The yen’s dramatic decline this year, hitting a nearly four-decade low, is posing a significant challenge to Japan’s ambitious plans for its largest military expansion since World War II.
The weakening yen has led the Japanese government to cut back on orders for essential military equipment, with warnings of further reductions on the horizon. This trend is a result of Japan’s significant reliance on American suppliers for defense equipment, all of which is priced in dollars. As a result, the purchasing power of Japan has been severely impacted by the yen’s falling value.
Satoshi Morimoto, a former Japanese defense minister, expressed concerns in an interview, stating that the actual defense capabilities achieved do not align with the original objectives due to the currency fluctuations. The defense budget over five years has effectively been reduced by 30%, according to Mr. Morimoto.
Japan’s currency dilemma comes at a critical time, as Tokyo faces increasing missile threats from North Korea and other challenges posed by neighboring China, including the potential conflict between China and Taiwan.
In 2022, Prime Minister Fumio Kishida unveiled a new national security strategy that aimed to more than double the defense budget, totaling 43 trillion yen over five years. This significant increase was intended to enhance Japan’s deterrence capabilities against potential threats by enabling the targeting of enemy bases.
However, the budget calculation was based on an exchange rate of 108 yen to the dollar, far from the actual rate of around 135 yen to the dollar. With the yen’s value now at 161 to the dollar, the costs of military equipment have soared, jeopardizing Japan’s defense plans.
The challenges posed by the weakening yen extend beyond the military sector, impacting various aspects of Japan’s economy. The Bank of Japan has expressed concerns about import prices due to the currency devaluation, hinting at potential interest rate hikes to stabilize the yen’s value.
Maiko Takeuchi, a consulting fellow at Japan’s Research Institute of Economy, Trade, and Industry, highlighted the impact of the weak yen on defense procurement. She emphasized the rising costs of essential technologies needed for Japan’s defense strategy, including U.S.-made Tomahawk missiles.
As Japan grapples with financial constraints, leaders are faced with the challenge of maintaining their commitment to a stronger defense posture amidst economic instability.
Jonathan Grady, an expert on defense funding strategies, emphasized the importance of honoring Japan’s defense commitments despite the fiscal hurdles. Collaborative efforts with allies and multilateral coordination may offer viable solutions in the face of budgetary limitations.
Despite the financial challenges, Japan’s defense plan remains a crucial aspect of regional security efforts, particularly in response to escalating threats in the Indo-Pacific.
Amidst growing military collaborations with allies like the United States and Australia, Japan seeks to navigate the complexities of defense funding to uphold its security commitments.
