Japan Weighs 3.5 Percent GDP Defense Target as 30-Year Bond Yields Reach Highest Level Since 1995

Bloomberg reported that Tokyo is examining a 3.5 percent GDP defense target over ten years, matching South Korea’s commitment, with a possible lower 3 percent option also under review. Defense Ministry Press Secretary Kimihito Aguin stated spending will follow independent judgment rather than preset figures. This follows acceleration to 1.9 percent of GDP in the fiscal year ending March 2025, two years ahead of the prior 2 percent schedule set in 2022.

The shift occurs against Japan’s debt-to-GDP ratio above 250 percent and planned consumption tax cuts. Finance Minister Satsuki Katayama emphasized reviewing revenue and expenditures to reduce the ratio while accommodating defense needs. US Under Secretary Elbridge Colby stated expectations for greater Japanese investment, reflecting alliance pressure without public 3.5 percent demands.

A new five-year plan due by year-end will determine final outlays. Primary records show Japan previously capped defense near 1 percent of GDP until 2022, with recent statements prioritizing capability substance over numeric targets. Bond market reaction hinges on issuance volume required to fund any increase beyond current trajectories.

Next steps include formal inter-ministry coordination before December announcements, with markets monitoring JGB auction results and any revised fiscal framework statements from the Liberal Democratic Party.