The Zhitong Finance App learned that four people familiar with the matter said that Japanese officials have warned defense contractors that their orders are expected to be drastically cut. The reason is financial constraints, which may have forced the contraction of what Japanese Prime Minister Takaichi Sanae's government claims is necessary military expansion.
People familiar with the matter revealed that Ministry of Finance officials proposed last week that defense spending be set at 50 trillion to 60 trillion yen (about 313 billion to 376 billion US dollars) within five years from April 2027.
Although this figure is higher than the 43 trillion yen amount in the current five-year plan, it is far below the 80 trillion yen budget previously assumed by some defense officials and members of the ruling Liberal Democratic Party. The latter was also the basis for their negotiations with contractors.
People familiar with the matter said that the reduction in spending proposals may mean that procurement plans for some missiles and aircraft have been cut by up to half, involving domestic and foreign suppliers, including the F-35 stealth fighter made in the US. These individuals 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 expenditure proposal, Finance Minister Katayama Satsuki told reporters: “The consultation meeting in the field of safety and security has not yet discussed such details, so I don't think it's time for me to comment.”
A Ministry of Defense spokesman said, “The scale of the next defense force preparation plan has not yet been determined. Our position is to determine what Japan's defense needs and prepare a budget based on that.”
Funding gap
According to estimates, a spending proposal of up to 60 trillion yen will prevent Japan from achieving the goal of raising defense spending to 2% of GDP. Meanwhile, US President Trump is pressuring Washington's allies to increase military spending.
The 2026 US Defense Strategy requires global allies to spend 3.5% of GDP on armed forces and another 1.5% for broader security needs.
Takaichi Sanae has promised to speed up preparations, and her government is expected to announce a revised national security strategy and defense plan before the end of the year. Japan is seeking to expand its ammunition reserves and deploy military drones to deter attacks and prepare for long-term conflict.
A person familiar with the matter said that drone orders will not be affected by the revised spending proposal.
Lowering the food consumption tax will squeeze fiscal revenue
Three sources said that Ministry of Finance officials believe that while drastically increasing defense spending, it is also necessary to fulfill Takaichi Sanae's promise to invest in economic growth and reduce food consumption tax, which will make it difficult to raise funds and squeeze government revenue.
Lowering the food consumption tax will result in an annual revenue gap of 4.3 trillion yen, which must be filled through other sources of funding, possibly including foreign exchange reserves.
The Ministry of Finance's defense proposal that fell short of expectations is likely to be boycotted by the security hawks within Sanae Takaichi's party, triggering a conflict over how much defense spending Japan can afford.
A ruling party official with knowledge of the relevant discussions requested anonymity due to the sensitive nature of the issue. He said, “An emergency can happen at any time. If the goal is to establish the necessary containment and prevention capabilities, the 50 trillion yen figure is simply not within the scope of consideration.”