Japan's new fiscal year budget reaches 122.4 trillion yen, hitting a record high, with debt accounting for more than a quarter.

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On Wednesday, data released by Japan’s Ministry of Finance showed that, driven by both expanding defense spending and rising debt financing costs, the total budget requests from all departments for Japan’s 2025 fiscal year reached a record 122.4 trillion yen (about $822 billion), an increase of 4.1% over the previous year.

Among them, debt financing demand reached an all-time high of 32.4 trillion yen. This scale of budget requests reflects that, against the backdrop of an aging population, Japan must sustain social services while also coping with steadily rising borrowing costs. The Bank of Japan’s ongoing gradual rate hikes are pushing up government financing costs.

As is customary, the budget requests from each department will be trimmed during the subsequent budgeting process. The requested amount for the current fiscal year was ultimately reduced to 115.2 trillion yen.

It is worth noting that Japan’s debt financing demand has reached a record high of 32.4 trillion yen, accounting for 26.5% of the total budget requests, highlighting the fiscal pressure Japan faces. This figure reflects the direct impact of rising bond yields on government borrowing costs.

As the Bank of Japan continues its gradual rate hike policy, the government faces steadily rising borrowing costs while maintaining the social services and other public services required for an aging society. Changes in the interest rate environment are posing new challenges to Japan’s fiscal sustainability.

According to Japan’s budgeting convention, the initial budget requests from each department submitted every summer are substantially trimmed in subsequent procedures. The budget requests for the current fiscal year similarly exceeded the final approved amount, eventually being reduced to a formal budget of 115.2 trillion yen from the request stage.

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