Japan Weighs 3.5% Defence Target
Japan is examining a mid-term defence-spending goal of 3.5 percent of GDP, in line with other U.S. allies, according to people familiar with talks with Washington – a report Tokyo’s Defence Ministry publicly denied on Tuesday even as markets priced in heavier borrowing.
Bloomberg reports that officials have already signalled a sharp rise in outlays in private meetings with U.S. counterparts. One option under study is to match South Korea’s pledge to reach 3.5 percent over 10 years, though a 3 percent figure is also possible. Press secretary Kimihito Aguin said Japan had not told the United States it intended to jump to 3.5 percent. “Japan’s defense buildup is something we undertake based on our own independent judgment,” he said. “It is also not a matter of starting with a predetermined spending figure. What matters is the substance of our defense capabilities.”
Prime Minister Sanae Takaichi has already brought spending close to 2 percent of GDP in the year to March, two years early. Until 2022 Japan lived with an informal ceiling near 1 percent. Committing to 3.5 percent would test investors already uneasy about her fiscal plans, even though she has promised a “responsible, proactive fiscal policy.”
After the report, IHI and Kawasaki Heavy closed 1.8 percent and 0.9 percent higher, having been down more than 2 percent. Japanese government bonds extended losses. The 10-year yield, which touched 3 percent earlier this month for the first time since 1996, rose further. The yen slipped as far as ¥155.24 to the dollar. “There are fiscal concerns, as shown in the bond market reaction,” said Daisuke Aiba of Iwai Cosmo Securities. He also questioned whether Japan could expand forces beyond their present scale.
U.S. officials have mostly avoided a public 3.5 percent demand. Under Secretary of War for Policy Elbridge Colby said last month Washington was “anxiously looking for Japan to step up.” Takaichi’s Liberal Democratic Party noted in June that 3.5 percent had become a global standard but did not say how to pay for it. Finance Minister Satsuki Katayama said Tuesday that spending and revenue would be reviewed “across the board” and that outlays, including defence, must stay consistent with cutting the debt-to-GDP ratio.
NATO members last June promised 3.5 percent of GDP in core defence by 2035, plus 1.5 percent in related outlays. Japan folds core and non-core items into one pot, so the same headline ratio would still buy less military punch than the alliance’s core target. Takaichi has told parliament Japan must “proactively pursue a fundamental strengthening of its defense capabilities.” She has also set a growth plan for more than ¥370 trillion of public and private investment by 2040.
Since lifting the old cap, Tokyo has bought long-range strike weapons, including Tomahawks. The ministry has asked for a record ¥8.9 trillion for the year from next April, up 0.9 percent, with many lines still uncosted and a weak yen eroding the value of imported arms. Robert Ward of the International Institute for Strategic Studies posits that the political groundwork for a jump is already laid. “Whether it’s over five years or 10 years, I don’t see any alternative given how important the U.S. alliance is.”
