Japan eyes up to 43t yen for 5-year defence spending plan

JAPAN is set to earmark 40 trillion to 43 trillion yen (S$402.8 billion to S$433 billion) for defence spending over five years from April 2023, three sources told Reuters on Friday (Dec 2).

This would be a jump from the 27.5 trillion yen set aside for the current five-year defence plan.

The new numbers marked a compromise between the defence and finance ministries, the sources said. Until recently, the defence ministry had sought a budget of 48 trillion yen, while the finance ministry had multiple options centring around 35 trillion yen.

Defence authorities had earlier floated the idea of spending in the upper range of 40 trillion yen over five years, while finance bureaucrats had sought spending along the lines of the current five-year plan.

Prime Minister Fumio Kishida told key ministers on Monday to lift defence spending to 2 per cent of the country’s gross domestic product within five years, up from 1 per cent now. This came as Tokyo faces an increasingly-assertive Beijing.

The key ministers – Finance Minister Shunichi Suzuki and Defence Minister Yasukazu Hamada – are expected to meet again with Kishida this month to iron out differences over the spending plan.

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The increase in defence spending stoked worries about worsening one of the industrial world’s worst debt burdens. At present, Japan’s debt is double the size of its annual economic output.

Many lawmakers also expressed opposition to tax increases, which could nip the country’s nascent economic recovery in the bud. The sources told Reuters that Japan is expected to delay any such moves for at least a year.

Without tax increases, the country would be left with fewer options to secure funding for a boost in military spending.

Takuya Hoshino, senior economist at Dai-ichi Life Research Institute, said: “It won’t be critical to spend some 40 trillion yen. The question is whether the government can secure funding sources and whether we can let the money flow through domestic defence and related industries to back the economy.

“If we spend the money to buy weapons and other military goods overseas, that would trigger capital outflows and yen depreciation.”

Three government sources, who declined to be identified citing sensitivity concerns, said Japan could draw on other sources to fund the increased defence budget. Potential measures include spending cuts, more debt issuance, non-tax revenue such as surpluses from the foreign reserves special account, and money left over from funds to help state-related firms cope with the Covid-19 pandemic.

The Ministry of Finance declined to comment. REUTERS