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A 10% drop in the yen since December has forced Japan to spend on defense, Reuters reported.
The currency’s decline has increased the price of U. S. -made weapons that Japan plans to acquire.
In response, Japan is prioritizing front-line weapons and spending less on systems.
Japan is scaling back plans for the biggest military buildup since World War II after a weak yen pushed up the price of U. S. -made defense equipment, sources told Reuters.
When the $320 billion budget plan was first announced in December, its estimated value was based on an exchange rate of 108 yen to the dollar, according to the report. But since then the currency has fallen more than 10%, falling to 151 yen at the start of the week.
And because the Defense Department doesn’t hedge against foreign currency volatility, it has to assume higher prices for high-profile acquisition systems such as the F-35 stealth fighter and the Tomahawk cruise missile, according to the report.
In response, Japan is prioritizing spending on U. S. -made frontline weapons, which would be in danger of colliding with China, sources told Reuters.
Compensation is less effective for secondary equipment, such as aircraft. For example, the planned order for 34 twin-rotor Chinook transport helicopters was reduced to 17 in next year’s budget request, given that their payload has increased by about five billion. yen each. Approximately some of this accumulation is due to the weakness of the yen.
And the acquisition of two US-2 seaplanes from ShinMaywa Industries was also ruled out, and the value of the aircraft almost doubled from 3 years ago.
The historic military buildup comes as a reaction to emerging geopolitical tensions that are forcing America’s best friend to prepare for any potential showdown with China.
At the same time, the yen’s decline is a result of Japan’s ultra-loose financial policy, while the country’s record returns have reduced its competitiveness relative to other global markets. This is because other central banks, such as the Federal Reserve, have more hawkish attitudes. , making foreign assets more attractive.
Although the Bank of Japan recently eased its yield curve (a one-time measure that limited the rise in yields), analysts warned that this was not enough. In a recent note, Deutsche Bank noted that the yen’s volatility would continue until the central bank raises interest rates and abandons its quantitative easing campaign.
Since the beginning of this year, the yen has plunged 12% against the dollar.
Read the article on Business Insider