Japan Eyes Defence Spending Worth 3.5% of GDP After US Pressure

Japan’s defence spending is set to increase significantly, driven in part by pressure from the US. This move has sent financial markets into a tailspin, with concerns over rising debt and borrowing costs already at the forefront.

Aligning its defence spending with NATO and US allies is a strategic decision for Tokyo. Prime Minister Sanae Takaichi has accelerated investment in military capabilities, pushing the pace to nearly 2% of GDP ahead of schedule. This shift signals a departure from Japan’s traditional security posture, with plans to bolster its military presence and develop long-range strike capabilities.

However, this increased defence spending comes at a critical time for Japan’s economy. With borrowing costs rising and bond yields near three-decade highs, inflation looms large. Takaichi’s promise of a “responsible, proactive fiscal policy” is being put to the test as never before.

The US has been pressing Japan to increase its military investment, with Under Secretary Elbridge Colby stating in August that Tokyo should significantly boost its spending on defence capabilities. Behind the scenes, Japanese officials are grappling with the daunting prospect of scaling up spending to 3.5% of GDP by 2035, a goal aligned with South Korea’s commitment.

Japan’s fiscal health and investor confidence hang in the balance. A budget of ¥24 trillion – nearly double current outlays – would require a fundamental reassessment of national priorities, straining the nation’s ability to balance its books. Even if achieved, Japan would still lag behind NATO countries in terms of core defence spending.

Takaichi’s push for increased military investment is part of a broader growth plan aiming at ¥370 trillion in combined public and private investment by 2040. This vision may already be testing the nation’s finances, with investors growing increasingly wary of Japan’s ability to keep its debts under control.

As Tokyo ponders its defence spending future, it must navigate a delicate balance between national security needs and fiscal prudence. The world is watching as Japan chooses between its military ambitions and its economic realities.