Japan’s cabinet, under Prime Minister Sanae Takaichi, has approved a record ¥122.3 trillion (approximately US$785 billion) budget for the fiscal year beginning April 2026, the largest in the country’s history. The decision reflects the government’s strategy to stimulate economic growth while maintaining fiscal responsibility amid ongoing domestic and global economic pressures.
The budget includes planned government bond issuance of ¥29.6 trillion, keeping it below the ¥30 trillion threshold and marking a debt dependence ratio of 24.2%, the lowest since 1998. This careful management of new debt aims to reassure markets while allowing room for strategic spending.
Tax revenues are projected to climb 7.6% to a record ¥83.7 trillion, driven by a robust economy and higher income and corporate taxes. Despite this, debt servicing costs, covering interest payments and redemption, are expected to rise 10.8% to ¥31.3 trillion, reflecting higher long-term interest rates, currently around 3.0%, the highest in nearly three decades.
Key allocations include social welfare programs to support an aging population and defense expenditures responding to regional security concerns. The budget also integrates measures to ease the impact of inflation and support households, complementing Japan’s broader economic strategy.
Officials stressed that the government is shifting from rigid annual balance targets to multi-year fiscal planning, providing flexibility while maintaining long-term consolidation goals. This approach is designed to strengthen investor confidence and stabilize markets amid rising yields and a weakening yen.
Analysts note that Japan’s debt remains among the highest in the developed world, exceeding twice its GDP, making careful fiscal planning critical. By combining historic spending with disciplined debt issuance, the government aims to balance economic support with fiscal sustainability, while signaling commitment to both growth and market stability.
The cabinet’s approval comes amid broader economic adjustments, including the Bank of Japan’s gradual exit from ultra-loose monetary policy and recent stimulus packages aimed at cushioning households from rising costs. This record budget underscores Japan’s dual focus on strategic investment and fiscal prudence, setting the tone for economic policy in 2026.
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