Japan’s Ministry of Defense (MOD) released its fiscal year 2027 budget request in early August. At approximately 9.3 trillion yen – a 3.8 percent increase from FY2026 – it is the largest defense budget request in the country’s postwar history.

Predictably, all the attention has been paid to the size of the request, particularly the fact that the it is the highest in Japan’s postwar history. The topline number definitely matters, especially because it allowed Japan to hit the 2 percent of the Gross Domestic Product (GDP) target it set for its defense spending ahead schedule. 

It is also noteworthy that the request has been followed by a couple of decisions that attracted little attention but are potentially consequential in Japan’s attempt to revitalize its defense industrial base. At the end of August, MOD announced a plan to acquire former Nippon Steel industrial sites in Kure, Hiroshima and turn them into mixed-use facilities that the government can lease to defense companies. In mid-September, Mitsubishi UFJ Bank, one of Japan’s megabanks, also announced new, more lender-friendly guidelines for financing defense firms. 

This series of steps come as Japan finalizes the revision of its National Security Strategy (NSS), National Defense Strategy (NDS), and Defense Buildup Plan (DBP), which are slated to be released in December. Together, those documents will set the course for Japan’s national security policy over the next five years. As such, the FY2027 budget request offers a preliminary look at how these documents likely to take shape.

The request’s most notable feature is its emphasis on a “new way of fighting” (atarashii tatakai-kata), followed by operational sustainability and the industrial and personnel base. Across these categories, the MOD identifies nine priority areas for investment, including artificial intelligence, uncrewed systems, stand-off – or counterstrike – capabilities, space, cyber, sea-lane defense, the defense industrial base, and personnel. Investment in all of these areas is much overdue. 

The request also appears to seek a better balance between what Japan calls shomen sobi (frontline equipment) and koho (the logistics and support systems that keep a force operating) in the budget allocation. Finally, it makes an explicit effort to harness emerging technologies such as AI and uncrewed systems. 

In many ways, the FY2027 request could be a precursor to a genuinely transformational effort to strengthen Japan’s defense capabilities, if fully implemented.

At the same time, however, the request also reminds us of the challenges in executing such transformation. Nine priority areas is a lot. In other words, with this many so-called “priorities” running concurrently, Japan risks spreading its investment too broadly and too thinly. All nine areas require substantial spending, and not only in the initial stage – the investment needs to be sustained over many years to come. At a time when the government faces intense pressure to lower taxes, a basic question remains: does Japan have the fiscal capacity to fund all of them at the necessary scale?

A persistently weak yen makes the problem worse. Japan’s defense budget has risen steadily since FY2013 when Prime Minister Abe Shinzo returned to office. The increases accelerated after FY2023. But the impact of the increase is far less impressive when measured in dollars. The yen’s declining value, particularly since 2022, has eroded Japan’s purchasing power, especially for equipment and components that are imported. In other words, the label “largest defense budget in postwar history” obscures the extent to which currency depreciation can and has offset that budget increase’s real impact.

To be fair, the current government did not create this predicament. The reality is that Japan has been struggling to address the consequences of decades of underinvestment, including years when the yen was much stronger. For example, from FY2000 through FY2012, Japan’s defense spending remained largely flat even as China began to accelerate its military modernization. Put simply, Japan failed to invest when it could more easily afford to do so.

This forces Tokyo to try to recover those lost years while confronting mounting pressure from China, the impact of closer alignment among China, Russia and North Korea, and uncertainty about the long-term reliability of the United States’ defense commitments to its allies, including Washington’s capacity to uphold such commitments. As such, Japan must pursue two difficult goals at once: reverse the hollowing out of its defense force while racing to catch up with its China, its principal strategic threat.

In fact, Japan is not the only country which finds itself in this predicament. Other U.S. allies also spent years deepening economic ties with China in the hope that interdependence would discourage Beijing from using force to change the status quo, while making modest investment in their own national defense. They now face their own versions of the same reckoning underway in Japan.

Japan’s FY2027 request is therefore both encouraging and sobering. It shows that Tokyo finally seems to be grappling with the scale of the transformation required – from emerging technology and munitions to logistics, industry, and personnel – and has begun genuine efforts in tackling them. That said, in order for Japan to leverage this request to begin this strategic turn, it will also need to identify a roadmap to protect funding and ensure that every additional yen is set to be used most efficiently to contribute to these priorities. 

The FY2027 budget can jump-start Japan’s real defense transformation. Whether it actually does, however, will depend on the choices that follow.