From Tokyo to Ankara: Is Japan’s Military Future in Turkey’s Hands?

Strategic Overview

• Japan sits at the geographical chokepoint for Chinese access to the Pacific Ocean and is a crucial part of the island chain defence containment strategy put into place by the United States (US) to prevent Chinese power projection across the Pacific. Chinese militarisation of the East China Sea, North Koreas unpredictable nature and the Russian threat to the North have prompted Japan to undergo a radical shift to increase its military spending to 2% by 2027, levels not seen since the late 1950’s.

• This mirrors the mentality now being embodied by Japanese policy makers who wish to take more responsibility for ensuring Japanese security. Many countries, who once relied on Washington’s security guarantee, now question its reliability which was the foundational pillar of American soft power.

• But with a stagnant economy, the highest levels of debt globally, the oldest population in the world, and a dangerously strong perfectionist culture that resists innovation means this is not just a budgetary problem; it is a strategic trilemma.

• How do you finance a military build-up without triggering a debt spiral, devaluing the yen, or diminishing household purchasing power? In this Cordoba Capital note, we unpack the hidden macro forces shaping Japan’s defence ambitions and argue that the key to solving this trilemma may lie not in Tokyo, but in Ankara.

Japan’s Macro Trilemma: Debt, Inflation, and Decline

• If Japan wants to double its military spending, then they will need massive fiscal expansion. However, with a stagnating economy and weak growth, this will likely be debt-financed which will mean issuing more bonds. This is highly problematic for Japan because they are currently the country with the highest levels of debt, reaching 216.3% of their GDP in October 2024.

• If markets begin to doubt Japan’s ability to manage its debt, yields could spike as investors demand a risk premium. That would crowd out private investment, choke off future productivity, and tip the economy into a spiral of stagflation. This happens because higher government borrowing drives up interest rates, making it more expensive for businesses to access credit, which reduces private sector investment, slows innovation, and limits the productive capacity of the economy even as inflation rises. Japan already spends a large proportion of its tax revenue to service its existing debt at low interest rates. Monetary tightening via interest rate hikes is a tool Japan cannot afford to use. Even a modest rise in rates could trigger a funding crisis through high debt servicing costs and crowding out public spending, making inflation management much harder. This is especially dangerous in an aging society, where welfare and pension costs are rising.

• Despite these risks, Tokyo is unlikely to scale back its defence ambitions. The perceived threat from China and North Korea to the east, and Russia to the north, means that security imperatives will override fiscal caution. As a result, Japan will almost certainly resort to creating more yen to fund its military build-up. This monetary expansion will push up prices and risks triggering demand-pull inflation, as households with more money to spend drive demand beyond what the economy can supply. Fast-growing economies can outgrow inflation because they can create enough goods to meet the consumers desires. Japan however will not be able to because of 4 main factors that limit its economic growth.  It hosts the oldest population in the world, low productivity, cultural perfectionism and low immigration which leads to little innovation and weak labour force expansion.

The Short-Run Illusion and The Cost Push Threat

• In the short run Japan’s demand-pull factors may not be the main source of inflationary pressures. This is because of the frugal spending culture which suppresses money velocity, meaning that money does not circulate throughout the economy which mitigates inflation.

• This can be reflected through Japan’s household savings rate, which despite following an overall downward trajectory are at exceptionally high levels among global standards. Even among younger generations, consumption remains restrained and is driven more by necessity rather than impulse or lifestyle. Thus, even if households were to have more money, it might not necessarily be injected into the economy, dampening inflation.

• But Japan is not free from demand-pull inflationary pressures in the long run. As more people retire and contribute to Japan’s ageing population, the share of household’s spending increases. But this money is not going into high-multiplier, productivity-enhancing investments. It’s being used on services that are domestic such as healthcare, and goods like food and medicine. These households will inject their savings back into the economy via this consumption. Thus, while Japan may suppress demand-pull inflation in the short term, its ageing population will increasingly channel savings into low-productivity domestic consumption, such as healthcare and basic services. This simultaneous rise in spending and fall in productivity growth risks creating an economy of stagnant output alongside rising prices, fuelling long-run inflationary pressures without delivering real economic gains.

• Yet even if Japan manages to contain demand-pull inflation in the short term, as the government issues more bonds to fund its defence build-up, it remains vulnerable to cost-push inflation through currency depreciation. A depreciating yen raises import prices whilst worsening Japan’s trade balance, particularly in energy and commodities. Unlike export-driven economies, Japan cannot export its way out of this due to stagnant innovation and global competition. This introduces a deeper structural risk, Japan’s economic model of low inflation and stable living standards built upon stagnant wages could unravel. If inflation rises without corresponding job creation or income growth, the result will be a fall in purchasing power and mounting domestic backlash to increased public spending.

• However, the deeper constraint isn’t just monetary issues, it is Japan’s aged population. As a result, the future of Japanese defence will not be manpower, but machine power. This demographic reality pushes Japan toward unmanned warfare including drones, AI, and autonomous systems. Tokyo may attempt to ramp up domestic R&D but it faces structural barriers. Japan’s defence industry remains traditional and slow to adapt as it is held back by a perfectionist design culture which favours legacy platforms like fighter jets over agile, next-generation systems.

Cordoba’s View: Ankara Answers the Call

• As the US’s strategic ambiguity grows, Japan must think like a middle power in the world order that is capable of hedging and building alternatives. Turkey, often overlooked in the Indo-Pacific calculus, could take a vital position in this new defence architecture.

• Turkey’s low-cost, high-performance drone innovation enters the picture. The Bayraktar TB2 has transformed modern warfare by offering affordable and scalable unmanned capabilities. Its success has been demonstrated in multiple conflict zones. In the 2020 Nagorno-Karabakh war, Bayraktar drones gave Azerbaijan decisive air superiority, shifting the battlefield balance. In Ukraine, TB2s were used to target Russian convoys, naval assets, and air defences which disrupted Moscow’s momentum in the early stages of the war. While their effectiveness diminished as Russian air defences adapted, the impact remained clear, drone warfare is no longer supplementary, it is foundational.

• This is why a strategic realignment could emerge as Japan needs affordable unmanned tech. It also wants to diversify away from dependence on the U.S. amid doubts about American resolve in Asia. Turkey offers exactly what Japan needs, and at the right price point. This does not mean that they will fully rely on Turkish drones, but it is one feasible pathway for Japan to engage with innovative advanced military technology cheaply, whilst developing new strategic partnerships.

• Japan faces a profound strategic predicament; how does it double its military spending without triggering either a debt crisis or an inflation shock. With an aging population, stagnant economy, and cultural barriers to innovation, Japan cannot simply outgrow its debt like younger economies might. It must spend but spend smartly and with its domestic defence sector constrained it Japan likely means moving toward unmanned military capabilities. If so, it appears they will look abroad, and Turkey may emerge as an indispensable and strategic partner. In a multipolar world, Japan’s defence future may not lie in Washington or even Tokyo, but in low-cost drones flying out of Ankara.