Japan Approves Record $785 Billion Budget Amid Rising Debt Concerns

Japan’s Prime Minister Sanae Takaichi has approved a record $785 billion (122.3 trillion yen) budget for the next fiscal year, aiming to balance pro-growth fiscal policies with concerns over the country’s ballooning debt.

Key highlights of the budget:

Total Budget: 122.3 trillion yen, up from this year’s 115.2 trillion yen.
Government Bond Issuance: Slight increase from 28.6 trillion yen to 29.6 trillion yen, keeping the debt dependence ratio at 24.2%, the lowest since 1998.
Tax Revenues: Expected to rise 7.6% to 83.7 trillion yen, helping fund rising social welfare, defense, and debt-servicing costs.
Debt Servicing: Costs for interest payments and debt redemption projected to climb 10.8% to 31.3 trillion yen, with an assumed interest rate of 3.0%, the highest in 29 years.
The Takaichi administration is cautious amid rising government bond yields and a weak yen, signaling to investors that it will avoid irresponsible debt issuance or sudden tax cuts. Japan, already burdened with the highest debt-to-GDP ratio among developed nations, faces heightened sensitivity to borrowing costs, complicating aggressive fiscal stimulus efforts.

To enhance flexibility, Takaichi plans to move away from using the annual primary budget balance as the fiscal consolidation target, instead adopting a multi-year goal to support sustained economic measures.