Japan set to meet 2% defense target, but future hikes uncertain

Japan Today

19-07-2025

By Keita Nakamura
Japan is on track to achieve its target of boosting defense spending to 2 percent of gross domestic product in the next two years, but the real challenge -- whether to go beyond that level -- may come after Sunday's House of Councillors election.
With the ruling bloc at risk of losing its upper house majority, Prime Minister Shigeru Ishiba's already flagging political base could complicate long-term buildup plans, despite U.S. President Donald Trump's push for allies to shoulder more defense costs.
Ishiba's ruling coalition no longer controls the more powerful House of Representatives. A defeat in the upcoming election could make it virtually impossible for Japan to further increase its defense budget, as only a few opposition parties support the move.
Defense Minister Gen Nakatani said, "Nothing has been determined at all" regarding Japan's defense budget for fiscal 2028 or later, despite the country's expected exposure to direct or tacit pressure from the United States to spend more than 2 percent of its GDP.
In 2022, Japan decided to allocate 43 trillion yen ($289 billion) over five years through fiscal 2027 to reach the 2 percent benchmark, aligning with the then-standard among NATO members, amid growing security threats from China, North Korea and Russia.
The amount includes expenses for security-related "complementary initiatives," such as research and development, public infrastructure construction and the coast guard, which are vital for bolstering Japan's defense capabilities.
For decades, Japan capped its annual defense budget at around 1 percent of GDP -- roughly 5 trillion yen -- reflecting its postwar pacifist stance under the war-renouncing Constitution, while maintaining its security alliance with the United States.
Nakatani said the initial defense budget for fiscal 2025, including related outlays, is set to total 9.9 trillion yen, equivalent to 1.8 percent of GDP three years earlier -- evidence, he said, of steady progress toward the government's target.
To keep the 43 trillion yen outlay on track, the government has approved hikes in income, corporate and tobacco taxes, despite its debt burden topping 1,300 trillion yen -- more than twice the size of the economy.
Corporate and tobacco tax hikes are set for April 2026, but the government has yet to finalize the timing of the income tax increase, even after Ishiba took over as prime minister from Fumio Kishida in October.
Ishiba's Liberal Democratic Party has pledged in its election campaign to "adamantly defend our territory and citizens by fundamentally reinforcing defense capabilities," citing China's military buildup and North Korea's missiles as serious threats.
Major opposition parties, including the Constitutional Democratic Party of Japan -- led by former Prime Minister Yoshihiko Noda -- and the Japan Innovation Party, also support strengthening the nation's defense capabilities.
Noda, known as a fiscal hawk, has voiced opposition to raising taxes to cover increased defense spending, arguing the 43 trillion yen target lacks a solid basis. Rather than proposing alternative funding sources, he has pledged a consumption tax cut to support the economy.
The LDP's junior coalition partner, Komeito, along with opposition forces -- the Democratic Party for the People, Sanseito and the Conservative Party of Japan -- have made no clear reference to how the increased defense budget would be funded.
Among other opposition parties, Reiwa Shinsengumi, the Japanese Communist Party and the Social Democratic Party have all opposed expanding defense spending, calling on the government to uphold the Constitution.
Masumi Ishizuki, general manager of the Policy and Macro Environment Research Department at the Dai-ichi Life Research Institute, said the defense spending plan is unlikely to change significantly, regardless of the post-election government.
Ishizuki, meanwhile, pointed out that Trump, who took office in January with his "America First" banner, has been adding pressure on allies, prodding NATO countries to set a new target of investing 5 percent of GDP for defense and related expenses by 2035.
Pentagon spokesman Sean Parnell has also called on U.S. allies in Asia to pursue defense goals equivalent to those of NATO members. According to a diplomatic source, Washington has already asked Japan to spend 3.5 percent of its GDP on defense.
Securing sufficient financial resources to disburse such a large amount could be a tough task if the upper house election weakens the Ishiba government, as his ruling coalition is on the verge of losing its majority in the chamber.
Hirohito Ogi, a senior research fellow at the Institute of Geoeconomics at the International House of Japan, said the prime minister's limited influence could make Finance Ministry bureaucrats hesitant to cooperate in increasing defense spending.
If the political leader has a solid foundation, the ministry in charge of the national budget would have no choice but to cooperate, Ogi said, adding prospects for future defense spending "depend on whether the Prime Minister's Office is strong or not."
© KYODO