By EIJI ZAKODA/ Staff Writer
November 7, 2024 at 18:07 JST
An F-35A stealth fighter jet (Asahi Shimbun file photo)
The depreciating yen has swelled the Defense Ministry’s fiscal 2023 costs through a U.S. equipment procurement program by 123.9 billion yen ($801 million) more than initially anticipated.
The Board of Audit examined contracts totaling around $5.7 billion that were due for payment in fiscal 2023
Based on exchange rates set by the Finance Ministry at the time each contract was signed, the original total was estimated at 668.8 billion yen.
However, due to the weaker yen, an additional 123.9 billion yen was required.
From fiscal 2019 to 2022, the exchange rate hovered around 108 yen to 110 yen per dollar, so there was little difference between the initial contract amounts and final payments.
In fiscal 2023, however, the currency weakened to 137 yen per dollar, significantly increasing the payment amounts.
Contracts under the U.S. government’s Foreign Military Sales program, which allows the ministry to purchase defense equipment from the United States, do not account for currency exchange fluctuations, resulting in substantial foreign exchange losses.
While the Defense Ministry has not assessed the impact of currency fluctuations, the Board of Audit conducted such an assessment for the first time.
The ministry buys U.S.-made weapons and services, such as training, from the U.S. government.
Vessels and defense equipment are expensive and take several years from order to delivery, creating long-term financial obligations.
The government is ramping up the defense budget in response to concerns about China and North Korea.
With a focus on “fundamentally strengthening defense capabilities,” the fiscal 2023 budget hit a record of around 1.48 trillion yen in FMS contracts, including Tomahawk cruise missiles, F-35A stealth fighter jets and the latest SM-3 Block IIA missile interceptors.
Over the five years starting in fiscal 2023, the budget will reach 43 trillion yen, 1.6 times the previous size.
In fiscal 2022, the contracts affected by exchange rate fluctuations totaled 552.3 billion yen, but this amount swelled to 2.12 trillion yen in fiscal 2023.
“Appropriate disclosure is needed regarding the impact of exchange rate fluctuations on obligations for subsequent fiscal years,” the Board of Audit said.
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