Japan’s big defense buildup hitting a fiscal and industrial wall

Japan’s ambitious military buildup is colliding with severe fiscal, supply-chain, and industrial headwinds just as regional security threats intensify. Multiple media outlets reported that Japan’s defense expansion under Prime Minister Sanae Takaichi faces major setbacks from surging procurement expenses, delayed US weapons deliveries, and domestic parts shortages as officials prepare to overhaul the country’s five-year defense program by year-end. A weak yen, inflation and supply-chain bottlenecks have driven up hardware costs, pushing the unit price of domestically built Kawasaki P-1 patrol aircraft up 50% to 46 billion yen (US$290 million) between fiscal 2023 and 2026, alongside sharp price hikes for US-made F-35 fighters, according to Japanese Ministry of Defense disclosures in August and a January Board of Audit report. Meanwhile, 118 US Foreign Military Sales (FMS) contracts worth 1.14 trillion yen ($7.2 billion) remain undelivered after at least five years, compounded by two-year delays on up to 400 Tomahawk cruise missiles caused by depleted US stockpiles following US operations against Iran. Domestically, salt-spray corrosion and spare-parts shortages have reduced the P-1 patrol fleet’s mission-capable readiness rate to roughly 30%, forcing the Japan Maritime Self-Defense Force (JMSDF) to cannibalize aircraft for components. As officials revise Japan’s three key national security documents to bolster deterrence and counterstrike capabilities, these procurement bottlenecks threaten Japan’s ability to meet its force-expansion targets within existing budget frameworks, prompting a strategic pivot toward unmanned systems like MQ-9B drones. At the May 2026 Shangri-La Dialogue, US Secretary of Defense Pete Hegseth demanded that US allies in Asia spend at least 3.5% of gross domestic product (GDP) on defense, stressing burden-sharing and warning against freeloading. However, Nikkei reported this month that Japan is unlikely to meet those demands and raise core defense spending to 3.5% of GDP — part of a combined 5% target modeled on NATO’s 2035 pledge — by fiscal 2031 because of competing domestic fiscal priorities and structural budget differences. According to Nikkei, securing additional funding is complicated by Prime Minister Sanae Takaichi’s plans for growth-oriented investments and a consumption tax cut, as well as a weak yen pressuring host-nation support costs. Furthermore, the report says Japan’s budgeting system lacks a clear distinction between core and related military expenditures, prompting officials to pursue independent standards that broadly include AI, economic security, and energy. The limited availability of Japan’s P-1 maritime patrol aircraft fleet may significantly affect its maritime surveillance capabilities, particularly in responding to China’s growing activities around the Senkaku Islands and in the Miyako Strait. A September 2026 report from the Japanese Ministry of Defense shows that around the Senkaku Islands, People’s Liberation Army Navy (PLAN) combat vessels maintain continuous operations, including contiguous-zone transits by frigates and a submerged Shang-class submarine, intelligence-gathering ship patrols, and a May 2025 territorial airspace intrusion by a China Coast Guard (CCG) helicopter. The report says Chinese warships, including the aircraft carriers Liaoning and Shandong, alongside manned and unmanned aircraft, increasingly transit the Miyako Strait into the Pacific. It also tracks Japanese defense press releases on Chinese naval transits through surrounding straits rising from 13–22 annually in fiscal 2011–2014 to 42–52 in fiscal 2022–2025, indicating sustained expansion. Looking at the reasons behind the sharp F-35 price hikes, according to the US Department of Defense’s (DoD) April 2026 F-35 Modernized Selected Acquisition Report, aircraft Average Procurement Unit Cost rose 3.69% — from $92.676 million to $96.099 million in constant 2012 dollars ($144.700 million in inflation-adjusted then-year dollars) — while total aircraft acquisition reached $316.705 billion ($446.664 billion then-year). The report notes that Engine Program Acquisition Unit Cost climbed 20.07% over the 2012 baseline to $26.402 million ($36.269 million then-year). It cites technical complexity across 55 Block 4 capabilities and Engine and Power Thermal Management Modernization as key cost risks. It also shows that contract variances reflect $1.17 billion in Technology Refresh 3 (TR-3) processor and display overruns, $723.9 million in Lot 15–17 scrap and material shortages, and $906.1 million in F135 engine inflation, supplier agreement hikes, and manufacturing complexities. That sharp price hike comes amid concerns about Japan’s aging fighter aircraft. A May 2026 Military Watch Magazine article mentions that the backbone of the Japan Air Self-Defense Force (JASDF) consists of early-1980s F-15J fighters that are now largely obsolete, while its smaller, early-2000s F-2 fleet suffers from lightweight airframes, short ranges, small radars, and low weapons payloads. The outlet adds that Chinese J-15B carrier jets overwhelmingly outmatched Japanese F-15s during two December 2025 encounters — incidents that Japanese defense disclosures confirmed involved Chinese fire-control radar illumination southeast of Okinawa — underscoring the widening sensor and avionics gap between upgraded Chinese carrier jets and Japan’s older interceptors. The report notes that while Japan relies heavily on a limited number of F-35 stealth fighters, major Block 4 upgrade delays undermine their combat potential, leaving Japan vulnerable as Russia deploys Su-57 stealth fighters near Hokkaido and China advances toward sixth-generation aircraft. Japan’s nascent counterstrike and missile defense capabilities may also be dented by increasingly scarce US stockpiles and limited production capability, on top of increasingly lean finances. A November 2026 report by the Center for Strategic and International Studies (CSIS) notes that in more than nine months of operations against Iran, the US has expended roughly two-thirds (1,596–1,697 units) of its prewar 2,330-missile Patriot inventory valued at $5 million per missile, compounded by transfers to Ukraine and a 1,600-unit allied backlog. Although the CSIS report notes that Lockheed Martin aims to scale output from 600 to 2,000 interceptors annually, allied competition for limited stocks delays US recovery until late 2029. Similarly, the report shows that US ships and submarines fired more than 1,100 Tomahawks — one-third of a 3,100-missile prewar stock, with each missile costing $2.5 million. It notes that because US orders averaged only 86 missiles per year over the past decade, stockpiles will not recover until early 2031, despite RTX’s push to reach 1,000 units annually. While Japan has been steadily preparing for a major defense industrial base overhaul, it faces steep challenges. In a May 2026 Foreign Affairs article, Matthew Finkel notes that the country’s defense industry faces structural limitations stemming from decades of underinvestment and a historic reliance on the Japan Self-Defense Forces (JSDF) as its sole, budget-constrained customer. Finkel points out that as a consequence, Japan’s defense sector suffers from acute shortages of engineering talent, insufficient production capacity, limited overseas sales experience, and cybersecurity vulnerabilities, requiring extensive retrofitting of critical manufacturing facilities. He also adds that Japan’s supply-chain reliance on China for military equipment components further complicates expansion. Furthermore, Finkel notes that because Japanese defense contractors operate mainly as small divisions within sprawling industrial conglomerates whose more profitable businesses depend heavily on Chinese markets, they may be reluctant to manufacture sensitive weapons systems. Unless Japan can rapidly unlock domestic industrial capacity, stabilize defense financing, and reduce its dependence on delayed US weapons systems, it risks a widening deterrence gap in an increasingly unpredictable Indo-Pacific security environment.