Japan's Defense Spending to Exceed 3%
Japan's submission of a bill to parliament to raise defense spending to over 3% of GDP signifies a fundamental shift from the "exclusively defensive defense and light armament" policy maintained for 80 years since the end of World War II. The intensifying US-China rivalry and the deteriorating security environment in Northeast Asia are pushing the world's fourth-largest economy towards becoming a full-fledged military power.
── Understand in 3 points ─────────
- • The Japanese government has submitted a bill to parliament to raise defense spending to over 3% of GDP. This level significantly exceeds the existing plan to reach 2% of GDP by FY2027.
- • 3% of GDP corresponds to approximately 18 trillion yen, more than double the current approximately 8 trillion yen (FY2025 budget).
- • Japan has maintained a policy of capping defense spending at 1% of GDP since the Takeo Miki cabinet in 1976, for about 50 years. The 2% of GDP target was first explicitly stated in the three security-related documents of 2022.
── NOW PATTERN ─────────
The "spiral of conflict" in the US-China rivalry is irreversibly pushing up Japan's defense spending, forming a structure where the arms race, once initiated, is self-reinforcing through "path dependency." Simultaneously, US pressure regarding "alliance strain" is constraining Japan's autonomous decision-making.
── Probability and Response ──────
• Base case 50% — Progress in funding discussions within the ruling party, Ministry of Finance's budget formulation policy, intensity of pressure from the US, trends in public opinion support for increased defense spending
• Bull case 20% — Intensification of military tensions in the Taiwan Strait, resumption of North Korea's nuclear tests, increased provocative actions by China in the East China Sea, formation of a bipartisan security agreement
• Bear case 30% — Signs of economic recession in Japan, intensification of funding debates within the ruling party, easing of US pressure on Japan, rising public opposition to increased defense spending, political calculations mindful of the House of Councillors election
📡 THE SIGNAL — What Happened
Why it matters: Japan's submission of a bill to parliament to raise defense spending to over 3% of GDP signifies a fundamental shift from the "exclusively defensive defense and light armament" policy maintained for 80 years since the end of World War II. The intensifying US-China rivalry and the deteriorating security environment in Northeast Asia are pushing the world's fourth-largest economy towards becoming a full-fledged military power.
- Policy — The Japanese government has submitted a bill to parliament to raise defense spending to over 3% of GDP. This level significantly exceeds the existing plan to reach 2% of GDP by FY2027.
- Fiscal — 3% of GDP corresponds to approximately 18 trillion yen, more than double the current approximately 8 trillion yen (FY2025 budget).
- History — Japan has maintained a policy of capping defense spending at 1% of GDP since the Takeo Miki cabinet in 1976, for about 50 years. The 2% of GDP target was first explicitly stated in the three security-related documents of 2022.
- International Comparison — NATO member states' defense spending target is 2% of GDP. Over 3% is comparable to the US (approx. 3.4%), Greece (approx. 3.0%), and Poland (approx. 4.0%).
- Security Environment — China's military expenditure is officially announced at approximately 1.7 trillion yuan (approx. 35 trillion yen), but is estimated to be 1.5 to 2 times that in reality. Tensions in the Taiwan Strait continue to rise.
- Threat Perception — North Korea has continued ballistic missile launches since 2023, advancing its nuclear and missile capabilities. It also conducted a solid-fuel ICBM launch test in 2025.
- Alliance Relations — The United States strongly demands increased defense spending from its allies. Under the Trump administration, pressure for "fair burden-sharing" has intensified further.
- Domestic Politics — Opinions are divided even within the ruling party regarding securing funding, with intense debate over tax increases versus bond issuance.
- Industrial Policy — Share prices of defense-related companies such as Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and IHI have risen with the increase in defense spending. Strengthening the defense industrial base is also positioned as an industrial policy.
- Constitutional Issue — The significant increase in defense spending is once again sparking debate over its consistency with Article 9 of the Constitution, drawing strong opposition from pacifist groups.
- Diplomacy — China's Ministry of Foreign Affairs strongly protested, stating it "undermines regional peace and stability." South Korea also expressed vigilance due to historical circumstances.
- Public Opinion — While various public opinion polls show majority support for increased defense spending, opinions are divided on exceeding 3% of GDP.
To understand the shift in Japan's defense policy, it is necessary to grasp the multilayered changes in post-war security policy over 80 years and the current geopolitical structural changes in East Asia.
After its defeat in 1945, Japan declared "renunciation of war" and "non-possession of war potential" under the new Constitution's Article 9, embarking on a path as a peace-loving nation unprecedented in world history. The National Police Reserve (later the Self-Defense Forces) was established in 1950 in response to the Korean War, but the principle of "minimum necessary force for self-defense" was maintained. In 1976, Prime Minister Takeo Miki's cabinet decided to limit defense spending to within 1% of GNP, which effectively functioned as a "ceiling" for about half a century.
This "1% cap" was not merely a number; it was the very identity of post-war Japan. It embodied the "Yoshida Doctrine" of concentrating resources on economic growth and relying on the Japan-US alliance for security, and it also served as an implicit reassurance mechanism for neighboring Asian countries. Throughout the Cold War, Japan adhered to this policy, establishing a unique position as an economic powerhouse that would not become a military power.
A turning point came in the 2010s. China's rapid military rise fundamentally altered the strategic balance in the Asia-Pacific. China's publicly announced defense budget swelled more than tenfold from approximately 150 billion yuan in 2000 to about 1.7 trillion yuan in 2025, and its total naval tonnage already surpassed that of the US Navy. The construction of artificial islands in the South China Sea, the normalization of official vessel dispatches around the Senkaku Islands in the East China Sea, and the increasing military pressure on Taiwan fundamentally transformed Japan's security environment.
In December 2022, the Fumio Kishida administration approved three security-related documents (National Security Strategy, National Defense Strategy, and Defense Buildup Program) by cabinet decision, explicitly stating a policy to raise defense spending to 2% of GDP by FY2027. This was effectively the abolition of the "1% cap" and was hailed as the biggest turning point in post-war defense policy. At the same time, the acquisition of "counter-strike capability" (enemy base attack capability) was also decided, significantly transforming the concept of exclusively defensive defense.
However, as progress was made towards the 2% target, the security environment continued to worsen. From 2024 to 2025, the scale and frequency of China's military exercises around Taiwan increased, and North Korea advanced the miniaturization of nuclear warheads and the practical application of solid-fuel ICBMs. Russia's invasion of Ukraine became protracted, and military cooperation between China and Russia deepened. Under these circumstances, voices from the Ministry of Defense, LDP defense policy specialists, and the United States began to argue that 2% of GDP was insufficient.
The return of the Trump administration in the US (January 2025), in particular, had a decisive impact on Japan's defense spending debate. President Trump demanded that allies spend 3% or more of GDP on defense, intensifying criticism of "free-riding." For Japan, the Japan-US alliance is the cornerstone of its security, and ignoring pressure from the US was virtually impossible.
Domestically, amid a declining population due to the low birthrate and aging society, there was a growing recognition that qualitative improvement of defense capabilities through technological innovation was essential. Building capabilities in new domains such as AI, drones, cyber, and space requires enormous investment, and the reality was that traditional budget scales were insufficient.
Thus, the figure of over 3% of GDP emerged. This is not merely a quantitative expansion but signifies Japan's qualitative transformation into a "normal military power." If Japan, with the world's fourth-largest GDP, allocates 3% of its GDP to defense, the scale would reach approximately 18 trillion yen, significantly surpassing the UK and France, making it the world's third-largest military spender. A rupture with post-war Japan's pacifist identity is now unavoidable.
The delta: Japan's defense spending debate has qualitatively shifted from the "achievement" stage of 2% of GDP to the "breakthrough" stage of over 3%. This is not merely a budget increase but a redefinition of post-war Japan's national identity. The stair-step increase from the 1% cap to the 2% target to the over 3% bill demonstrates the path dependency of an arms race once set in motion, making it structurally difficult to "turn back."
🔍 BETWEEN THE LINES — What the News Isn't Saying
The true driver behind this bill's submission is not so much the threat from China or North Korea, but rather the need to respond to pressure from the Trump administration regarding "alliance cost-sharing." While the Japanese government officially emphasizes "autonomous decision-making," it is highly probable that the 3% figure aligns with the "minimum expectation" conveyed in unofficial discussions with Washington. Furthermore, it is noteworthy that the increase in defense spending aligns with the Ministry of Finance's long-standing search for a "justification for tax increases." Tax increases under the guise of national security face the least public resistance, making this a golden opportunity for the Ministry of Finance.
NOW PATTERN
Spiral of Conflict × Path Dependency × Alliance Strain
The "spiral of conflict" in the US-China rivalry is irreversibly pushing up Japan's defense spending, forming a structure where the arms race, once initiated, is self-reinforcing through "path dependency." Simultaneously, US pressure regarding "alliance strain" is constraining Japan's autonomous decision-making.
Intersection of Dynamics
The three dynamics of "spiral of conflict," "path dependency," and "alliance strain" are interconnected and mutually reinforcing, putting Japan's defense policy on an irreversible trajectory.
First, the "spiral of conflict" between the US and China exacerbates the security environment, putting pressure on Japan to strengthen its defense capabilities. This pressure is amplified through "alliance strain." The US not only seeks to counter the Chinese threat but also aims to reduce its own financial burden by demanding a "fair share of burden" from its allies. For Japan, the Chinese threat and US pressure are not separate dynamics but composite forces acting simultaneously.
Once defense spending is increased, the mechanism of "path dependency" comes into play. Procurement contracts, industrial base, human resource development, and institutional inertia are formed, and the cost of reversal rapidly increases. This path dependency further reinforces the "spiral of conflict." If China uses Japan's defense buildup as a pretext for its own arms buildup, Japan will be compelled to further increase spending, and the already established industrial base will enable it.
"Alliance strain" also affects "path dependency." Large-scale procurement of US-made equipment deepens technological and operational dependence on the US, making the cost of leaving the alliance astronomically high. While this acts to stabilize the Japan-US alliance, it structurally constrains Japan's strategic autonomy. In other words, the more defense spending increases, the more integration with the US progresses, and the narrower the scope for independent strategic decisions becomes.
Standing at the intersection of these three dynamics, Japan is objectively increasing its military power, yet subjectively finds itself in a situation where it has "no choice." The figure of over 3% of GDP is both an active strategic decision by the Japanese government and a result of being swept along by structural dynamics. Without understanding this duality, it is impossible to accurately predict the future direction of Japan's defense policy.
📚 PATTERN HISTORY
1950s-1960s: West German Rearmament and NATO Accession
A defeated nation proceeded with rearmament under the geopolitical pressure of the Cold War, restoring its military power within the framework of an alliance.
Structural similarities to the present case: Geopolitical structural changes have the power to overcome even the identity-based constraints of a defeated nation. However, rearmament gained legitimacy by being carried out within the framework of an alliance. Japan's exceeding 3% of GDP also shares a similar structure in that it is justified within the context of the Japan-US alliance.
1979-1980s: NATO Arms Buildup After Soviet Invasion of Afghanistan
A sudden change in the security environment triggered a rapid expansion of military spending that had previously been suppressed.
Structural similarities to the present case: When threat perception exceeds a threshold, fiscal constraints and domestic pacifist public opinion rapidly recede into the background. In Japan, public resistance to increased defense spending has weakened as the reality of a Taiwan contingency has become more palpable.
2014-Present: NATO Member States' Defense Spending Increase After Russia's Annexation of Crimea
The actions of a revisionist power triggered an arms buildup among advanced democratic nations that had previously suppressed defense spending.
Structural similarities to the present case: Once set, the 2% of GDP target functions politically as a "minimum standard" and becomes a starting point for further increases. As Poland has reached over 4%, numerical targets tend to move only upwards.
1930s: Japan's Military Expansion and Arms Buildup After the Manchurian Incident
External threats combined with domestic nationalism, leading to an endless expansion of military spending.
Structural similarities to the present case: As a negative historical precedent, the risk of an arms buildup spiraling out of democratic control should always be watched. While civilian control functions in Japan today, the structure where the logic of "necessity" overwhelms fiscal discipline is similar.
1960s-1970s: Establishment of Japan's '1% Cap' During High Economic Growth
The fruits of economic growth were concentrated on social security and industrial investment, accelerating economic development by minimizing security costs.
Structural similarities to the present case: The success of the "1% cap" created 50 years of path dependency. The shift to over 3% of GDP signifies the abandonment of this successful model and marks the beginning of a new path dependency.
Patterns Revealed by History
What emerges from historical patterns is that significant increases in military spending are always triggered by a combination of "sudden changes in external threats" and "alliance pressure." West German rearmament and NATO's arms buildup were both initiated by structural changes in the security environment. And once an increase begins, institutional inertia and industrial interests create "downward rigidity," making it extremely difficult to reverse course.
However, history also issues a warning. As Japan in the 1930s demonstrated, if the logic of "necessity" expands without limit, it can lead to fiscal collapse and the loss of democratic control. Unlike the 1930s, present-day Japan has robust democratic institutions and the framework of the Japan-US alliance, but whether defense spending exceeding 3% of GDP is sustainable depends on two conditions: fiscal soundness and public support. As NATO's precedent shows, once a numerical target is set, it transforms into a "minimum standard" and becomes a starting point for further increases. There is no guarantee that Japan's exceeding 3% of GDP will not serve as a stepping stone to 4% or 5% in the future.
🔮 WHAT'S NEXT
The Japanese government submits a bill to exceed 3% of GDP, but its passage in 2026 faces difficulties due to funding debates within the ruling party and opposition resistance. Ultimately, a revised bill aiming for "over 3% of GDP by the early 2030s" is passed, outlining a roadmap for gradual increases. Specifically, a phased increase schedule will be stipulated in law: 2.0% of GDP in FY2027, followed by 2.3% in FY2028, 2.6% in FY2029, 2.9% in FY2030, and over 3.0% in FY2031. Regarding funding, in addition to extending the special income tax for reconstruction, an additional corporate tax, and an increase in tobacco tax, the allocation of some construction bonds to defense spending will be approved. Internationally, this gradual approach will be criticized by the US as "insufficient," but backlash from China and South Korea will be kept at a manageable level. The defense industry will establish a planned mass production system, and efforts will be made to increase the domestic procurement ratio. Public opinion will largely be one of passive support, viewing it as "unavoidable," with active opposition movements remaining limited.
Implications for Investment/Action: Progress in funding discussions within the ruling party, Ministry of Finance's budget formulation policy, intensity of pressure from the US, trends in public opinion support for increased defense spending
A rapid deterioration of the security environment (e.g., significant escalation of military tensions in the Taiwan Strait, resumption of North Korea's nuclear tests) prompts strong domestic public support for increased defense spending, leading to the passage of a bill to exceed 3% of GDP in 2026 with broad bipartisan agreement. In this scenario, heightened crisis awareness overwhelms funding debates, and a new tax system, such as a "National Security Special Tax," is introduced with bipartisan consensus. Defense spending reaches 3% of GDP by FY2028, with a focus on new domains like AI, drones, space, and cyber. Japan's defense industry expands rapidly, and the development of the next-generation fighter jet (GCAP) accelerates. The US highly evaluates this move, and the Japan-US alliance deepens further. Military technology sharing between Japan and the US expands, and the construction of an integrated command and control system progresses. However, China positions Japan's militarization as a "serious provocation," potentially intensifying its activities in the East China Sea. The regional "spiral of conflict" accelerates, but in the short term, it is expected to strengthen deterrence. Economically, large-scale investment in the defense industry creates jobs and technology spillover effects, contributing to economic growth as "defense Keynesianism."
Implications for Investment/Action: Intensification of military tensions in the Taiwan Strait, resumption of North Korea's nuclear tests, increased provocative actions by China in the East China Sea, formation of a bipartisan security agreement
A scenario where the bill to exceed 3% of GDP founders due to funding issues and domestic political turmoil. Multiple factors combine, effectively shelving the bill. First, the difficulty of securing funding. Over 10 trillion yen in additional funding is required for over 3% of GDP, but tax increases are politically difficult for the ruling party ahead of the House of Councillors election (held in summer 2025, next in 2028), and increased bond issuance contradicts fiscal soundness targets. Strong resistance from the Ministry of Finance and opposition from fiscal conservatives within the ruling party lead to the bill being watered down. Second, a worsening economic environment. If the Japanese economy falls into recession, the absolute amount of 3% of GDP itself will shrink, and budget allocation for social security and economic measures will take precedence. The classic "guns or butter" trade-off will sharpen, and the priority of defense spending will relatively decrease. Third, there is a scenario where US pressure on Japan weakens. If the Trump administration focuses on domestic issues and pressure on Japan recedes, the political necessity for the Japanese government to rush to over 3% will decrease. Additionally, negotiations between Japan and the US regarding the "calculation method" for defense spending could lead to a compromise where the US accepts approximately 2.5% of GDP in real terms. In this case, the achievement of 2% of GDP proceeds as planned, but the leap to over 3% is postponed as a "future consideration." Japan's defense buildup will continue in the medium to long term, but a dramatic transformation will be avoided.
Implications for Investment/Action: Signs of economic recession in Japan, intensification of funding debates within the ruling party, easing of US pressure on Japan, rising public opposition to increased defense spending, political calculations mindful of the House of Councillors election
Key Triggers to Watch
- Start of deliberation and committee vote on defense-related bills in the Diet: April-June 2026 (during the ordinary Diet session)
- US Trump administration's presentation of specific levels of defense spending demands to Japan: First half of 2026 (at a Japan-US summit or 2+2 meeting)
- Occurrence of a significant military incident in the Taiwan Strait or East China Sea: Throughout 2026 (unpredictable, but would accelerate bill passage if it occurs)
- Presentation of specific defense spending figures in the FY2027 budget request: End of August 2026
- Report from the Government Tax Commission on defense funding sources: Autumn 2026 (towards the year-end tax reform outline)
🔄 TRACKING LOOP
Next Trigger: Committee deliberation of defense-related bills in the ordinary Diet session (April-May 2026) — The content of the ruling party's funding amendment will determine the bill's effectiveness
Continuation of this Pattern: Tracking Theme: Trajectory of Japan's Defense Spending as a Percentage of GDP — The next milestone is the specific figures for FY2027 defense spending in the summer 2026 budget request
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