Japanese defense budget to reach US$69.46 bn by 2017

Tuesday 28 February 2012, amsterdam

With a defense budget of US$59.06 bn in 2012, Japan is the fourth-largest defense spender in the world. While the Japanese defense budget grew at a CAGR of 6.25% during the review period (2008-2012), it is expected to grow at a CAGR of 3.28% over the forecast period (2013-2017), to reach US$69.46 bn by 2017. However, the Japanese government has capped its defense budget at 0.99% of GDP, a situation which is projected to continue until 2017. The Japanese Ministry of Defense (MoD) allocates 16.9% of its defense budget to capital expenditure, 4% to US forces stationed in Japan and the remaining budget to revenue expenditure, including the salaries of armed personnel and maintenance activities. The Japanese army, excluding expenditure on Special Action Committee on Okinawa (SACO) and US force realignment, receives 36.8% of the overall defense budget, while the air force and navy receive respective allocations of 23.5% and 23% (reference see graph).

The Japanese government does not have an offset policy for its defense procurements. Instead, the government imports technology for the equipment for which advanced technology is not available domestically.

The Japanese defense investment policy insists on the government’s prior approval for investment in the defense industry. The government considers defense to be a sensitive industry and reviews potential investments in terms of their threat to national security, public order, public safety and the economy. The review time required is generally 30 days from the date of notification. If the government does not reply within the stipulated time, the proposal for investment is automatically approved, unless the ministry extends the review period if they feel further review is necessary.

Japan follows a policy of procuring indigenous goods and purchasing advanced technology that is unavailable domestically. However, the cost of these licenses are high and the quantity procured by the Japanese government is low, leading to lower economies of scale and higher costs per unit of the product. Even the recent easing of some of its export policy has not brought the desired level of freedom to the indigenous exporters till date.