Japan Proposes Record Defense Budget for Fiscal Year 2026 Amid Strategic Realignment

Japan's Ministry of Defense has submitted a record budget request of ¥8.8 trillion (approximately $60.2 billion) for fiscal year 2026, marking a 4.4% increase from the previous year's request. This significant proposal underscores Japan's strategic pivot to bolster national security in response to evolving regional dynamics and is a key component of a broader five-year plan aiming to elevate defense spending to 2% of its Gross Domestic Product (GDP) by 2027.

Central to the proposed budget are initiatives to modernize and enhance Japan's defense capabilities. Over ¥200 billion is allocated for the "SHIELD" initiative, a comprehensive coastal defense system integrating unmanned vehicles across air, sea, and underwater domains, slated for operational readiness by the end of fiscal 2027. This move reflects lessons learned from the effective use of unmanned systems in recent global conflicts. Additionally, ¥1.25 trillion is designated for advanced missile defense systems, including the construction of two Aegis-equipped warships scheduled for deployment in 2027 and 2028. The development of hypersonic guided missiles is also prioritized, with ¥80 billion requested for this purpose, alongside ¥75 billion for joint development with the United States on glide-phase interceptors, anticipated for deployment around 2030.

This collaboration with the U.S. on glide-phase interceptors aims to counter the growing threat of hypersonic weapons, with Japan contributing to rocket motors and propulsion components. This joint effort builds upon previous successful collaborations, such as the development of the SM-3 Block IIA missile, and is considered crucial for strengthening regional deterrence. The budget also includes ¥1.7 billion for equipping two Aegis destroyers with Tomahawk cruise missile launch capabilities.

To finance these substantial defense outlays, the Japanese government plans tax increases, including a 4% corporate tax surtax and a tobacco tax increase commencing in April 2026, followed by a 1% income tax surtax from January 2027. These adjustments are projected to generate an additional ¥1 trillion in government revenue annually, starting in fiscal year 2027.

The strategic rationale behind this significant defense expansion is rooted in Japan's assessment of escalating regional security challenges, particularly the expanding military presence of China. The "SHIELD" initiative, for instance, is designed to deter potential invasions and protect Japan's southwestern periphery. Experts note that this proactive approach to defense modernization, including investments in unmanned systems and hypersonic technologies, reflects a broader geopolitical shift in the Indo-Pacific, with the collaboration with the U.S. on advanced missile defense underscoring the deepening security alliance.