Japan Has No Decision on How to Finance Higher Defence Spending

Japan has not yet determined how it will finance a possible increase in defence expenditure, Finance Minister Satsuki Katayama said on Tuesday, October 20, 2026, as the government evaluates its future security requirements and the resources needed to meet them. Her remarks came amid reports that a higher corporate tax could be considered as one option for supporting the country’s planned military spending expansion.

Speaking at a regular news conference in Tokyo, Katayama said the government had not settled on any particular funding mechanism. She explained that officials were still examining the defence capabilities Japan would need and calculating the appropriate level of expenditure required to develop them.

The finance minister’s comments indicate that decisions on financing remain open as the government works through the broader questions surrounding its defence strategy.

Kyodo News reported on Saturday that an additional increase in corporate taxation had emerged within the government as a potential way to pay for a planned expansion of the defence budget. The report, which cited several government sources, also suggested that Japan’s annual defence expenditure under its forthcoming five-year strategy could rise beyond 10 trillion yen.

That projected amount would represent an increase from the approximately 9 trillion yen allocated for the current fiscal year. If annual spending exceeds 10 trillion yen, the government will need to determine how to finance the additional requirements while establishing its priorities for national security.

The difference between the current allocation and the reported future spending level highlights the scale of the potential expansion. However, the figures remain part of the reported outlook for the next five years rather than a confirmed funding decision announced by Katayama.

The United States has urged Japan to raise defence expenditure to 3.5% of gross domestic product (GDP), arguing that this level should become a global standard for its allies.

The US pressure adds an important international dimension to Japan’s budget discussions. Any move towards the proposed spending level would require Japanese policymakers to consider both the country’s defence requirements and the financial arrangements needed to support a larger military budget.

For the government, determining the amount of defence spending is only one part of the process. Officials must also consider how additional expenditure could be funded, including whether changes to taxation or other revenue measures might be necessary. Katayama’s statement made clear that these questions have not yet produced a definitive outcome.

A possible corporate tax increase has attracted attention because it could provide an additional source of government revenue. Nevertheless, the finance minister’s remarks offered no confirmation that businesses would face higher taxes to cover the planned expansion. The government is still assessing the capabilities it needs before deciding on the appropriate spending level and how that expenditure should be financed.

The timing of the discussions is significant as Japan prepares its defence strategy for the coming five years. The reported possibility of annual spending exceeding 10 trillion yen suggests that the country could allocate substantially more resources to defence than it does under its current fiscal-year budget.

However, the final budget and its funding arrangements will depend on decisions that have yet to be announced. The government has not identified a specific financing method, and the corporate tax proposal remains a reported possibility rather than an established policy.

Katayama’s comments therefore leave two central questions unresolved: how much Japan will ultimately spend on defence and where the additional money will come from. The answers will shape the government’s approach to expanding its military capabilities while determining the financial burden associated with its security plans.

 Based on currency conversion that exchange rate, the reported annual defence spending level of 10 trillion yen would be equivalent to approximately $63.08 billion. For now, Japan’s authorities are continuing to assess the scale of the defence expansion before committing to a funding strategy. With pressure from Washington to increase military expenditure and reports pointing towards a larger five-year defence budget, the government’s eventual decisions on spending and taxation will remain important developments to watch.