Japan's finance ministry keeps stepping on the gas, planning to roll out a record 122 trillion yen budget!

Japan's government has announced plans to launch its largest-ever initial budget, with spending growth set to outpace inflation. On December 25, Japanese Prime Minister Sanae Takaichi stated that the total budget for the new fiscal year starting April 2026 will be about 122.3 trillion yen (approximately $786 billion). This represents a roughly 6.3% increase from the current fiscal year’s budget of 115.2 trillion yen, marking a new historical high. To support this large-scale spending, **the government plans to raise about 29.6 trillion yen through new government bond issuance.** Takaichi said that the reliance on debt issuance in the budget will fall from 24.9% this year to 24.2%. Nevertheless, since Japan bears the heaviest debt burden among developed economies, excessive fiscal spending may further push up long-term yields, which have been rising steadily this year, becoming a focal point for investors. Market concerns over the Japanese government's fiscal expansion continue to grow. Finance Minister Katayama Katsuki admitted earlier this week that, in exchange for future economic growth, fiscal conditions may face worsening pressure in the short term. **Record Budget Size But Controlled Bond Issuance** Koji Takeuchi, Senior Researcher at Itochu Economic Research Institute, pointed out: "The initial budget size is record-breaking, which is unfavorable for yields. But at the same time, the volume of government bond issuance has been kept in check." Previously, according to Reuters, [two government sources revealed](https://wallstreetcn.com/articles/3762013?keyword=%E6%97%A5%E6%9C%AC) that new issuance of super-long-term government bonds for the next fiscal year may fall to about 17 trillion yen ($109 billion), which would be the lowest in 17 years. So far, next year’s budget size has had a relatively limited impact on market sentiment. Of note, debt servicing costs in the budget have risen significantly due to higher interest rates. According to sources cited by Bloomberg, **the Ministry of Finance plans to set a provisional interest rate of 3% for calculating next fiscal year's debt servicing costs, marking a new high since 1997.** After meetings with ruling party and government members, Takaichi stated: "I believe this budget strikes a balance between strengthening economic power and ensuring fiscal sustainability." **Social Security and Defense Spending Drive Budget Demand** The budget’s increase far surpasses the rate of inflation, **mainly due to mounting social security spending pressures as Japan faces ongoing population aging.** According to documents obtained by Bloomberg, social security spending in the new fiscal year will grow from 38.3 trillion yen to 39.1 trillion yen. At the same time, **rising defense spending has further raised overall budget demand.** Currently, Japan’s core price index has remained at or above 2% for over three years, reflecting broad price increases—including for daily necessities. In this sustained inflationary environment, overall economic operating costs are rising systematically. **Fiscal Expansion Stance Continues** This record-breaking initial budget further underscores the Japanese government’s policy stance to support economic growth through aggressive fiscal measures. Last month, the government unveiled its largest economic stimulus package since COVID restrictions were eased, covering areas such as mitigating price pressure and strengthening national defense. In terms of funding, **in addition to roughly 29.6 trillion yen in new government bond issuance, tax revenue remains a crucial pillar of the budget.** Takaichi stated that tax income for the new fiscal year is expected to be about 83.7 trillion yen. Takeuchi analyzed: > "Tax revenue is relatively strong, which can help the Japanese government alleviate market concerns about its fiscal expansion to some extent. However, if it hopes to control the scale of debt issuance in the future, the government still needs to plan how to ensure fiscal resources." Risk Warning and Disclaimer The market involves risks; investments should be made cautiously. This article does not constitute personal investment advice and has not considered the individual investment objectives, financial situation, or needs of specific users. Users should determine whether any opinions, views, or conclusions in this article are suitable for their particular situation. Investment based on this is at users' own risk.