Japan is said to mull raising defence spending to 3.5% of GDP

The operative question is funding: defence expansion on this scale is large relative to the budget envelope, and past episodes have split between explicit tax measures, reallocation within the general account, and supplementary issuance, each carrying a different read-through for JGB supply at the long end where the fiscal premium is most sensitive. Sourcing via 'said to' indicates a deliberate leak rather than a settled decision, and such trial balloons in Japanese policymaking have historically preceded a period of negotiation with coalition partners and the finance ministry before anything is formalised, often with the headline number diluted in the process. The worth-watching follow-ons are the funding mechanism, the phase-in period, and whether the figure survives contact with the budget process intact. Market precedent in comparable episodes has been for the initial reaction to concentrate in defence-linked equities and in super-long JGBs, with the yen's response dependent on whether the move is read as fiscal loosening or as part of a broader strategic normalisation. As an unattributed report, this sits at the early, reversible stage of the policy sequence.