Japan Forced to Reduce Defense Spending Due to Currency Devaluation

The depreciation of the currency is compelling the Japanese government to prioritize American companies producing advanced weaponry over the Japanese defense industry.

03/11/2023 - 16:06
Source: Japan Times
Source: Japan Times

The plummeting yen has necessitated Japan to scale back its historic five-year plan to increase defense spending worth $320 billion, as reported by Sarbaz.kz, citing Japan Times.

Since the plan's announcement in December, the yen has lost 10% of its value against the dollar, compelling Tokyo to scale down its ambitious defense procurement plan.

Unlike large firms conducting business abroad, Japan's Ministry of Defense is not shielded from fluctuations in currency rates. Consequently, it lacks the means to cushion the growing costs of acquiring Tomahawk cruise missiles and F-35 stealth fighters in yen terms.

Prime Minister Fumio Kishida had termed Japan's largest enhancement of defense capability since World War II as a "turning point in history." According to official defense ministry documents, these expenses are aimed at preparing the country for a potential conflict around its extensive islands along the East China Sea coast.

In December, Kishida pledged to double annual defense expenditure to 2% of the gross domestic product.

Japan’s reduced purchasing power has forced the government to prioritize expenses on modern advanced American-manufactured weaponry over Japanese-made equipment. However, this entails a reduction in spending on domestically produced technology.

For instance, according to Reuters, the order for 34 twin-engine Chinook helicopters priced at 15 billion yen each was cut to 17, as the cost of each helicopter surged by 5 billion yen. These Chinook helicopters are assembled by Kawasaki Heavy Industries under Boeing license using American components.

Japan also scrapped plans to purchase two ShinMaywa Industries US-2 amphibious aircraft, utilized for search and rescue operations, after the aircraft's price nearly doubled to 30 billion yen compared to figures from three years ago.

According to analysts, for Kishida, contending with rival factions within the ruling party debating whether to borrow money or raise taxes to cover his defense expenses, reducing equipment procurements might be politically less volatile than appealing to lawmakers for additional funding.

However, Kishida is also facing criticism from Japanese companies fearing that the bulk of the cuts will fall on them, allowing Tokyo to afford Raytheon Tomahawks and Lockheed Martin's F-35 jets.

Signaling growing discontent, the Japan Business Federation – the country's most influential corporate lobby – in October joined several defense industry associations to pressure the Ministry of Defense to secure additional funds for military purchases in the supplementary budget, which is currently under parliament consideration.

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