The yen’s collapse is forcing Japan to scale back a historic five-year, 43.5 trillion yen defense infrastructure initiative aimed at helping deter a potential Chinese invasion of Taiwan, sources told Reuters.
Since the plan was unveiled in December, the yen has lost 10 percent of its value against the dollar, forcing Tokyo to scale back its ambitious $320 billion defense procurement plan.
When it began formulating plans to buy weapons systems last December, Tokyo did so at an exchange rate of 108 yen to the dollar, last seen in the summer of 2021.
However, at the beginning of November this year, the exchange rate reached 151 per dollar. So on Tuesday, Japan’s central bank took a small step toward ending a decade of monetary stimulus that has supported the yen’s depreciation by changing controls on bond yields.
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Unlike large companies that do business overseas, Japan’s defense ministry does not hedge against currency fluctuations, testified one government official interviewed by the news agency. That means it has few resources to respond to the rising yen cost of Tomahawk cruise missiles and F-35 fighter jets.
At the same time, any sign that Prime Minister Fumio Kishida will receive less than expected for his military spending could raise concerns in Washington about his key ally’s ability to help contain Beijing, said Christopher Johnston, the team’s chairman. for Japan at the think tank Center for Strategic and International Studies:
“For now, the impact is modest. But there is no doubt that a long-term depreciation of the yen will force layoffs and delay key acquisitions.”
Kishida is the author of a project for the largest strengthening of Japan’s defenses since World War II as a “turning point in history.” According to official documents, the country’s spending in this direction is aimed at preparing for possible conflicts around its remote islands stretching along the edge of the East China Sea towards Taiwan.
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Tokyo also shares responsibility for protecting US bases on its territory, which Washington can use to launch counterstrikes against Chinese forces attacking the self-ruled democratic island.
In December, Kishida pledged to double annual defense spending to 2 percent of gross domestic product. The move to turn the war-denying country into one with the world’s third-largest military budget was considered improbable by analysts and lawmakers until two years ago, Reuters said, adding:
“That changed when Russian forces entered Ukraine in February 2022 in an invasion that Tokyo feared would embolden Beijing to strike Taiwan.”
In August of that year, China rekindled Japanese fears by conducting missile tests in response to the visit of then US House Speaker Nancy Pelosi to Taiwan. This came after months of increased Chinese activity in East Asia, including joint flights with Russian forces.
China, far from ruling out the possibility of using military force to bring Taiwan under its control, has expressed concern over Japan’s military spending plans, accusing it of exhibiting a “Cold War mentality” – a line also used in relation to the US .