Hard Choices: Japan’s Defense Buildup

On October 12, a major international aerospace exhibition opened in Tokyo. The Japan International Aerospace Exhibition 2016 remained open until October 15, offering a combination of lectures and trade shows. On the eve of the exhibition, Reuters distributed a report that highlighted the aspiration by some in Japan to develop the indigenous fighter (dubbed F-3) to replace the F-2. 

The surfacing of the debate regarding the F-3 suggests that deliberations surrounding the next Mid-Term Defense Program (MTDP), Japan’s five-year acquisition plan, may be underway in earnest. The current plan, which began in FY2014, will have to be replaced by a follow-on plan before FY2018 ends in March 2019. With less than six months remaining to the end of FY2016, one can certainly expect the debate on shaping the next MTDP, in and outside of the Japanese Ministry of Defense (JMOD), to take shape in the coming months. 

Under the next MTDP, one will certainly see a clear direction for the F-3 program. In fact, what to do with the F-3 – or whatever the Ministry of Defense decides for the future structure of its airpower – is one of the hard choices that will present themselves as JMOD considers the force posture that best enables the Japan Self-Defense Force (JSDF) to be equipped to meet security challenges and conduct its mission.

Since the JSDF was first established as the National Police Reserve in 1950, its missions have steadily diversified. Sixty-six years later, while the JSDF’s highest priority remains the defense of Japanese territory, its activities have expanded beyond what can be narrowly defined as “national defense.”  Today, the JSDF has a long history of conducting humanitarian assistance/disaster relief operations abroad; has sent forces to take part in coalition operations albeit with limited troop numbers and mission scope; and has participated in peacekeeping operations under the mandate of the United Nations. At home, as the days following the 2011 Great Eastern Japan Earthquake made clear, the JSDF has proven to be a reliable organization when catastrophic disaster – either natural or manmade – hits Japan. 

As the scope of their activities evolves, their force posture has also had to adjust from a static garrison force to a more agile force that can be operational in an expeditionary environment. Such an adjustment, underway since 2004, has become more complicated and challenging in recent years, as Japan rediscovers itself to be in an increasingly destabilized neighborhood in face of assertive China and unpredictable North Korea. Put simply, today’s JSDF must not only be capable of demonstrating a credible deterrence vis-à-vis the security challenges in its own neighborhood, but also capable of conducting more diversified missions away from the homeland. 

The need to conduct diversified missions has driven the JSDF to turn to technologically advanced platforms and equipment, resulting in an acquisition list that is composed of high-ticket equipment.  Ballistic Missile Defense (BMD)-related capabilities, F-35A fighters, Global Hawk, E-2D, and MV-22 are some of the items whose acquisition processes have either begun or are ongoing under the current MTDP. And the list of high-end equipment Japan looks to acquire is expected to grow even further in the next MTDP, including a replacement for retiring F-15s and amphibious assault vehicles (AAVs).   

The problem for Japan is that these acquisition needs have been running up against the stagnant defense budget. Despite the reversal of the downward trend in Japan’s annual defense spending since Prime Minister Shinzo Abe came into the office, Japan’s defense budget is not increasing enough to recover the loss over the previous 10-plus years, either. Even with the three-year consecutive increase under Abe’s watch, for example, FY2016 nominal defense spending is still less than in FY 2008, and the size of the FY2017 budget request is only slightly more than Japan’s defense spending 20 years ago. In other words, while one can certainly make a case that Japan’s defense budget has finally recovered what it had lost during the country’s 20-year-long economic stagnation, it is hardly the case that Tokyo’s defense spending is on a robust growth path. Given the priority placed by the Japanese government on putting the national budget on a sustainable path, it is not realistic to expect Japan’s defense spending to dramatically increase, either.

In such a fiscal environment, Japan has hard choices to make in defense acquisition for years to come. The most difficult choice is on indigenous development, as it has a profound impact on Japan’s own defense industrial base. As Japan pursues more high-end equipment and closer interoperability with the United States, it has begun to purchase more JSDF equipment through foreign military sales (FMS). In the last couple of years, Japan’s FMS purchases jumped to close to 25 percent of its defense acquisition, raising serious concerns from Japan’s defense industry on its sustainability. The Japanese defense industry, with the JSDF its only customer, has been shrinking as Japan’s defense budget declined in the last 20 years. Even with the downward trend reversed, the increasing ratio of FMS in Japan’s defense acquisition continues to squeeze domestic industry. In other words, if left to its own devices, Japan may very well lose its defense industrial base, with the exception of limited capacity in repair and maintenance in the not so distant future. However, given the fiscal constraint, sustaining a full-spectrum indigenous defense industrial base is not only impractical but also not feasible. 

The Japanese government has been trying to reverse this trend in the past several years. Former Prime Minister Yoshiko Noda’s decision in December 2012 to exempt whatever contracts Japanese companies may receive under F-35 acquisition from the old export ban principles and Abe’s decision in April 2014 to establish the new Three Principles of the Transfer of Defense Equipment and Technology were both driven by the sense of urgency that, if not allowed to export and participate in international development programs for major defense equipment, the Japanese defense industry could become all but extinct. JMOD also established the Acquisition, Technology, and Logistics Agency (ATLA) in October 2015, with the mandate to support Japan’s defense exports, as well as facilitate investment in research and development in cutting-edge technologies that can be used for defense applications. The Ministry of Economy, Trade, and Industry (METI) has also been keen on encouraging Japanese companies that have dual-use technologies to explore national security-related collaboration with international partners, including the United States.  But all of these measures, while they may benefit the Japanese defense industry by opening door for export opportunities, take time to take root, and require effort to overcome bureaucratic and other hurdles both in the government as well as in industries.    

Japan’s next MTDP will be shaped as Japan grapples with these questions. Will Japan choose to allow costly development and acquisition programs simply for the purpose of maintaining an indigenous industrial base? Will it stop fighting the trend that favors FMS and redirect the focus of Japan’s industrial base as the most reliable repair, maintenance, and overhaul hub for U.S. systems in the Asia-Pacific region? Or will it choose the third way by identifying and investing in the technologies where Japan already enjoys advantages, and consolidate the industries that engage in other areas?

Needless to say, these are not the question that can be answered in one cycle of MTDP. But they are certainly the questions that Japan needs to begin to answer if it is trying to maintain a viable defense industrial base.