Japanese Finance Minister Satsuki Katayama, in an interview with Bloomberg, rejected the idea that Prime Minister Sanae Takaichi is a "reflationist" and downplayed concerns that Japan's planned defense buildup would rattle financial markets. This comes amidst reports that Japan is considering raising its mid-term defense spending target to 3.5% of GDP, aligning with NATO and other US allies, a move that could potentially send shockwaves through financial markets.
Katayama also emphasized respect for the Bank of Japan's independence, even though two Takaichi-appointed board members dissented on the BOJ's third rate hike in under a year. She signaled readiness to support the yen, which slipped below its pre-hike level, and framed rising bond yields as a global, AI-fueled funding story rather than solely a domestic issue. The Finance Ministry is currently reviewing budget requests, with several major items, including defense, still undecided.
While acknowledging the potential for defense outlays to exceed the current 2% of GDP commitment, Katayama stated that these plans are guided by Japan's domestic security requirements, particularly in light of China's recent actions, and not by US pressure. She pointed to shortcomings in cybersecurity and large-scale drones, arguing that acquiring these capabilities would push defense spending beyond the 2% target. However, she believes the overall impact on market stability would be manageable.
