Japan’s defence budget isn’t really 2 percent of GDP. It’s not even close
Japan says it has nearly reached its defence spending target. But it has done so only by measuring today’s defence budget against its smaller economy of four years ago – arithmetical manipulation it uses in the face of US pressure for greater spending even as the country faces severe fiscal constraints.
On 21 July the Japanese cabinet approved its annual economic and fiscal blueprint. The defence section, left blank in the June draft, was filled with a promise to fund ‘indispensable expenses’ over five years. There was no stated defence-spending share of GDP. In a footnote, it mentioned the ratios targeted by NATO, South Korea and Australia – variously 3 to 3.5 percent of GDP.
The hesitation has precedent. The June 2022 blueprint cited NATO’s then 2 percent benchmark without committing Japan to the same figure. The commitment did, however, arrive six months later, in that year’s National Security Strategy. But there was an arithmetical manipulation baked into this promise from the start: the commitment was eventually to get to 2 percent of 2022 GDP. Japan uttering ‘2 percent of GDP’ satisfied many of its security-conscious friends – but anyone paying careful attention would have noted that this would not be 2 percent of a contemporaneous GDP level.
On 17 April 2026, Defence Minister Shinjiro Koizumi said defence-related spending in the 2026 budget had reached 1.9 percent of GDP – within touching distance of the 2 percent that the 2022 National Security Strategy had set for 2027.
This only looked good. Using the normal, contemporaneous calculation that Japan’s allies use, spending was nowhere near 2 percent. Koizumi measured the 2026 defence-related budget (10.6 trillion yen or A$93 billion) against Japan’s GDP of 2022, roughly 560 trillion yen. Measured against the expected 2026 GDP, about 690 trillion yen, the same spending comes to 1.5 percent. Koizumi said so himself when a reporter pressed him.
The numerator moved forward four years, and the denominator stayed put.
Since 2022 the bar has risen. At the 2025 Hague summit NATO members committed to 3.5 percent on core military spending and 1.5 percent on wider security spending by 2035. At the Shangri-La Dialogue in May, US Defense Secretary Pete Hegseth demanded 3.5 percent from allies and partners. Against that, even the artificial 1.9 percent is nowhere near the finish line, and the actual 1.5 percent is barely off the starting blocks.
Japan manipulates the figure because, although it is under US pressure for greater spending, it cannot credibly promise more: the revenue backing to sustain even current spending is already stretched thin.
A build-up in Japanese defence capability is real, though it has been flattered by a definitional change. The budget exclusively for the Ministry of Defense sees a rise from 5.4 trillion yen in the 2022 financial year to more than 9 trillion yen in the 2026 financial year. The 10.6 trillion yen ‘defence-related’ spending, which the Japanese government started using around 2024, includes public infrastructure development and spending on the coast guard.
Strong headwinds resist further rises. Prime Minister Sanae Takaichi has gone ahead with a previously legislated defence-specific corporate surtax. It took effect in April, levying an additional 4 percent liability on companies. But rising Japanese government bond yields and therefore debt servicing costs are swallowing the revenue gain.
Second, the yen is weak – trading at around 160 yen to the US dollar – even though Japan and the US moved in currency markets on 31 July to support it. While the yen is weak, imported US equipment, such as Lockheed Martin F-35s and Tomahawks, costs more in yen terms. Raising interest rates may lead to currency appreciation, although it also increases the interest payments of government debt.
The third constraint is demographic. Japan’s population, about 122 million today, is projected to fall below 100 million by the mid-2050s. The working-age base that generates tax revenue will drop below 60 million people by 2043 from 73.7 million in 2024. Even now, defence’s 7.4 percent of the government’s 122 trillion-yen expenditure is dwarfed by social security (32 percent) and debt servicing (26 percent).
Seen against these limits, the manipulation can be understood as emerging from desperation.
The Takaichi administration is accelerating the upgrading of Japan’s defence industrial ecosystem – production, sales and maintenance circulating the budget back through the Japanese economy and avoiding the high costs of imports. Managing the GDP ratio buys Tokyo time to implement such reforms. It helps absorb US political pressure and keep the defence budget trajectory feasible.
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