If you were bracing for a sudden surge in Japan's defense budget, Takuji Aida says take a breath. In a Monday interview on Bloomberg TV, the Credit Agricole economist - who sits on Prime Minister Sanae Takaichi's growth strategy panel - called higher defense outlays a "longer-term goal within 10 years, 15 years," adding that at that cadence it should not make the market "feel anxiety."
He linked the likely tempo to another marquee policy: Takaichi's ¥370 trillion public-private program aimed at strategic sectors, designed to run through 2040. On how the money breaks down and what it is meant to deliver, he said the government plans to spell out the investment categories and intended outcomes by year-end.
Investors are combing through Sanae Takaichi's fiscal plans, with defense among the top questions. Bloomberg reported earlier this month that Tokyo is considering a new medium-term goal to lift defense spending to 3.5% of GDP within 10 years, roughly matching benchmarks adopted by NATO countries and various other US allies. After his TV appearance, Aida said Japan could reach 3.5% of GDP in 10 to 15 years, provided direct defense spending is combined with dual-use programs that the government's growth strategy already covers.
The administration is juggling other big-ticket moves too, such as a 14 year growth strategy plus a short-lived reduction in the food consumption tax. Those concerns, along with a global bond selloff, have pushed yields higher, leaving the 10 year benchmark near 3% - close to a three decade high.
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Aida also drew a clear policy line: "Sanaenomics is not a reflationary policy," echoing Finance Minister Satsuki Katayama's remarks last week. He said the focus is on investment that expands aggregate supply, rather than demand-side reflation via fiscal stimulus and easier money. "That is totally different," he said.
Aida anticipates the Bank of Japan's next rate increase will land in January - slightly behind what he sees as the market consensus. He said external factors - among them tensions in the Middle East - have sped up the latest tightening, and he predicted the BOJ would return to about a twice‑yearly rhythm once those pressures ease.
Markets had largely priced it in when, earlier this month, the central bank increased the policy rate to 1.25%, and two of the nine board members cast dissenting votes. Markets interpreted the two Takaichi appointees' dissent as a sign the government wasn't eager for quicker hikes, which pressured the yen. Aida said those no-votes matter because they help pave the way for resuming a normal tempo of rate increases.
A slow-and-steady defense trajectory, big structural investment through 2040, and a likely BOJ move in January all point to a path where policy changes ripple through over years, not weeks. For savers and investors, the near term swing factors will be funding choices, bond yields hovering near three decade highs, and how the yen reacts to the BOJ's cadence.
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