TOKYO – The government is considering its largest-ever initial budget of over 120 trillion yen ($775 billion) for the next fiscal year, as Prime Minister Sanae Takaichi seeks to prop up Japan’s inflation-plagued economy with aggressive spending, a source close to the matter said Tuesday.
The amount would surpass the current record 115.2 trillion yen initial budget approved under Takaichi’s predecessor, Shigeru Ishiba, for fiscal 2025, partly reflecting higher personnel and other fixed costs amid rising prices, despite growing concerns over the state’s deteriorating fiscal health.
For fiscal 2026 starting in April, debt-servicing costs, including redemption and interest payments, are also expected to hit a fresh record, surpassing the 28.2 trillion yen for the current fiscal year, according to the source.
In parliament, an 18.3 trillion yen supplementary budget for fiscal 2025 was enacted to finance Takaichi’s expansionary economic package, including relief measures to offset higher living costs.
The draft budget cleared the House of Councillors, the upper chamber, just a day before the end of the current Diet session, after passing through the more powerful House of Representatives last week.
Although the ruling coalition led by Takaichi’s Liberal Democratic Party lacks a majority in the upper house, some opposition parties, including the rising Democratic Party for the People, backed the bill as it incorporated parts of their demands for relief measures.
Under the premier’s banner of “responsible and proactive public finances,” the latest package was the largest since fiscal 2022 during the coronavirus pandemic, funding an economic program aimed at easing rising living costs and promoting investment to spur growth.
Despite additional tax revenue of 2.9 trillion yen, the government plans to issue 11.7 trillion yen in new bonds to cover more than 60 percent of the total, heightening worries over Japan’s already strained fiscal consolidation, the worst among Group of Seven economies.
Against the backdrop, market participants have stepped up selling of the yen and government bonds, pushing long-term interest rates sharply higher. Bond yields move inversely to prices.
To ease the strain on households from elevated living costs, the government allocated 8.9 trillion yen for relief steps, including electricity and gas subsidies for the first three months of next year and cash handouts for families with children, while also boosting financial assistance for local governments.
As part of efforts to build what she has described as a strong economy, 6.4 trillion yen was earmarked to expand investment for crisis management and growth under Takaichi, a fiscal dove who took office in October.
The supplementary budget also included 1.7 trillion yen for security and diplomacy, allowing Tokyo to bring defense-related spending to its target of 2 percent of gross domestic product in fiscal 2025, two years ahead of the previous schedule.
Critics and opposition lawmakers, however, said that such nonurgent outlays, excluding relief measures, should have been incorporated into the fiscal 2026 initial budget.
AloJapan.com