Japan’s Record $785 Billion Budget

Prime Minister Sanae Takaichi’s cabinet has approved a record ¥122.3 trillion ($784.63 billion) budget for the upcoming fiscal year (starting April 2026). The plan attempts a difficult “balancing act”: fueling economic growth through aggressive spending while convincing global investors that Japan can still manage its massive national debt.

Thank you for reading this post, don't forget to subscribe!

Key Budget Components

Despite the record-high spending, the administration is highlighting a move toward “fiscal discipline” by relying more on tax revenue than on credit.

• Projected Tax Revenue: Expected to hit a record ¥83.7 trillion (a 7.6% increase), driven by corporate growth and economic recovery.
• New Debt: New bond issuance will rise only slightly to ¥29.6 trillion.
• Debt Dependence: The portion of the budget funded by borrowing will fall to 24.2%, the lowest level since 1998.
• Interest Rate Reality: The government is budgeting for an assumed interest rate of 3.0%, the highest in nearly three decades, as the Bank of Japan moves away from its “free money” policies.

Major Spending Priorities

The budget reflects the Takaichi administration’s core pillars: national security and social stability.

1. Debt Servicing (¥31.3 trillion): Japan must spend a massive portion of its budget just to pay interest and redeem old debt. This cost jumped 10.8% this year due to rising interest rates.
2. Social Welfare: Costs continue to climb to record highs to support Japan’s rapidly aging population.
3. Defense: Significant outlays are earmarked for military modernization to counter regional security threats.

A Strategic Shift in Fiscal Policy

The most significant change is Takaichi’s plan to move the “goalposts” for fiscal health:

• Moving Away from the “Primary Balance”: Traditionally, Japan aimed to balance its annual budget (excluding debt) every single year.
• New Multi-Year Goal: Takaichi intends to replace the annual target with a flexible, multi-year framework. This allows the government to spend heavily on “proactive” stimulus now, hoping that future economic growth will eventually pay off the debt.

The Risk Factor

Japan remains the most indebted nation in the developed world, with debt totaling more than 200% of its GDP. With the yen weak and global bond yields rising, the government is under immense pressure to prove it can spend aggressively without triggering a financial crisis.