Japan Cabinet: The has approved a record budget of JPY 122.31 trillion for FY2026
Japan Cabinet: Despite growing concerns about the nation’s precarious public finances, Japan’s Cabinet on Friday approved a record initial budget of JPY 122.31 trillion (roughly USD 783 billion) for fiscal 2026, highlighting the expansionary fiscal approach of newly appointed Prime Minister Sanae Takaichi aimed at boosting economic growth and strengthening defense capabilities, according to Kyodo News.
The general-account budget, which exceeded the baseline target of JPY 115.20 trillion for fiscal 2025, is the second straight year of record-high expenditure, according to Kyodo News.
While Japan’s rapidly aging population continues to drive up welfare-related expenditures, officials said rising prices have driven up staff and other fixed expenses.
The government intends to sell JPY 29.58 trillion in new bonds to make up a revenue deficit under the draft budget for the fiscal year starting in April, underscoring Japan’s ongoing reliance on debt financing. Out of all the economies in the Group of Seven (G7), Japan’s budgetary situation is still the worst.
Japan’s Finance Minister Satsuki Katayama said that the debt reliance ratio is predicted to drop to 24.2% in fiscal 2026 from 24.9% the year before, and new bond issuance is anticipated to remain below JPY 30 trillion for the second consecutive year after Cabinet clearance.
According to Kyodo News, Katayama said during a press conference, “I think we have put together a draft budget that strikes a balance between achieving a strong economy and guaranteeing fiscal sustainability, while paying close attention to fiscal discipline.”
The budget, which is anticipated to be approved by the Diet, the Japanese Parliament, before the conclusion of the current fiscal year, is the first full-year spending plan under Prime Minister Takaichi, who took office in October.
According to Kyodo News, Takaichi’s strong spending policy has put pressure on the yen in foreign currency markets, increasing worries for a country that depends significantly on imported energy.
In the meanwhile, rising long-term interest rates caused debt-servicing expenses, including principle repayments and interest, to reach a record JPY 31.28 trillion.
In anticipation of more rate hikes by the Bank of Japan after its most recent rise this month, Japan’s Finance Ministry increased the expected interest rate used to compute interest payments from 2.0 percent in fiscal 2025 to 3.0 percent. Rising borrowing prices have also been attributed to worries over budgetary sustainability, according to Kyodo News.
By the end of fiscal 2026, the total amount of outstanding central and local government debt is expected to exceed JPY 1,344 trillion, which is over double Japan’s GDP, according to official projections.
The greatest portion of the budget, JPY 39.06 trillion, has been set aside for social welfare expenditures, in part because of an increase in medical expenses. According to Kyodo News, a record JPY 9.04 trillion has been set for defense-related expenditure, while JPY 1 trillion has been put aside for emergency reserves.
After a fatal sinkhole occurrence in Saitama Prefecture earlier this year, JPY 6.11 trillion has been suggested for infrastructure expenditure to fix aging water, sewerage, and other public systems countrywide. The JPY 2.30 trillion allocated to agriculture and fisheries is partly intended to stabilize rice supply in the face of increasing prices.
According to Kyodo News, tax collections are expected to reach a record JPY 83.74 trillion for the seventh year in a row, thanks to robust corporate earnings.
Prime Minister Takaichi has promised to promote economic development via stimulus measures, including investment in semiconductors and other strategically essential sectors, under the banner of “responsible and proactive public finances”.
Political concessions also influenced the budget’s size, as the governing coalition—which maintains a minority in the House of Councillors but a slender majority in the House of Representatives—acquiesced to a number of requests from the opposition.
According to Kyodo News, the Democratic Party for the People has said that it would support the budget in exchange for an agreement to raise the non-taxable income level in order to improve workers’ discretionary income.
The Cabinet Office predicted earlier this week that Japan’s GDP will grow by a real 1.3% in fiscal 2026, as opposed to an anticipated 1.1% increase in the current fiscal year. This prediction was used to determine expected tax collections.