Dollar Dominance and the Crisis of Japan's Dependence on American Military Equipment

The yen's depreciation against the US dollar this year has plunged to its lowest level in 40 years, undermining Japan's plans for the biggest military reshuffle in its post-World War II history. Japan's currency issue comes at a sensitive time.

With the depreciation of the Yen against the Dollar, Japan's cost of importing military equipment, mostly American-made, such as helicopters, submarines and tanks, has increased significantly.  In 2022, Japanese Prime Minister Fumio Kishida announced a new national security strategy that calls for more than doubling defense spending to ¥43 trillion over five years, equivalent to about $319 billion at current exchange rates.

Kishida described the increase in defense spending at the time as a "turning point" in Japanese history. But the problem is that the budget was prepared assuming that $1 would be equivalent to 108 yen. But now, $1 is sold for 161 yen. With the depreciation of the yen, the cost of equipment such as helicopters, submarines and tanks has increased significantly. Historically, the weak yen has helped major Japanese exporters such as Toyota Motor by making their products cheaper and more competitive abroad. But it also makes imports expensive. The government's efforts to purchase military equipment are an example of how such higher costs are straining the Japanese economy.

The yen's depreciation over the past three years has also pushed up prices of basic goods such as food and fuel in Japan, affecting household spending. The yen's plunge this year to a 40-year low is undermining Japan's plans for the biggest military reshuffle in its post-World War II history, according to the New York Times.

The Japanese government has reduced aircraft orders and officials have warned that further reductions are possible in the near future. Japan imports most of its military equipment, much of which it buys from American companies in dollar-denominated transactions. The government’s purchasing power has been significantly reduced by the yen’s depreciation.

Former Japanese Defense Minister Satoshi Morimoto said in an interview: "There is a gap between what we currently have in terms of defensive capabilities and our main goal."