Asia
Pakistan boosts defense spending by 17% amid tensions with India
Pakistan has significantly increased its defense spending in its latest budget, citing growing security demands following recent military tensions with India. In contrast, development spending has been curtailed to meet the fiscal discipline conditions set by the International Monetary Fund (IMF).
On Tuesday, Pakistan announced its budget for the 2026 fiscal year, which begins on July 1. The total expenditure is set at $62 billion, with $29 billion allocated for debt financing. The most notable development in the budget is the allocation of $9 billion for defense spending, an increase of approximately 17% from the previous year.
This move comes as Pakistan reassesses its military preparedness following recent conflicts with India. In the four-day conflict that began on May 7, 51 people were killed on the Pakistani side, while at least 16 lost their lives on the Indian side.
Experts have noted that the increase in defense spending was inevitable.
“In Pakistan, the most serious conflict with India in several decades will certainly create an incentive to increase defense spending,” South Asia analyst Michael Kugelman told Nikkei Asia. “The public’s support for efforts against India gives civilian and military leaders the political space to take these steps,” he added.
Some believe the government should allocate even more to defense. One group advocating for this is Tola Associates, a tax advisory and consulting firm. In a recently published budget report, the company stated that defense spending should be increased by 32%. “Due to the state of war with the neighboring country and the recruitment of new army personnel, it is recommended that the defense budget for the 2026 fiscal year be increased to $10 billion,” the report noted.
Other experts argue that the issue is not just about how much the total defense budget will increase. “India’s defense spending remains nearly nine times that of Pakistan,” Syed Muhammad Ali, an Islamabad-based security analyst, told Nikkei. “This large gap indicates that Islamabad wants to deter India credibly and cost-effectively without engaging in a costly arms race in the region.”
Other officials and experts told Nikkei that Pakistan will focus on strengthening its air defense capabilities among its three armed forces.
“Pakistan will purchase HQ-19 missiles from China to strengthen its air defense against future Indian attacks,” a government official, speaking to Nikkei on the condition of anonymity, said. The HQ-19 is a Chinese-made surface-to-air missile system designed to counter medium-range ballistic missiles.
Kugelman said that Pakistan will make decisions on defense spending to strengthen weak areas revealed in the recent conflict, with such air defense systems at the top of the list. “India was able to deploy missiles and drones deep into Pakistani territory, and it did so quite intensively. This is a key area where we can expect some of the funding increase to be directed,” he added.
Ali also believes that air defense and related areas will be a priority. “Contrary to traditional land-air-sea warfare concepts, the role of air and space power, such as beyond-visual-range air combat, electronic warfare, drone warfare, missile warfare, and cyber warfare, is increasingly growing,” he said.
However, Pakistan’s budget is also under strict scrutiny from the IMF, which signed a $7 billion loan agreement with Islamabad last September.
“As Pakistan remains in the 37-month IMF program until 2027, the Fund plays a central role in shaping the budget,” Naafey Sardar, an assistant professor of economics at St. Olaf College in the US, told Nikkei. “Without the IMF’s approval, Pakistan cannot receive the financing tied to the program or support from other multilateral lending institutions,” he added.
“The IMF will push for stricter compliance and a broader tax base. This increases the likelihood of new tax hikes in certain sectors and limited relief for the salaried class,” he stated.
The IMF’s demand for strict budget implementation has led Pakistan to cut its development spending.
In the upcoming budget, Pakistan has allocated $3.5 billion for development expenditures, a sharp decrease of $1.4 billion from the previous budget.
“This cut will further hinder and potentially slow down significant social and infrastructure projects, especially since development spending has repeatedly been the target of budget cuts in recent years to meet IMF program objectives,” Sardar told Nikkei.
“In such a scenario, when the defense budget increases, the [development] budget allocated for health and education decreases,” said Tahir Naeem Malik, a professor at the National University of Modern Languages in Islamabad.
“With a population of 250 million, Pakistan has great needs in these sectors. This creates a contradiction: should the focus be on human development or on defense?” Malik asked.
Asia
Pentagon plans covert spy ring for economic war on China, report says
The US Department of War (Pentagon) is reportedly planning to establish an extensive network of deep-cover agents to wage economic warfare against China and other adversaries of the US.
According to a report by The Washington Post citing six sources familiar with the initiative, the plan has not yet been put into effect. The newspaper reported that the initiative remains at the planning stage. The Pentagon, however, denies that any such initiative exists.
The report said the operatives would pose as entrepreneurs or private sector employees while concealing their ties to the US government. The network’s mission would be to gather economic intelligence and counter China.
The programme is led by Tom Rakusa, who spent 39 years at the CIA. Rakusa serves as a senior adviser to Deputy Secretary of Defence Steve Feinberg.
The proposed spy network is seen as part of a broader policy by the Donald Trump administration to sharpen economic competition with other countries.
The US is already resorting to tariffs, export controls, and investment in strategic sectors, alongside expanding its economic intelligence gathering.
According to The Washington Post, the new initiative demonstrates the Pentagon’s growing influence under the Trump administration. The department is currently seeking a record budget of $1.5 trillion.
Trade war flares up again with Trump’s return to the White House
The trade friction between the US and China flared up again following Donald Trump’s return to the White House. In April 2025, Washington raised tariffs on Chinese goods to as much as 145%, and Beijing retaliated with tariffs of up to 125%.
In May, US Secretary of State Marco Rubio described China as the primary geopolitical challenge facing Washington. Rubio said that to avoid war, the two sides needed to manage their conflict of interests.
In July, Chinese expert Zheng Yongnian did not simply warn that underestimating the US could prove to be a “fatal mistake”; he stated it explicitly.
According to Zheng’s assessment, the US maintains its primacy through the role of the dollar, its military superiority, and its technological advantages.
Even so, the two sides agreed in June to declare a truce and lower tariffs. In autumn 2026, the US and China extended their trade truce until 10 January 2027.
US Treasury Secretary Scott Bessent said the extension would give the parties more time to discuss economic issues.
Trade deals do not eliminate the strategic contradictions between the two countries. Financial Times columnist Rana Foroohar likened the race between the two nations for commercial, technological, and geopolitical influence to the 19th-century “Great Game” between the Russian and British empires.
Foroohar cited China’s standing in shipbuilding and commercial maritime transport, as well as its expanding footprint in overseas ports, among its key advantages.
Asia
Japan plans curbs on short-term home sales to cool urban prices
Japan’s ruling Liberal Democratic Party (LDP) plans to restrict short-term property trading to rein in surging home prices in major urban centres, particularly Tokyo.
Led by Prime Minister Sanae Takaichi, the party aims to make support for working households a core priority ahead of local elections scheduled for April next year.
The LDP’s research commission on housing and land policy met on Wednesday to discuss the issue.
According to a report by the Nikkei Asia newspaper, Commission Chair and LDP lawmaker Midori Matsushima said at the opening of the meeting: “Prices of newly built condominiums across Tokyo’s 23 wards have doubled over the past decade. We must work on measures ensuring that people who wish to live in these homes can actually afford to buy them.”
Homeownership in the capital has become virtually unattainable for broad segments of the population. According to data from the Real Estate Economic Institute, the average sale price of a newly built condominium in Tokyo’s 23 wards rose %18.5 in fiscal 2025 compared with the previous year, reaching 137.84 million yen (around $872,000).
Meanwhile, statistics from the Ministry of Labour show that the average annual income of a full-time worker in the capital remained at 6.78 million yen in fiscal 2025. This widening gap between incomes and residential property prices is directly shaping political priorities.
During its campaign for the House of Representatives election in February, the LDP pledged to curb speculative transactions across metropolitan Tokyo and other regions. Earlier this month, a party project team focused on policies concerning foreign nationals also submitted a recommendation urging the government to introduce immediate tax measures against rising home prices.
Under current legislation, profits realized from properties sold within five years of acquisition are classified as “short-term capital gains”. These returns face a tax rate approaching %40, including income tax and local inhabitant tax.
Although this rate is twice the approximately %20 levied as “long-term capital gains” tax on properties held for more than five years, several party members argue it remains insufficient to deter speculation. Calls to tighten the framework may be considered as part of the annual tax reform package to be drafted in December alongside the LDP’s coalition partner, the Japan Innovation Party.
The ruling bloc wants to present concrete housing pledges to voters heading to the polls in April across numerous urban centres, including 22 of Tokyo’s wards where local assembly terms expire.
“We need to support families with children, who are typically at the stage of purchasing a home,” a senior LDP official said.
Opposition parties are also preparing alternative proposals that target not only prospective homebuyers, but also residents forced into the rental market by high property prices and now affected by escalating rents.
Tax steps take precedence over limits on foreign buyers
Several countries seeking answers to housing affordability pressures have imposed direct restrictions on foreign purchasers. In South Korea, real estate policies played a major part in the declining public approval ratings of President Lee Jae Myung.
In August 2025, authorities in Seoul introduced an approval requirement for foreign nationals buying homes in the capital and adjacent areas, while also mandating that buyers reside in the properties for at least two years.
Canada and Australia have enacted temporary bans on foreign residential purchases, while Singapore levies a %60 additional stamp duty on foreign buyers.
The role of overseas investors in Japan’s property market also drew debate during the February election. However, restrictions aimed directly at foreign nationals are viewed as potentially conflicting with international trade and services agreements.
Consequently, rather than imposing restrictions based on the nationality of buyers, the government is discussing tax measures aimed at speculative real estate deals, such as rapid resales.
Fears that sharp market measures could shake regional banks
Concerns have also surfaced that aggressive steps to force down prices could harm the wider national economy.
A senior LDP tax official cautioned that a steep drop in land prices could weaken local financial institutions, warning: “We must consider the impact on regional banks.”
The real estate sector accounts for roughly %18 of total lending by Japanese banks. This proportion sits well above the %10 level recorded during Japan’s bubble economy of the mid-to-late 1980s.
At certain regional banks, property lending accounts for nearly half of total loan portfolios.
According to March 2025 data from the Financial Services Agency, approximately one-quarter of all loans extended by regional banks to the real estate sector are concentrated directly in Tokyo’s five central wards.
Buoyant asset valuations, supported in part by rising stock indices, have underpinned strong public approval for the Takaichi administration. Observers note that property interventions designed to cool the market could drag down equity prices and weaken the government’s standing.
A senior official on the LDP research commission stressed that decision-makers must act with caution regarding the scope and timing of any measures intended to bring price increases under control.
Asia
South Korea plans $120B spend on eight US nuclear power plants
South Korea will spend $120 billion to construct eight nuclear power plants in the US under an agreement that provides for $350 billion in investments in exchange for lower tariffs.
The South Korean government also announced that Seoul and Washington will begin examining a liquefied natural gas (LNG) project in Alaska comprising a large-scale pipeline to transport natural gas from the north of the state to the south, alongside the construction of an LNG terminal for exports overseas.
Seoul stated that a decision regarding the LNG project will be made following a commercial feasibility study. However, US President Donald Trump said that South Korea would invest $54 billion in the project, pointing to an apparent lack of full coordination between the two sides on the matter.
Trade and Industry Minister Kim Jung-kwan said in a statement: “This announcement opens a new horizon of cooperation where the two countries join forces to develop joint commercial ventures in strategic areas directly linked to economic security and future sectors such as artificial intelligence, nuclear energy, and LNG.”
“We will adhere to the principle of prioritising national interests and investing solely in commercially viable projects,” Kim said.
Speaking at the White House, Trump characterised South Korea’s plans as “one of the largest energy infrastructure investments in American history”.
The announcement followed a meeting between Trump and South Korean President Lee Jae Myung roughly one year ago at the APEC Economic Leaders’ Meeting held in South Korea, where they agreed on the creation of a $350 billion investment fund.
Under that agreement, $150 billion was allocated to the shipbuilding sector and $200 billion to other sectors. In return, the US announced it would reduce tariffs imposed on goods imported from South Korea from 25% to 15%.
Under the nuclear power project, South Korea’s state-controlled utility will build two plants in the US, while Pennsylvania-based Westinghouse Electric will construct six plants.
According to the South Korean government, this will mark the first instance in which a foreign country builds its own nuclear power plants in the US.
South Korean firms are also evaluating the possibility of acquiring a stake in Westinghouse as part of negotiations over sharing profits generated by the project.
South Korea additionally announced that it will build a $22.3 billion natural gas-fired power plant in Texas with a capacity of 6,472 megawatts.
The facility will be designed to supply electricity directly to nearby data centres. The project’s first phase is targeted to begin commercial operations in 2029, with full-capacity operations slated for 2032.
Seoul also disclosed that it had agreed to allow the US to receive 50% of the profits generated by the projects until South Korea recoups all of its investments.
After South Korea fully recovers its total investment amount, 90% of the profits will go to the US.
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