With formulations being conducted for Japan’s fiscal year 2016 government budget, the country’s Defense Ministry is contemplating whether to request a record-high slice of the expenditure pie. Having secured three consecutive year-on-year nominal budgetary boosts since the return to power of conservative Shinzo Abe and his Liberal Democratic Party in December 2012, it is quite clear that the area of defense is a priority for the government.

Prior to Abe’s return to office, Japan’s defense budget had steadily declined over a 10-year period. However, during that stretch, the strength of the local currency, the yen, versus a relatively weak U.S. dollar ensured that the annual earmarks provided sufficient buying power with which to import weaponry or defense-related services from the U.S. and other foreign suppliers on an as-need basis.

Now, with the value of the dollar having risen over the past two years in the global currency markets, the yen has, in turn, depreciated. As a result, the defense budget has to be bolstered to mitigate the value lost from a weakened yen.

Add to this the increasing concerns in Japan over China’s expanding military power, maritime reach, and aggressive posture regarding its perceived regional status and operational space – mixed with the nationalistic bent of the Abe government – and the Defense Ministry is in a favorable position to make greater funding requests.

The Defense Ministry will likely seek a JPY5.2 trillion (roughly $41.7 billion) appropriation that would represent a record-high budget if approved. The ministry’s request under the FY15 draft proposals was for JPY5.05 trillion, but instead it was granted a (still) record-high JPY4.98 trillion ($40 billion) allocation. The latest request will include a JPY140 billion earmark for the realignment costs of the U.S. Marine Corps Air Station Futenma within Okinawa Prefecture, mirroring the figure provided under the 2015 budget.

Should the ministry’s request be met, the defense budget will grow nominally by 4.4 percent next year, and bring the total defense outlay over the first three years of the five-year Mid-Term Defense Program (2014-2018) unveiled by the government in December 2013 to JPY15.07 billion. With the ceiling on aggregate defense expenditure set at roughly JPY24.7 trillion under the plan, the remaining two fiscal year budgets would have about JPY4.82 billion per annum for funding. As Japan looks to develop an amphibious capability and pivot its military punch toward the country’s southwest – in other words, in the direction of China and the disputed islands Tokyo refers to as the Senkaku – continuing any momentum toward these goals may prove difficult due to the weakened yen and more restrained funding over the ensuing two years.

One thing that is glaringly noticeable when examining Japan’s defense budgets over the past five fiscal years is that the 2011 earmark – JPY4.775 trillion – amounted to nearly $60 billion at the time. Today, a higher yen earmark yields international buying power that is nearly a third lower.

blog.forecastinternational.com