Japan weighs raising defence budget to 3.5% of GDP, fears hit to fiscal health and bond yields

MacroGeopoliticsDigital Finance Impact 4
โดย Bloomberg·JP·Read original
Summary · why it matters

The Japanese government is considering raising its medium-term defence budget share to 3.5% of gross domestic product, or GDP, in line with the targets of NATO and other U.S. allies. One option under consideration is to set a target in line with South Korea's pledge to raise defence spending to 3.5% of GDP within 10 years, while a lower target of around 3% also remains possible. Prime Minister Sanae Takaichi has already accelerated defence spending to nearly 2% of GDP in the fiscal year that ended in March, two years ahead of the original schedule, up from an informal cap of around 1% of GDP before 2022. A new five-year defence spending plan is expected to be announced late this year. After the report, Japanese defence stocks, led by IHI Corp and Kawasaki Heavy Industries, reversed course in afternoon trading on the Japanese stock market, closing up 1.82% and 0.89% respectively. Japanese government bonds fell, pushing the yield on 10-year government debt to its highest level since 1996, while the yen weakened to 154.91 yen to the dollar. Analysts at Iwai Cosmo Securities said the market is worried about the fiscal position, as reflected in the bond market reaction, and that it is hard for investors to view this news positively.

Impact on stocks 4

Defense & Geopolitical Fragmentation▲ · 2 stocks
Kawasaki Heavy Industries Ltd.
7012
▲ PositiveDemandrelevance

Higher Japanese defence spending targets imply more orders for Kawasaki Heavy Industries' defence business, lifting its shares.

IHI Corporation
7013
▲ PositiveDemandrelevance

Japan's planned defence budget hike to 3.5% of GDP boosts expected demand for IHI's defence equipment, lifting its shares.

Financials▲ · 1 stocks
Others▼ · 1 stocks
％Japan Government Bond 10Y
JP-10Y
▼ NegativeMonetaryrelevance

Higher defence spending raises fiscal concerns, pushing 10-year JGB yields to their highest since 1996 (bond prices fall).

Theme Impact 1

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