Japan warns defence contractors of potential cuts to military orders amid fiscal constraints: Report

Tokyo: Japan has warned defence contractors of deep cuts to expected orders as fiscal constraints threaten to scale back a military buildup that Prime Minister Sanae Takaichi's government says is needed to counter China, four sources said.

Finance ministry officials last week proposed spending between 50 trillion and 60 trillion yen ($313 billion to $376 billion) on defence over the five years starting in April 2027, the people familiar with the proposal told Reuters.

That would exceed the current 43 trillion yen five-year plan but fall well short of the 80 trillion yen advocated by some defence officials and ruling Liberal Democratic Party lawmakers.


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The gap could mean cuts by as much as half in planned purchases of some missiles and aircraft, including US-made F-35 stealth fighters, the sources said.

The sources asked not to be identified because they were not authorised to speak to the media. The finance and defence ministries did not immediately respond to requests for comment.

The revised spending proposal would leave Japan short of its target of raising defence outlays to 2% of gross domestic product, according to Reuters calculations, as US President Donald Trump presses Washington's allies to spend more on their militaries.

The 2026 US National Defense Strategy calls for allies worldwide to spend 3.5% of GDP on their armed forces and a further 1.5% on broader security needs.

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SALES TAX

Finance ministry officials argue that a steeper increase would be difficult to fund alongside Takaichi's commitments to invest in economic growth and cut the sales tax on food, which would squeeze government revenue, three of the sources said.

The sales tax cut would leave an annual 4.3 trillion yen revenue shortfall that Takaichi would need to fill through other funding sources, potentially including foreign exchange reserves.

The finance ministry's defence proposal, however, is likely to face resistance from security hawks in Takaichi's party, setting up a clash over how much Japan can afford to spend to bolster its defences.

"A contingency could occur at any time. If the goal is to build the capabilities necessary to deter and prevent such a contingency, a figure in the 50-trillion-yen range is out of the question," one ruling party official familiar with the discussions said, requesting anonymity because of the sensitivity of the issue.