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 led by Sanae Takaichi has begun reviewing 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 Maintenance Plan" will outline the quantity of equipment the Self-Defense Forces will possess and the necessary expenses, determining the total defense budget for the five years starting in 2027.
The existing Defense Capability Maintenance 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 such increases, it may still be difficult to meet the U.S. requirement of 3.5% of GDP. To align with this demand, 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 financial burden resulting from the surge in defense spending has also emerged as a significant issue. The Tokyo Shimbun reported that from 2027, fixed costs, including repayments for previously signed arms purchase contracts and personnel expenses, are expected to reach 30 trillion yen (approximately $253 billion).
Additionally, concerns are growing that the Japanese government’s plan to temporarily reduce the consumption tax on food products starting next year could further increase fiscal pressure. However, the Takaichi cabinet has yet to present specific funding measures needed for both the increase in defense spending and tax cuts.
Reducing energy subsidies is also under consideration. The Takaichi government and the ruling party are reviewing plans to gradually decrease subsidies provided to oil companies to maintain gasoline retail prices at around 170 yen (approximately $1.43) per liter. This aims 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 increased 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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