The economic trap of Japan's relaxation of arms exports

Editor's note: Cai Guiquan is an associate research fellow at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce. The article reflects the author's opinion and not necessarily the views of CGTN.

The Japanese government has revised the implementation guidelines of the Three Principles on Transfer of Defense Equipment and Technology and has fully eased restrictions on the export of lethal weapons. This move is less a simple security policy adjustment than a reflection of deep coordination between the defense industry and policymaking. Under the goal of national security, relevant arrangements objectively exert notable impacts on domestic economic structure and fiscal resource allocation. The move also alters, to some extent, the long-standing tradition of arms export control that Japan has upheld since the end of World War II. Given the slow growth of Japan's auto industry, tight labor supply, and an economic structure that lacks resilience, continued expansion of defense capabilities and adjustments to arms export policies have triggered extensive discussions and prudent doubts across the Japanese society.

Expanded defense spending raises fiscal sustainability risks

Japan's public finance has long been trapped in a vicious cycle of repaying old debts with new borrowings. Fiscal fragility has become increasingly prominent. Data from Statista shows that Japan's government debt accounted for 206.53 percent of GDP in 2025. According to The Japan News, its total national debt has exceeded 1,342 trillion yen ($8.46 trillion). Nikkei reported on April 17 that Japan's Ministry of Finance stated that interest payment expenses on government bonds may increase to 45.2 trillion yen in fiscal year 2035, more than three times that of 2026. Thus, the country's fiscal sustainability faces severe challenges.

Against this backdrop, Japan's defense budget has grown for 14 consecutive years. It surged from 6.8 trillion yen in fiscal 2023 to 9.04 trillion yen in fiscal 2026, an increase of more than 67 percent in four years. The government led by Sanae Takaichi has moved forward the target of raising defense spending to 2 percent of GDP to 2025.

Biased resource allocation to defense industry weakens overall competitiveness

Japan's relaxation of arms exports represents a major adjustment to export control principles since 1967. It also reflects the practical demand of the defense industry to seek development space. Japan's defense industry has long been plagued by structural defects, including small scale, diversified production, high costs, and overreliance on a single customer. Easing exports is essentially a way to find overseas outlets for inefficient production capacity.

Some enterprises, such as Komatsu and Sumitomo Heavy Industries, have partially withdrawn from the defense sector. The defense industrial supply chain has shown a shrinking trend, while large enterprises continue to receive large-scale defense-related orders. Share prices of Mitsubishi Heavy Industries, IHI, Kawasaki Heavy Industries, and Mitsubishi Electric have risen several-fold since late 2022. This growth comes not from notable improvements in market competitiveness but from sustained government orders. In fiscal 2024, Mitsubishi Heavy Industries and Kawasaki Heavy Industries obtained defense orders worth 1.46 trillion yen and 638.3 billion yen, respectively. These large orders are accompanied by improper collusion between defense companies and the Self-Defense Forces. As Nikkei reported, Kawasaki Heavy Industries has long raised off-book funds through fictitious transactions and provided meals, supplies, and even game consoles as personal gifts to members of the Maritime Self-Defense Force. Major companies, including Mitsubishi Heavy Industries, have also participated in such interest conveyance. Twelve leading Japanese defense companies provided more than 220 million yen in political donations to the Liberal Democratic Party's political organization in 2024, as reported by a Japanese news outlet. Supported by favorable policies and capital investment, companies including Mitsubishi Heavy Industries, Mitsubishi Electric, and Toshiba are increasingly shifting their focus to military businesses. Japanese citizens have warned that these companies are turning into "merchants of death."

In sharp contrast, Japan's pillar auto industry continues to slump. Toyota, Honda, and Nissan are facing operational difficulties. Affected by tariff shocks and shrinking market share, Japan's top seven automakers suffered a combined loss of up to 1.5 trillion yen from April to September 2025, as Nikkei Asia reported. A sluggish transition to electrification has further dragged down their international competitiveness. Concentrated government investment in the defense sector stands in contrast to the challenges faced by Japan's pillar civilian industries. The balance of its industrial structure has aroused public concern.

Imbalance between defense input and livelihood security

The government led by Sanae Takaichi  has placed relaxed arms exports and doubled defense budgets at the core of its national agenda. On the one hand, more than 100 billion yen in tax revenue will be allocated from the Defense Equipment Transfer Facilitation Fund to projects including warship exports to Australia. On the other hand, the government will raise income tax by 1 percent from January 2027 to further boost defense funding, while simultaneously lowering the Reconstruction Special Income Tax for the Great East Japan Earthquake by the same rate, as reported by The Japan News. These measures stand in sharp contrast to the 32.1 billion yen deficit of national university hospitals in fiscal 2025, as reported by a Japanese medical media outlet, and the tight supply of public services.

Further attention should be paid to the fact that military expansion and arms sales policies run counter to public opinion. A nationwide mail-in poll by The Asahi Shimbun showed that 67 percent of the respondents oppose allowing Japan to export lethal weapons. Japan is stepping up weapons exports to Australia, the Philippines, Indonesia, and New Zealand. This move effectively integrates Japan into the US-led global arms supply chain and fuels regional arms races. Civil groups have expressed widespread concern that Japanese weapons may flow into conflict zones and cause civilian casualties. The deployment of long-range missiles in Shizuoka, Kumamoto, and other regions without sufficient explanation has triggered continuous public protests.

All these facts indicate that the Japanese government is tying the country's destiny to the chariot of military expansion and arms sales. The government persists on a dangerous path amid worsening livelihoods, public opposition, and rising regional risks. Economic, social, and security risks are accelerating.

Conclusion

Japan's relaxation of lethal weapons exports and expanded defense investment have brought multiple challenges, including fiscal sustainability, a balanced industrial structure, livelihood security, and regional stability. Against the backdrop of prominent debt pressure, urgent demand for industrial transformation, and heavy livelihood burdens, how to balance security, economic development, and public well-being has become an important issue for Japan. Overreliance on debt expansion to support defense spending and excessive resource allocation to the defense industry may aggravate risks in economic and social operations. Returning to a path of steady economic development, livelihood priority, and peaceful cooperation, while adapting to changes at home and abroad, is more conducive to Japan's long-term stability and sustainable development.