Japan's Weakened Yen Drives Up Defense Costs by 40-70%

Japan's defense procurement costs have skyrocketed due to a weak yen and rising inflation. The country's Defense Ministry has released an interim assessment showing that prices for major defense equipment under the current five-year plan have risen between 40% and as much as 70%. This increase has raised concerns that Japan may not be able to secure the necessary equipment to strengthen its security and defense capabilities as planned.

The Nikkei reported on May 30th that the prices of major defense equipment, including the U.S.-made F-35B fighter jet, have increased significantly. The F-35B has risen by about 35% to 24.2 billion yen ($164 million) per unit this year from 17.9 billion yen in fiscal 2023. Japan's P-1 maritime patrol aircraft jumped 50% to 46 billion yen from 30.5 billion yen.

The increases have attributed to inflation and the weaker yen. Japan's domestic corporate goods price index, which tracks raw material costs for Japanese companies, rose about 17% to 134.5 in May of this year from an average of 114.9 in 2022. The exchange rate, which stood at 108 yen to the dollar when the procurement plan was drafted, surged to a range of 157 to 163 yen last month.

The buildup program sets a five-year total for defense spending, and higher unit prices mean fewer items can be bought with the same budget. When annual budget increases fail to cover the higher costs, procurement is pushed back, and that is already happening. The Maritime Self-Defense Force had planned to budget for 12 escort vessels over five years but has funded only eight through fiscal 2026.