When you take into account the sizes of Japan and North Korea (both in population and in physical area), there is no assemblance of reason that would suggest those three countries should be in any competition of military strength. The actions of these three countries have been, historically, morally ambiguous to say the least. North Korea may feel the need to amass a strong military in order to fend off the many enemies they have made over time, so in turn, what can Japan do but prop up its own in order to defend itself from its untrustworthy, unruly neighbors. However, neither Japan nor North Korea would be a match against China or their friends in other countries, and the ratio of population to military personnel has become rather grotesque in the name of spite, mistrust and malice.
There is concern that the Asia-Pacific region could be combustible--given the hostility between China and North Korea, and Japan. However, Japan has a right to increase its military budget. Japan is the 3rd largest economy in the world. The rich island country should be able to provide a greater amount of spending for its national defense.
Despite the fact that far eastern politicians can be incredibly bellicose in their words and even in their actions, it is unlikely that this will brew into a full-scale war. Much of the rhetoric passed between these countries satisfies a populist urge among their populations. However, it is not in the best interests of any of these countries to enter into a full-scale conflict with one another and so it is unlikely to happen.
People remember the atrocities of World War II, and it is unlikely that Asia would let anything in the region escalate to that point again. Japan knows that North Korea has nuclear weapons. China and North Korea know that the United States would step in and support Japan if they dared try anything. It balances out to keep the peace.