On June 15, Japan abruptly suspended its plan to deploy the U.S.-developed Aegis Ashore air missile shield system with Defense Minister Kono Taro citing technical hardware setbacks and escalating costs. The decision was baffling for many security experts, for whom security policies are primarily linked to threats, given that North Korean denuclearization remains an unrealistic goal and Japan-South Korea relations are at an all-time low. And with increasing Chinese military escalations and a distracted yet pushy U.S. ally, the suspension of a core component of Japan’s defense seemingly could not come at a worse time.
But Japan’s decision, and general reluctance to pay the high costs for defense, should not come as a surprise. Regardless of the international security environment, different states have different tolerances when it comes to defense costs. For a rapidly aging country that has enjoyed peace and prosperity with a limited defense posture for the greater part of a century, it is difficult to justify a weapons system that costs ¥4 billion each time an interceptor missile is fired. The announced suspension has less to do with the regional security environment, but has much more to do with the larger trends that shape Japanese security policy in the postwar era.
The Aegis Ashore system is notoriously expensive, to the tune of $1 billion so far and the deployment of one of the two land-based ballistic missile systems was already facing significant resistance in Akita prefecture due to local opposition. Originally budgeted at $1.7 billion, total costs would eventually reach approximately $4.2 billion over the next 30 years. Like most Japanese defense procurement, the system was delayed and over budget and such high costs were always going to invite failure.
Japan itself lacks a robust indigenous defense industry that would keep costs down and improve system testing. Although the government loosened the Three Principles on Arms Exports in 2014 to increase international joint-development and strengthen the defense industry, Japan has a dearth of domestic manufacturers that would help the country wean itself off purchases from other countries – such purchases from the United States increased by 494 percent, reaching ¥701.3 billion in 2019.
Japanese manufacturers are reluctant to commit resources to defense from fear of being labeled a “merchant of death”
In 2017, Japan’s three largest military contractors, Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and Mitsubishi Electric, generated between only 2.6 percent and 9.7 percent of their revenue from Ministry of Defense (MOD) contracts while 9 of the top 20 contractors made less than 1 percent of their revenue from MOD contracts. Among the world’s top arms manufacturers, Japanese manufactures are a rarity. In the last 15 years, only 8 Japanese companies appeared among the top 100 – if the lists include Chinese companies, Japanese manufacturers fell to the last 3 spots among the top 100.
Japanese manufactures are mostly consumer-goods producers that are reluctant to commit resources to defense from fear of being labeled a “merchant of death.” Unlike the United States, where there is a pipeline from the top universities to the defense sector, Japanese manufacturers assign their top talent to less controversial and more profitable sections of the company. For most of the postwar era, Japanese manufacturers were essentially forbidden to export arms. Despite the new arms export principles, burdensome policies and unclear government guidance continue to constrain the industry. Consequently, the vast majority of arms sales come from the Government of Japan and defense expenditures rarely exceed a self-imposed informal cap of one percent of the GDP. Without significant growth potential, domestic manufacturers will simply not commit the resources required for innovation in the industry.
More broadly, Japan’s security policy is tied to enduring antimilitarist attitudes that have come to define the postwar era and Article 9 of the Constitution denies Japan the right to maintain war potential. Although the Japan Defense Forces’ very existence violates the text of the document, its spirit is upheld by the country’s reluctance to engage in international disputes, acquire nuclear weapons, and sell arms abroad. Japan’s reliance on the U.S.-Japan alliance and its investment in defense-oriented technologies is as much a reflection of the reluctance to be independently powerful as it is strategy. According to an annual NHK public opinion poll over 50 percent of the population is opposed to amending the Constitution in a way that would enable Japan to pursue a greater military role.
Since defense spending is capped at one percent, only economic growth can create the resources necessary to fund expensive defense programs. This growth is hard to come by, given the country’s demographics. Japan is home to the world’s first “hyper-aged” society in which 40 percent of the population will be over the age of 65 by 2065. The rapidly aging and declining population not only robs the Japan Defense Forces of much needed human resources (recruitment quotas have declined for 15 years) but it severely limits economic growth – between 1990-2018 the Japanese economy averaged only 1.1 percent growth . According to some estimates, had the labor force increased by just 1 percent annually (about the same as the United States), annual GDP growth would have more than doubled. With unemployment hovering around three percent, there is not much latent potential to tap into, unless Japan loosens its strict immigration policies.
This bleak demographic outlook not only weakens the economy but increases entitlement burdens. In 2019, social security expenditures accounted for 34.2 percent of government spending, more than double the amount in 1993. As one of the most highly-taxed countries in the world, there is little room for the government to extract resources from the public to fund its expensive defense programs.
There is little room for the government to extract further financial resources to fund expensive defense programs
The Aegis Ashore program was a risky venture from the onset due to high costs and local resistance. Akita Governor Satake Norihisa agreed that the suspension was “sensible”. Even proponents of the program, such as Defense Minister Kono, could not escape the reality that “pursuing the plan is not logical.”
Some may conclude that suspension of the program is a strategic recalibration and Japan is no longer lockstep with the United States concerning regional security. Japanese interests have not changed, but sober assessments of its ability to shoulder the costs will ensure that Japan will not make promises it cannot keep. A well-functioning alliance requires more than aligned interests but aligned expectations as well.