Japan Defence and Security Report Q2 2008

Japan's internal and external security situation did not change significantly moving into 2008, with the country facing a range of strategic uncertainties. Much of this stems from the country's evolving security identity and the strategic role it will play in the Asia Pacific. Japan's re-evaluation of its security identity has been prompted by changes in government, as well as external factors, such as the increasing presence of China in regional military and security issues. Japan has started to engage on a more substantive level with China, as reflected in a meeting between the two respective heads of state in Q108. During the meeting, Japan and China committed each other to greater co-operation on security issues. Moreover, Prime Minister Fukuda stated that he would not visit the controversial Yasukuni shrine. However, there is still much ground for Japan and China to cover, as demonstrated by the lack of progress made on the dispute over the East China Sea gas fields during the talks.

In the first quarter of 2008 the Japanese Ministry of Defence (MoD) requested a 0.74% increase for the 2008 budget, at US$41.427bn. If it is approved, the defence budget will reach 1% of the country's GDP and approximately 5.6% of 2008's estimated total. This is a shift away from previous budgets, which have hovered around the 0.8% of GDP mark. Expenditure patterns remained largely unchanged, with procurement only receiving some 20% of the total defence budget and personnel costs accounting for up to 45%. The recent push to improve the defence capability of the Self-Defence Force may lead to that composition changing, with a higher percentage of funds going towards acquiring and upgrading military hardware. In Q108 the Japanese Ministry of Defence requested funding for F-15 Mitsubishi/Boeing fighter aircraft as part of the 2008 Fiscal Year budget. The upgrade is likely to cost somewhere in the region of US$1.08bn.

The Japanese defence industry, officially part of the heavy industries, is dominated by giants such as Mitsubishi. The industry's unique structure is underpinned by Article 9 in its Constitution, which prohibits Japan from having a fully developed armed force and defence industry However, there are likely to be substantial changes in the coming quarters, as indicated by the shifts in Japan's diplomatic position.

The government is moving forward with plans to produce the PAC-3s missiles indigenously at the cost of JPY10bn, with Mitsubishi Heavy Industries (MHI) initially awarded the contract in 2005 to produce the PAC-3s missiles. In the fourth quarter of 2006, BMI's arms exports forecast for Japan remained unchanged, with Japan importing more arms.