According to foreign media reports, Japan is mulling a new mid-term defense plan that would significantly scale up the defense budget to 3.5% of its gross domestic product, aligning with the military spending standards of NATO and other key U.S. allies. Japanese defense representatives have already signaled a willingness to substantially increase military spending during consultations with their U.S. counterparts. Options currently under discussion include emulating South Korea by setting a target to reach this ratio within a decade, or settling for a lower target of 3%. This potential policy shift marks a drastic adjustment in Japan's defense strategy. Prior to 2022, the country had long kept defense spending at around 1% of GDP. However, driven by current Prime Minister Sanae Takaichi, the ratio is already approaching 2% two years ahead of the fiscal year 2026 schedule.

The U.S. has long urged Tokyo to strengthen its self-defense capabilities and reduce its reliance on the U.S. military. Elbridge Colby, the U.S. Under Secretary of Defense for Policy, recently publicly called on Japan to take on more defense responsibilities. In the face of external speculation, Japan's internal stance remains relatively cautious. Defense Minister Shinjiro Koizumi emphasized that the scale of military spending should be based on actual security needs rather than being constrained by a specific GDP percentage. Some Japanese officials candidly acknowledged that they are not yet ready to make a formal commitment, and even worry that the target might be denied if leaked prematurely. Nevertheless, senior figures in the Liberal Democratic Party have previously hinted that 3.5% is becoming the new global benchmark for defense spending, though a clear roadmap for raising such massive funds remains elusive. The new five-year defense plan is expected to be released by the end of 2026.

Expectations of a massive expansion in military spending have cast a shadow over the already sensitive financial markets. Investors are deeply concerned about the Takaichi administration's massive bond issuance plans, leading to a continuous rise in the Japanese government's borrowing costs. Looking at the bond market, driven by the confluence of inflation expectations, concerns over fiscal expansion, and expectations of accelerated interest rate hikes by the Bank of Japan, the yield on Japan's benchmark 10-year government bond surged to 3% in early September, hitting its highest level since 1996. This figure has doubled compared to the same period in 2025. Against the backdrop of government bond yields hovering near three-decade highs, if the 3.5% defense target is ultimately implemented, it will inevitably further exacerbate market concerns over the sustainability of Japan's debt.