Japan warns arms suppliers of deep cuts to expected orders due to budget squeeze, sources say

Key Points:

• Japanese officials have warned defense contractors of significant cuts in planned orders due to fiscal constraints, with proposed defense spending for 2027-2032 set between 50 trillion and 60 trillion yen, below the previously expected 80 trillion yen.
• The reduced budget could lead to cuts of up to half in missile and aircraft purchases, including US-built F-35 stealth fighters, impacting major domestic contractors like Mitsubishi Heavy Industries, Mitsubishi Electric, and Kawasaki Heavy Industries.
• The proposed spending falls short of Japan's target to raise defense outlays to 2% of GDP and contrasts with US calls for allies to spend 3.5% of GDP on military forces, amid concerns over China's growing military power and potential conflict over Taiwan.
• Finance Ministry officials cite challenges in funding a steep defense increase alongside Prime Minister Sanae Takaichi's economic growth investments and a planned sales tax cut on food, which would reduce government revenue by 4.3 trillion yen annually.
• The lower defense budget proposal is expected to face opposition from security hawks within the ruling party, highlighting tensions over how much Japan can afford to spend to strengthen its military capabilities.