Dr. Sheila Smith on Japan’s Increased Defense Spending

Sheila A. Smith is a John E. Merow senior fellow for Asia-Pacific studies at the Council on Foreign Relations (CFR). An expert on Japanese politics and foreign policy, she is the author of Japan Rearmed: The Politics of Military Power, Intimate Rivals: Japanese Domestic Politics and a Rising China, and Japan's New Politics and the U.S.-Japan Alliance. She is also the author of the CFR interactive guide Constitutional Change in Japan. Smith is a regular contributor to the CFR blog Asia Unbound and a frequent contributor to major media outlets in the United States and Asia. Smith joined CFR from the East-West Center in 2007, where she directed a multinational research team in a cross-national study of the domestic politics of the U.S. military presence in Japan, South Korea, and the Philippines. She was a visiting scholar at Keio University in 2007-08, where she researched Japan’s foreign policy towards China, supported by the Abe Fellowship. Smith has been a visiting researcher at two leading Japanese foreign and security policy think tanks, the Japan Institute of International Affairs and the Research Institute for Peace and Security, and at the University of Tokyo and the University of the Ryukyus. Smith is chair of the Japan-U.S. Friendship Commission (JUSFC) and the U.S. advisors to the U.S.-Japan Conference on Cultural and Educational Interchange (CULCON), a binational advisory panel of government officials and private-sector members. She teaches as an adjunct professor at the Asian studies department of Georgetown University and serves on the board of its Journal of Asian Affairs. She also serves on the advisory committee for the U.S.-Japan Network for the Future program of the Maureen and Mike Mansfield Foundation. Smith earned her MA and PhD from the political science department at Columbia University.
Bryan Jed Soh '25 interviewed Dr. Sheila A. Smith on on February 10, 2023.
Photograph and biography courtesy of Dr. Sheila A. Smith.

How significant is Japan’s plan to double its defense spending in the next five years? Is there anything missing in Japan’s new national security strategy.

Japan is doubling the percentage of GDP dedicated to defense, and as you know, Japan is the third largest economy in the world, so even 1% of Japanese GDP is not a small number. South Korea's defense budget is roughly about the same as Japan's in absolute terms, but of course South Korea's economy is smaller. So you can see that among our allies, Japan and South Korea and Asia in general, there is an enhanced sense that investment in defense capabilities is required, given the regional tensions. It is a significant move by Japan to signal that it feels it needs greater military capability. 

Let me just point out that on the defense spending side, it's an aspirational goal based on NATO principles. Japan's government has taken a very careful look at the NATO goals, what it means in NATO to aspire to 2% of defense spending, and what kind of spending categories are included in that. Japan is not only looking to their neighbors like South Korea, but also to NATO in terms of thinking about, as an U.S. ally, what is the kind of precedent that's been set in terms of burden sharing within the military sphere. 

The defense plan is striking in a couple of ways. The big headline issue is counter-strike capability, this idea that Japan will extend the reach of its missile capability to be more strategic in terms of the depth that it will reach into the continent of Asia. For Japan's neighbors, that's a little bit of an eye-opener, but in reality, it has been a conversation inside Japan and with the United States for over a decade now. It's not a surprise among the planning community or among people like myself who follow Japanese defense debates, as it's been on the table for quite some time. What's more interesting is how much Japan’s defense plan has focused on technological innovation, and the investment in domestic technology. So it’s not only ramping up research and development in the military sphere, but also its productive capacity. That is an aspect that doesn't grab the headlines as much with regards to this defense plan, but it is a very important indicator of Japanese thinking about what is missing and what needs to be amplified going forward. The defense plan also addresses a lot of issues that may seem small, but they have to do with re-invigorating the focus on whether the Self-Defense Forces are ready to fight. This marks a different era for Japan’s Self-Defense Forces. In addition to the exercises with the United States, there's going to be a new joint operational command. The structure of the three services will be integrated so that they can effectively operate in a crisis or, in the worst case scenario, a war. Lots of attention is also being paid to the nuts and bolts of resiliency, where the Russian invasion of Ukraine has highlighted the sustainability aspect of military preparedness. This includes basic things like fuel, ammunition and the hardening of shelters that will allow the Japanese Self-Defense Forces to continue operating in the event of a conflict. A comprehensive thought process has gone into this defense plan and it is clear that the Japanese Defense Ministry is thinking more and more about not only peacetime readiness, but also the potential for readiness in conflict. For those reasons, this is a pretty revolutionary document on both the funding and implementation sides. Its feasibility will all come down to the politics of implementation.

Japan’s initiative to increase its defense budget spending depends largely on the public’s willingness to finance, technologically develop, and manufacture the necessary military developments, especially in air and missiles. How does Japan’s government plan to overcome these potential obstacles?

The fiscal question is the first piece, determining where the money would come from. Prime Minister Kishida made an unfortunate bid to introduce this idea of having a defense tax even before announcing the three strategic documents, which caused some confusion regarding the plan. However, it's hard to raise taxes in any democracy. Japanese voters in the past have really severely punished prime ministers who have tried to do that, so it will be a pretty tough fight on how to fund it. At the moment,  it's a package of three different approaches. Some of it will be deficit funding (bonds and investments), some of it will be redirected revenue from the Japanese government, and then the third is this question of putting forward a new defense tax. Long-term fiscal health is the reason that these three different revenue streams were discussed by the Kishida cabinet. Even within the Liberal Democratic Party, there has been quite a spectrum of opinions over this, with most pushback on the idea of a defense tax coming from within Kishida’s own party. The Ministry of Finance will therefore be a key player, but so will some of the politicians in the LDP, as well as the Japanese public when they go to the polls. 

The second piece of the puzzle is whether Japan can actually afford it. Leaving aside the three different ways of generating revenue, doubling the percentage of your GDP dedicated to defense is quite the zero-sum game. So what are the other aspects of the Japanese budget that are going to be sacrificed? Japan can plan for economic growth but it's not the highest growing economy in the world. It has demographic challenges. The post-pandemic period also presents significant obstacles. China is struggling and a lot of Japanese economic growth depends on trade and investment with China. There are a lot of factors that might inhibit a robust economic recovery for Japan. Therefore, finding revenue streams is largely a mechanical problem; the real larger question is about sustaining Japanese economic growth over the long run, which will be a critical piece of the policy mix. The context within which the Japanese government will have to think about its budget allocations is very important. A footnote is that doubling this GDP percentage is expected to be done within the next five years, which is a very specific time frame attached to this aspiration, and with that a lot of pressure on the Kishida cabinet moving forward.

As for indigenization, there's a couple of big projects and one of the big pieces is fulfilling Japan’s need for a support fighter jet. Instead of buying that off the shelf, they want to have a consortium to build it, which will be led by Mitsubishi Heavy in cooperation with companies in the U.K. and Italy, which is new. Instead of the U.S., Japan is going to European manufacturers  to be the main partners in this consortium. It will also be the first time where you have a Japanese company taking the lead on building a jet fighter aircraft, support or otherwise, despite Japan not having a strong background in jet engine technology. The British – Rolls Royce and others – will be stepping in here to help, but it's ultimately a Japan-led consortium.

The second place where the indigenization process is focused is missile technologies. Japan has short-range coastal defense missiles (100 to 200 miles), so it is purchasing for the ground forces in Japan. The Air Force is relying on Norwegian missiles, which will be on the F-35s, that have a longer range of 300 to 400 miles. While Japan will purchase American Tomahawk cruise missiles in the first five years to be deployed on their best naval vessels, Tokyo has the ambition beyond that to indigenize missile development in addition to its dual-use technologies, such as submarine technology, where Japan is one of the best in the world. 

The larger question, though, is, “What does this mean?” Is Japan hedging because it’s not quite sure whether it will have access to American/other technologies? In the short-run, it is a reflection of what's going on in the region. The Russians, the Chinese, and the North Koreans obviously have their own programs. In response, South Korea has indigenized missile development to a certain extent, having test-launched an SLBM missile that was developed with indigenous technology. This is going to be something for which the Japanese will feel that they can't rely solely on imported technologies, and that they must develop their own technologies and production capacity. Those are the two pieces to this puzzle: technological development and sustainable productive capacity.

In the context of a crisis or war, indigenous production would be critical to the resilience of the Self-Defense Forces. The irony is, though, that Japan's defense industry is undergoing a transition. There are a number of small- and medium-sized companies that have had niche capabilities – and each a role in the defense sphere – that are starting to exit from the market. This is a problem for Japan because, in contrast with the U.S., Japanese defense production is largely done by civilian companies. They don't have the Grummans and the Lockheed Martins. The American defense industry is defense and defense and defense, and companies are very focused on that. However in Japan, it's probably 1-3% of the profit from any given company. Even Mitsubishi Heavy, probably the largest company engaged in defense production, has a maximum profit margin of 10%, depending on which weapon is being procured at the time. Therefore, it only relies partially on defense contracting for its profitability. There will be a private sector reorganization and the question here is: to what extent will this new defense plan start to incentivize either the consolidation of smaller companies into larger groupings, or perhaps the introduction of new companies organized around new technologies? The government needs to incentivize private sector investment in the capabilities that Japan needs down the line.

In terms of military capabilities, what should we make of Japan’s plan to develop long-range strike weapons that can hit targets in China and North Korea? How dependent is Japan on the US to determine the conditions under which it will strike back, and would it require Japan to develop integrated command structures with the US military?

That's the heart and soul of the homework for the alliance moving forward. At the moment, the Japanese have framed their desire for counter-strike capabilities in the context of the proliferation of North Korean capabilities. Two decades ago, Japan invested solely in ballistic missile defenses that were acceptable to the Japanese public because it was a defensive system where nobody thought that anybody would be lobbing missiles in the direction of Japan.

But as we can see, from the last decade or so, not only has North Korea enhanced its capabilities, but the ability to overwhelm Japan's ballistic missile defense system has been clearly demonstrated. Japan has reached the conclusion that ballistic missile defenses alone are insufficient to deter aggression, whether from North Korea, China or any other country that has ballistic missile capability. The idea is that should force be used against Japan, having a long-range missile that can retaliate will complicate the calculus in Pyongyang, or potentially in Beijing. It will deter any kind of gratuitous aggression against Japan. It is always important to emphasize that it is not a nuclear counter-strike, but a conventional one. Nevertheless, this will complicate the way we think about the deterrent force posture between the United States and Japan. 

For most of the post-war period, there has been a notion that the United States is the sword while Japan is the shield. In other words, the Self-Defense Forces are territorially organized to defend Japan, while the U.S. maintains the strike, in which case its nuclear and conventional strike capabilities can come into play. Japan’s new defense posture muddies that picture. Once the capability acquisition process is moving forward, the two governments need to talk not just at the operational level, but also at the political level about how to integrate fighting force capabilities into a unified model of warfighting, either for the defense of Japan or beyond. This is complicated given the domestic debate in Japan that really restricts the use of force by the Self-Defense Forces to Japan's right of self-defense. There is also a complicated political question of a different order regarding who is going to initiate the use of force, and how it is going to be integrated in a wartime scenario. Those are tricky questions, but they are not being addressed yet. In the defense documents, Tokyo is more focused on incorporating its own three forces into an integrated operational command. Once that is accomplished and sufficiently robust, the Indo-Pacific Command and the Japanese Self-Defense Forces will be able to talk specifics about how and when force gets used. Nevertheless, there still remains the politics of getting the heads of state to order strikes, not the commanders in the field. These are larger politics than just the operational necessity of combined commands; it is also the political question of who in the end will make the final decision about the use of force and under what circumstances.

China already sees Tomahawk missiles in Japan as a threat to the region’s security and to China’s itself. While Japan’s increased defense budget spending might be intended as a defensive countermeasure in response to the rise of regional threats, could its potential provocation of neighbors present more of a threat rather than protection to Japan’s security? How can Japan avoid this security dilemma?

The security dilemma is rarely preventable. What we think is necessary for our defense stimulates our adversaries or other neighbors to take actions to counter our capabilities. You already see the security dilemma in action as we speak. The action-reaction dynamic is particularly challenging when there has been a diplomatic freeze or lack of diplomatic dialogue between not only the United States and China, but also Tokyo and Beijing. It is clear to me that there are several layers going on here that will make the decision makers in Tokyo quite sensitive. One is obviously Chinese power, and the way the Chinese have been using that power, especially maritime power in Japan's Exclusive Economic Zone and contiguous waters. That is compounded by the fact that there is a territorial dispute over the Senkaku/Diaoyu Islands in the East China Sea. These disputes could trigger responses by the coast guards and/or militaries, if not carefully managed. The Russian invasion of Ukraine has also caused Japan to join with other G7 countries to sanction Russian aggression, while Russia has put Japan on the “unfriendly list of nations,” which had an impact. It has also increased the way in which the Russian forces in and around Japan have been operating since then. Just last year, there were two fairly large Russia-Chinese combined exercises around the Japanese archipelago. 

There is therefore the reality that there are more militaries working to put pressure on Japan. Chinese and Russians have worked together to demonstrate that if there was a conflict, Japan shouldn't think that would just come from China; it would have Russia in the north as well. Here Japan is trying to complicate the calculus of Beijing and Pyongyang, while Beijing and Moscow are trying to complicate Japan's calculus. The U.S. definitely has to make sure that Tokyo and Washington will be on the same page on crisis management, should anybody make a mistake or if there were inadvertent escalatory dynamics that could, if not managed carefully, lead to a conflict. The new challenges in not only capabilities and power, but also in the circumstances under which states will be sensitive to other states’ use of force makes for very difficult crisis management in the alliance and beyond in the region. We need an awful lot of attention to risk mitigation and diplomacy. But right now, that's not what we have.

Critics have pointed out that the US might be using Japan as a forward operating base in its containment strategies of China, which would threaten to drag Japan into a potential US-China conflict, especially over Taiwan. Japan’s recent military pact with the UK also potentially involves another global power in regional tensions. Is there a widespread consensus in Japan at both the elite and public levels that confronting China is a risk worth taking?

Since the end of the Cold War, there has been a gradual Japanese public anxiety about the intentions of not just China, but of the CCP in particular, which I wrote a book about in 2015. There are food security tensions, trade tensions, maritime boundary disputes, the island disputes and the coast guard clash that happened in 2010. Japan has also reacted to the way in which the Chinese military has advanced its capabilities in staging exercises in the vicinity of Japan. Tokyo is well aware of China's rising willingness to use its military to assert its interests in territorial disputes and in maritime border differences, but the public is also alert to the fact that the long-term challenge to Japan is really going to be China. While it is partially a military threat, a lot of it has to do with public bitterness on both sides about history disputes and their interpretation of the past. The Japanese public have also been closely watching the way that the Chinese behaved in Hong Kong and their pressure on Taiwan, as well as the consolidation of power under Xi Jinping. There is a lot of work to do on the diplomatic front coming out of this pandemic during which leaders didn't meet in person for three years, especially as Xi Jinping didn't leave the country. 

There are also strategic tensions between the U.S. and the PRC, while Europe and the U.K. are also increasingly worried about Russian behavior in Europe and also the way in which China is asserting itself in contradiction to established maritime norms. European powers are more and more interested in Indo-Pacific affairs not because they have interests specific to the region, but because global norms are being challenged in the Indo-Pacific. It's very interesting to watch Japan engage in more strategic relationships, not only with the U.K., but especially with Australia. Security cooperation between the Australians and Japanese has moved in leaps and bounds to the effect that the Self-Defense Forces will be training in Darwin, northern Australia. This will happen with other countries in the EU, as well as the Quad with Japan, United States, India and Australia. There are a lot of new diplomatic groupings that are networks because of the rising concern that the norms of international rules are being challenged. Unfortunately, the Russian invasion of Ukraine has only highlighted that concern about the future of the world and how everybody needs to build a coalition in defense of the basic norms. It is also a very fluid moment where Japan has become a very active player in diplomacy and coalition-building, not just on the military side, but on the economic and the ideational side – the ideas and normative underpinnings of the way we think about the world. We are definitely going to see a much more activist Japan that is going to continue to have a huge stake in how the norms of the post-war era are being challenged by both Russia and China, so stay tuned.

Bryan Jed Soh '25Student Journalist

海上自衛隊, CC BY 4.0 <https://creativecommons.org/licenses/by/4.0>, via Wikimedia Commons

Share this:

Leave a Reply

Your email address will not be published. Required fields are marked *