EXCLUSIVE-Japan warns arms suppliers of deep order cuts as budget squeeze hits military buildup, sources say

Japan has warned defence contractors of deep cuts to expected orders as fiscal constraints threaten to scale back a military buildup that Prime Minister Sanae Takaichi's government says is needed to ‌counter China, four people familiar with the matter said. Finance ministry officials last week proposed spending between 50 trillion and 60 trillion yen ($313 billion to $376 billion) on defence over the five years starting in April 2027, the people familiar with the proposal told Reuters.

That would exceed the current 43 trillion yen five-year plan but ‌fall well short of the 80 trillion yen advocated by some defence officials and ruling Liberal Democratic Party lawmakers. The gap would leave Japan ‌short of its target of raising defence outlays to 2% of gross domestic product, according to Reuters calculations, as US President Donald Trump presses Washington's allies to spend more on their militaries.

The 2026 US National Defense Strategy calls for allies worldwide to spend 3.5% of GDP on their armed forces and a further 1.5% on broader security needs. The revised spending proposal could ⁠mean cuts ​by as much as half in planned ⁠purchases of some missiles and aircraft, including US-made F-35 stealth fighters, the people said.

The people spoke on the condition of anonymity because they were not authorised to speak to the ⁠media. "The advisory panel on security and defence has not yet discussed matters at that level of detail either, so I don’t think we are at a stage where ​I should comment,” Minister of Finance Satsuki Katayama told reporters when asked about the revised spending proposal.

The defence ministry did not immediately respond ⁠to a request for comment. SALES TAX

Finance ministry officials argue that a steeper increase would be difficult to fund alongside Takaichi's commitments to invest in economic growth and cut the sales tax on ⁠food, ​which would squeeze government revenue, three of the sources said. The sales tax cut would leave an annual 4.3 trillion yen revenue shortfall that Takaichi would need to fill through other funding sources, potentially including foreign exchange reserves.

The finance ministry's defence proposal, however, is likely to face resistance from security ⁠hawks in Takaichi's party, setting up a clash over how much Japan can afford to spend to bolster its defences. "A contingency could occur at any ⁠time. If the goal is to build ⁠the capabilities necessary to deter and prevent such a contingency, a figure in the 50-trillion-yen range is out of the question," one ruling party official familiar with the discussions said, requesting anonymity because of the sensitivity of the issue.

($1 = ‌159.6400 yen)