Why Japan will not spend three percent of GDP on defense

On Elbridge Colby's advice for Japan

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Prime Minister Kishida Fumio visits a Japanese Air Self-Defense Forces base to conduct a review in November 2023.

On the sidelines of the Republican National Convention in Milwaukee last month, Elbridge Colby, who as a deputy assistant secretary of defense during the Trump administration played a key role in drafting the 2018 National Defense Strategy, spoke with Viewpoint magazine about how a second Trump administration would approach Japan.¹ Now heading the Marathon Initiative, a think tank raising awareness of the challenges of great power competition, Colby is likely to play a significant role in a second Trump administration. His thinking on this question is, therefore, of considerable interest.

In this brief interview published in Japanese (which he summarized in a Twitter thread starting here), Colby argues:

Increasing defense spending to 2 percent of GDP by fiscal 2027 is clearly insufficient, especially given the weak yen. South Korea's defense spending is 2.7-2.8% of GDP...Japan is moving in the right direction, but it is too slow and on too small a scale.

…

Japan plays an important role in this. I think Japan needs to spend 3% of its GDP on defense. That's because 2% is not enough for Europe, which faces off against Russia. China has an economy 10 times larger than Russia’s.

…

Japan should feel more of a sense of urgency. I strongly urge Japan to focus on its own defense. It should not use its limited resources on the other side of the world.

In short, this is a sweeping rejection of what Prime Minister Kishida Fumio has accomplished during his tenure as prime minister. What has appeared like a historic turning point for Japan – the decision to increase defense spending sharply, the decision to acquire long-range strike capabilities, the ongoing reorganization of the Self-Defense Forces, the growing partnerships with other countries in Asia and outside of Asia, the deeper cooperation with the US military – is to Colby “too slow and on too small a scale,” consistent with his thinking that China is the overwhelming threat to the United States and its neighbors and it is paramount to deny China hegemony over Asia, the engine of growth in the global economy. “My argument is that what matters for denying China regional hegemony over Asia, to get right down to it, is the military balance in Asia,” he said in an interview with the New Statesman in July.

Colby is nothing if not consistent. In an interview with the Nikkei Shimbun in August 2022 – before the three national security documents were finalized – he argued that Japan should triple its defense spending. In an interview with the Yomiuri Shimbun in May, he said, “My biggest gripe with the Japanese government is that it is concentrating on supporting Ukraine, in addition to not moving fast enough on the defense front.” He made many of these same arguments in a conversation with the Hudson Institute’s Murano Masashi in the May 2024 issue of Voice.  The Japanese government needs to take these arguments seriously, because, if Donald Trump wins in November, they could be the official line emanating from the White House.

Setting aside the questions of China’s intentions in Asia or whether Japan and other US allies in Asia should view security in the “Euro-Atlantic” and Indo-Pacific regions as linked, I want to consider the question of whether Japan needs to raise its defense spending to three percent of GDP and whether this is a useful or realistic proposal.

With the Kishida government’s having already committed to raising defense spending to two percent of GDP by FY2027, perhaps an additional percentage point of GDP – roughly USD 42bn – is less unthinkable than it once was. Compared to the highly legalistic and abstract nature of Japanese strategic thinking for most of the postwar era, the Japanese government and Japanese elites are thinking in increasingly concrete terms about the threats to Japan’s national security interests from China’s increasingly sophisticated military (including its nuclear arsenal), North Korea and its growing nuclear arsenal, and Russia as a partner of both China and North Korea in Asia. This shift in thinking is not limited to the Liberal Democratic Party (LDP) or the national security establishment. Under Izumi Kenta, the Constitutional Democratic Party (CDP) has pursued a “realistic” line and toned down its opposition to the 2015 national security laws, and the public is broadly supportive of this shift (see below).

Nevertheless, even as the public’s threat perceptions have changed – and its willingness to support previously unthinkable policies in response – there is ample reason to believe that raising Japan’s defense spending by an additional percentage point of GDP is unthinkable as a near-term goal. There are three reasons why fixating on “three percent of GDP” is a mistake: public finances, administrative capacity, and public opinion.

Public finance

Ironically considering that the US’s own fiscal limitations are central to Colby’s argument that the US needs to focus on Asia instead of Europe or the Middle East, I have seen little from him about how Japan should pay for an additional USD 40bn in defense outlays. According to Ministry of Finance (MOF) documents, defense spending is already seven percent of the overall budget and almost 12 percent of general expenditures (excluding debt servicing costs and local government allocations). The growing demands of social security spending as Japan’s population ages and shrinks means that a significant portion of the budget – 33 percent of the overall budget and 55 percent of general expenditure – is effectively untouchable. The government has tried to slow the growth of social security outlays, but there is unlikely to be much political appetite for cutting social security spending in a country with a population a third of which is already over 65 years old. Among the Japanese government’s non-defense, non-social security spending in the FY2024 budget is JPY 21.14tn (USD 140.9bn), which covers every other government expenditure: education, agricultural subsidies, scientific research, industrial subsidies, and so on. I am, to the say least, not confident that MOF or the policy ministries would agree to reallocate nearly a third of non-social security, non-defense outlays for national defense; nothing about the political economy of public finance in an advanced industrial democracy suggest that such a reallocation of funds from areas that voters tend to care a lot about to national defense (an area that voters may care about but which has little bearing on their daily lives) is possible, even if a plurality of respondents (39 percent) indicated in a Yomiuri Shimbun poll earlier this year that defense spending increases should be paid for by cutting other budget expenditures. There may be ways to economize, but Japan’s overall non-social security expenditures (which include defense) are already among the lowest in the Organization for Economic Cooperation and Development (OECD).

If shifting resources from other programs to defense is unlikely to provide the necessary funds, what about increasing revenues? Japan’s tax revenue as a percent of GDP was 34.1 percent in 2021, roughly average for the OECD, behind much of continental Europe but ahead of the United States, Australia, South Korea, Canada, and others. The Japanese government could raise taxes – this was, of course, Kishida’s inclination to achieve the increase to two percent of GDP – but tax increases are no more popular in Japan than in other democracies. In the aforementioned Yomiuri Shimbun poll, only nine percent supported tax increases to pay for already announced defense spending increases, and the prime minister’s plan remains in limbo. The other major revenue source would be deficit spending. It is not a coincidence that the most enthusiastic supporters of modern monetary theory in Japan are conservatives who want to use deficit spending to expand defense expenditures. Here, for example, is Nishida Shōji arguing that deficit spending is the only way for Japan to raise defense spending. Meanwhile, in June 2022, conservative Takaichi Sanae argued that Japan should increase its defense spending to JPY 10tn (USD 66.73bn) and pay for it with short-term deficit spending.² Using deficit spending to pay for defense spending increases, however, is only slightly more popular than using tax hikes. The Yomiuri poll found that only 13 percent support deficit spending for defense. An Asahi Shimbun poll conducted in December 2022, shortly after the current spending plan was announced, found that only 27 percent approved of deficit bonds for defense, with 67 percent opposed.

It may be difficult for the Japanese government to avoid at least some deficit spending as it increases defense spending to around two percent of GDP. And there may well be justice in borrowing from future generations to meet present-day challenges. But the difficulty the Kishida government has faced in determining a fair, politically sustainable plan for raising defense spending from one to two percent of GDP suggests that it would be at least as difficult, and likely even more, to add another percentage point of defense spending. And that is before taking into account that until now, the Japanese government could essentially borrow for free. With the Bank of Japan’s determination to normalize monetary policy – raising interest rates and reducing its purchases of Japanese government bonds – the government will face higher borrowing costs in the coming years and fiscal hawks will argue strongly against relying on deficit spending for national priorities. The right wing’s arguments that the government should pay for higher defense budgets with deficit spending – a hard sell when the BOJ fixed long-term rates at around zero – are less likely to succeed with interest rates rising.

Administrative capacity

Even if the Japanese government could resolve how to pay for an additional 40 billion dollars of defense spending on top of what it already plans to spend, there are significant questions about the ability of the Ministry of Defense (MOD) and the Self-Defense Forces to absorb this spending on a compressed timeframe, given that Colby is referring to imminent threats.

The Japanese government is already struggling to recruit enough civilian bureaucrats and uniformed Self-Defense Forces personnel as the population ages and shrinks and the defense establishment tries to compete with private employers for scarce workers. The SDF is already struggling to meet its recruitment targets. In FY2023, it inducted only 9,959 members compared to a target of 19,598. The SDF is also facing a growing number of personnel leaving its ranks each year. While the defense establishment is looking to AI and unmanned vehicles to meet its requirements – see this interview in June with former administrative vice minister of defense Kuroe Tetsurō – these technologies will not necessarily replace people. Even if Japan were to increase defense spending and buy more planes and warships, it would still need to be able to recruit sufficient numbers of pilots and sailors to use them. While perhaps higher defense budgets could provide for higher salaries and better facilities for SDF personnel, the government is not necessarily doing this in current defense spending plans. It is not too long ago that the Japanese public disparaged SDF personnel as “tax thieves.” If budgets surged – particularly at the expense of other ministries and spending programs or social security – it is conceivable that the public’s tolerance for the defense establishment could be limited, particularly if the kind of misconduct revealed by recent MOD and SDF scandals – bribery charges, poor information security practices, and cases of harassment and abuse within the ranks – continued.

Public opinion

Ultimately, the deciding factor for any increase in defense spending will be the Japanese public’s willingness to support it and the measures required to pay for it. Japan is a democracy, and if the Japanese people and their representatives decide that they should dramatically increase defense outlays, then they should do so. But it is not for me, other experts, or the US government to make that decision for them.

Contrary to Colby, I think there is a strong argument to be made that the Japanese people are sensitive to the dangers Japan faces. For example, in the Foreign Ministry’s survey on public attitudes towards foreign policy conducted in March, 84.2 percent said that the East Asian security environment had become either greatly (51.3 percent) or somewhat (32.9 percent) more severe in recent years. The even-larger survey conducted by the Yomiuri Shimbun in February and March found that 84 perecent feel that Japan’s national security is threatened strongly (31 percent) or somewhat (53 percent).³ 62 percent of respondents said that they are concerned about North Korea’s nuclear and missile programs; 59 percent cited China’s growing military power and maritime advances. 91 percent said that they strongly (58 percent) or somewhat (33 percent) feel that China threatens Japan’s national security, compared with 87 percent who say the same about North Korea and 88 percent who say they see Russia as a threat. Meanwhile, 71 percent agreed that Japan should strengthen its military power and 53 percent approved of increasing defense spending. More than eighteen months after the three national security documents, the public broadly concurs with their assessment of Japan’s security environment and the steps that should be taken to deal with it. A majority approves of raising defense spending by a 53 percent to 42 percent margin. Even the acquisition of strike capabilities, which in the not-too-distant past would have been unthinkable, is strongly (24 percent) or somewhat (33 percent) supported by 57 percent of respondents.

Perhaps the public’s unwillingness to support significantly larger defense budgets is a matter of revealed preferences. That certainly seems to be what Colby is suggesting. But, as the previous sections suggest, these fears do not exist in a vacuum. The Japanese government must weigh the risks – and the cost of investing in military power, i.e. an insurance policy – against other political, economic, and social priorities. It must also weigh the costs of additional defense spending against other policies, including external balancing (strengthening ties with the US and Japan’s growing list of “quasi-allies”) and diplomatic engagement with China to manage the risk of war. Maybe the risk of war – and the costs to Japan if China were to launch a successful invasion of Taiwan – are so great that Japan should fundamentally alter its national priorities to deter China or prepare for war with it. But, to return to revealed preferences, for all that the Japanese government is concerned about China’s military power, trade between Japan and China was USD 266.4bn in 2023. The two governments, as well as the LDP and the Chinese Communist Party, are gradually working to put the bilateral relationship on a more stable, constructive footing. Maybe it is naïve and unlikely to succeed over the long term, but the Japanese government and the Japanese people have opted to find a way to live with a threatening neighbor, increasing their military power while pursuing political and economic engagement. This approach may be more difficult to achieve than in the past, but Tokyo is clearly not ready to abandon it. As Abe Shinzō wrote in his posthumous memoir:

Simply countering threats does not fulfill one’s political responsibility. The Chinese market is large. Even as Japan’s economy grows, it cannot afford to sever its relations with China. The art of politics is to manage security challenges, while changing the value of China’s market into an opportunity on the economic front (p. 288).

Conclusion

Given the challenges Japan has faced in simply raising its defense spending to two percent of GDP – let alone the challenges it would face in reaching three percent – it would be deeply unrealistic for any US administration to lean on Japan to reach a specific target for defense spending. As the LDP’s Ishiba Shigeru argued when the two-percent goal was announced in 2022, “It’s fine if the detailed accumulation of necessary expenditures exceeds two percent of GDP, but it is clearly wrong if the order is based on the sum of money first, without indicating the substance or the funding sources.” If the US government is going to urge Japan to spend more on its own defense, it should encourage it do so based on its defense spending requirements, not on an arbitrary target that may or may not be suitable for Japan’s needs, consistent with a realistic assessment of its resources and administrative capacity, or supported by the public. A strategy that fails to conform to political realities will be unsustainable and do little to enhance regional deterrence.

The US government has encouraged Japan to spend more on its own defense since virtually the moment the Occupation ended in 1952. Now that the Japanese government is doing that – with the support of the Japanese people – US officials would be wise to encourage their Japanese partners to pursue new defense capacities in a politically and fiscally sustainable way. If Colby and others are so concerned about the military balance in East Asia, they will find a way to work within Japan’s political constraints — which are looser than they have even been! — instead of wishing Japan were different.

1. I had not previously heard of it, but apparently Viewpoint is a monthly published by the Sekai Nippo, owned by the Unification Church-affiliated News World Communications that also owns the Washington Times.

2. For more on the conservative embrace of deficit spending, see my previous post: https://observingjapan.substack.com/p/japans-conservatives-have-learned.

3. 2074 respondents.