also the basis for their negotiations with contractors. The people said the lower spending proposal could mean procurement plans for some missiles and aircraft are cut by as much as half, affecting domestic and foreign suppliers, including the U.S.-made F-35 stealth fighter. These people requested anonymity because they were not authorized to speak to the media on the matter. Japan's largest defense contractors include Mitsubishi Heavy Industries, Mitsubishi Electric and Kawasaki Heavy Industries. When asked about the spending proposal, Finance Minister Satsuki Katayama told reporters: "The advisory meetings on security and defense have not discussed matters to such a detailed level, so I think it is not yet the stage where I should comment." A Defense Ministry spokesperson said: "The scale of the next defense buildup plan has not been decided. Our position is to determine what Japan's defense requires and compile the budget accordingly." Funding gap According to estimates, the spending proposal of at most JPY60 trillion would make it impossible for Japan to achieve its goal of raising defense spending to 2% of GDP. At the same time, U.S. President Donald Trump is pressing Washington's allies to increase military spending. The 2026 U.S. National Defense Strategy requires global allies to spend 3.5% of GDP on armed forces and another 1.5% on broader security needs. Takaichi has pledged to accelerate the buildup, and her government is expected to publish revised national security and defense plans by the end of the year. Japan is seeking to expand ammunition stockpiles and deploy military drones to deter attacks and prepare for prolonged conflict. One person familiar with the matter said drone orders will not be affected by the revised spending proposal. Cutting the food consumption tax will squeeze fiscal revenue Three sources said Ministry of Finance officials believe that while sharply increasing defense spending, also delivering on Takaichi's pledges to invest in economic growth and cut the food consumption tax will make funding difficult to raise and will squeeze government revenue. Cutting the food consumption tax will create an annual revenue shortfall of JPY4.3 trillion, which must be filled through other funding sources, possibly including foreign exchange reserves. The Ministry of Finance's lower-than-expected defense proposal is likely to face resistance from security hawks within Takaichi's party, triggering a conflict over how much defense spending Japan can afford. A ruling party official familiar with the discussions, who requested anonymity because the issue is sensitive, said: "Emergencies can happen at any time. If the goal is to build the necessary deterrence and prevention capabilities, a figure in the JPY50 trillion range is not even under consideration."