Japan is weighing a medium-term defense spending target of 3.5% of GDP, in line with NATO and other US allies, a move that could unsettle markets wary of Prime Minister 
Sanae Takaichi's spending plans. The deliberations surfaced in a Bloomberg News report that cited people familiar with the matter. Japanese defense officials have already signalled in meetings with US counterparts that they are willing to raise spending substantially, Taiwan's Central News Agency (CNA) reported, citing the Bloomberg account.
What target is on the table? One option under consideration, Bloomberg reported, citing people familiar with the matter, is to follow South Korea in lifting defense spending to 3.5% of GDP over the next decade. The target could also be lower, such as 3%, people familiar with the matter said. Japan is expected to unveil a new five-year defense spending plan at the end of the year.
Why is Washington pressing? Like other US allies, Tokyo faces pressure from the administration of US President 
Donald Trump to strengthen its defenses and rely less on American forces. US defense officials, in CNA's account, have largely avoided publicly pressing Japan to commit to 3.5%, but have made clear they expect a substantial increase in investment. Discussing Tokyo's defense spending in August, Elbridge Colby, the Under Secretary of War for Policy, said "we" were eagerly hoping Japan would take more active steps. The Pentagon declined to comment, and Japan's Defense Ministry had not responded.
How far has Tokyo already moved? Takaichi lifted defense spending to nearly 2% of GDP in the fiscal year that ended in March, two years ahead of schedule. Until 2022, Japan held to an informal cap of about 1% of GDP, a sign of how sharply Tokyo's thinking on defense has shifted, CNA reported. Takaichi's Liberal Democratic Party said in June that 3.5% had become the global standard, but offered no proposal on how Japan would pay for it.
Why are markets wary? Takaichi has pledged "responsible proactive fiscal policy," and a 3.5% commitment could unsettle investors cautious about heavy borrowing. Government borrowing costs are already elevated, with bond yields hovering near 30-year highs. The 10-year yield touched 3% earlier in September for the first time since 1996, driven mainly by concerns over inflation and fiscal spending and by market expectations that the Bank of Japan may have to raise rates faster. At the same point last year, the yield was only about half its current level.
Figures referenced: Sanae Takaichi, Donald Trump. — JudgeMarket.
