彭博称日本考虑把中期防卫费目标提至GDP的3.5%，但属未正式承诺的长周期财政传闻

Japan is considering a new mid-term defense spending target of 3.5% of GDP in line with NATO and other US allies, a move that could send a shockwave through financial markets concerned about Prime Minister Sanae Takaichi’s spending plans.

Japanese defense officials have already signaled a willingness to sharply increase defense spending in meetings with their US counterparts, according to people familiar with the matter.

One scenario under consideration is to match a commitment made by South Korea to increase defense spending to 3.5% of gross domestic product over 10 years, according to the people. A lower target, such as 3%, is also possible, according to one of the people.

Like other US allies, Tokyo has been under pressure from the Trump administration to boost its defensive strength and reduce its reliance on the American military. Takaichi has already accelerated defense spending to almost 2% of gross domestic product in the financial year ended in March this year, two years ahead of schedule.

Until 2022, Japan had an informal cap on defense spending around 1% of GDP, an indication of how quickly thinking on defense has changed in recent years. A new five-year defense spending plan is expected at the end of this year. Committing to 3.5% could unsettle market players wary of large debt issuance, even though Takaichi has pledged to follow a “responsible, proactive fiscal policy.”

Borrowing costs for the Japanese government are rising with bond yields hovering near three-decade highs. The benchmark 10-year note’s yield hit 3% earlier this month for the first time since 1996, driven by concerns over inflation and fiscal spending as well as expectations the Bank of Japan may need to raise interest rates more quickly. The yield was half that level around this time last year.

US defense officials have largely avoided public pressure on Japan to commit to a 3.5% defense spending goal, but they have made clear that they expect significantly more investment.

“We are anxiously looking for Japan to step up,” US Under Secretary of Defense for Policy Elbridge Colby said last month of Tokyo’s defense spending.

In June, Takaichi’s ruling Liberal Democratic Party noted that 3.5% had become a global standard for defense spending, but didn’t provide recommendations on how Japan could pay for such a level of outlays.

In meetings between defense officials from both nations, Japan has indicated it will most likely align with other US allies but it has avoided discussing details, according to the people, who requested anonymity because of the sensitivity of the matter.

Some Japanese officials have said they aren’t ready to make a formal pledge and would deny the existence of such a goal if it was made public, according to these people. In public, Defense Minister Shinjiro Koizumi has said spending will be determined by military needs rather than monetary targets.

Japan’s Defense Ministry didn’t immediately provide a response to a request for comment. The Pentagon declined to comment.

Behind Japan’s caution over specifying a goal is concern over the amount of funding needed to reach 3.5%. When Japan set its 2% goal in 2022 it said it would continue to measure spending in comparison to GDP that year. Koizumi said in April that defense spending and related expenditures for this fiscal year of ¥10.6 trillion ($68.8 billion) were equivalent to 1.9% of nominal GDP in 2022.

Measured against the Cabinet Office’s nominal GDP forecast for this fiscal year, spending would come to 1.5%, he said. A budget of 3.5% using that forecast would amount to ¥24 trillion, more than double the current amount.

Spending 3.5% of GDP on defense has become a global benchmark for US allies since North Atlantic Treaty Organization members pledged last June to reach that level by 2035.

As a national security hawk and strong advocate of the US-Japan alliance, Takaichi has made clear she wants to further boost the military.

“Japan needs to proactively pursue a fundamental strengthening of its defense capabilities,” she said in parliament this year.

But she also has ambitious plans for the economy. This year Takaichi announced a growth plan targeting more than ¥370 trillion in combined public and private investment by 2040, a program that may strain the nation’s finances. Ramping up defense spending at the same time may test investors’ confidence in Japan’s ability to keep a lid on its debts.

After lifting its informal cap on defense spending in 2022, Japan has made significant investments in long-range strike capabilities such as land and ship-launched Tomahawk missiles. In its budget request for the fiscal year starting next April, the Defense Ministry requested a record ¥8.9 trillion for the next fiscal year, up 0.9% from the current year.

But many items in the budget request haven’t been given a projected cost, meaning the budget is likely to be much higher. Yen weakness has also eroded Japan’s spending power for weapons from overseas.

Read more: Japan Seeks Record Defense Budget as Takaichi Plans Buildup

Even if Japan commits to 3.5%, it would lag behind NATO countries. For NATO, the target is for so-called “core” defense spending, such as weapons and troop salaries. Members have also pledged an additional 1.5% of GDP for defense-related spending, such as protecting critical infrastructure.

Japan bundles core and non-core spending in its defense budget, meaning that it would be spending less on its military as a percentage of GDP than NATO countries even at 3.5% defense spending.

Robert Ward, Japan Chair at the International Institute for Strategic Studies, said the groundwork had been laid among policymakers and bureaucrats in Japan for a big jump in defense spending. It’s now mostly a matter of timing of when Japan goes to 3.5%, he said.

“Whether it’s over five years or 10 years, I don’t see any alternative given how important the US alliance is,” Ward said.