TOKYO: Japan’s budget requests for the next fiscal year have ballooned to a size similar to during the pandemic era, as Prime Minister Sanae Takaichi’s expansionary fiscal agenda pushes government borrowing costs to three-decade highs.
Budget requests from government agencies totalled ¥143.1 trillion (RM3.7 trillion), the Finance Ministry said yesterday, after the government adopted a budgeting framework that integrates initial and supplementary budget spending.
The increase underscores tension at the heart of Takaichi’s economic agenda as her push to invest in strategic sectors has contributed to a rise in borrowing costs, and intensifies market attention on the size of government bond issuance next year.
The total exceeds the ¥140.61 trillion combined spending package finalised during Takaichi’s first year in office, comprising an ¥18.3 trillion supplementary budget for fiscal 2025 and ¥122.3 trillion initial budget for fiscal 2026.
It also compares to the amounts the government spent supporting households and businesses during the Covid-19 pandemic.
At a news conference, Finance Minister Satsuki Katayama disputed the notion that the budget has risen sharply, saying the increase from Takaichi’s first year was only about ¥2.5 trillion.
The requested figure could rise because many items have been requested without specified amounts, including defence spending as the government reviews its defence strategy in a process that could lead to additional military procurement and investment.
The increase versus a year earlier was driven in part by ¥12.2 trillion in requests made under a new investment programme for strategic sectors such as artificial intelligence, semiconductors and economic security.
It also reflected higher borrowing costs, prompting the ministry to raise its assumed interest rate to 3.8%, from 3% used in the fiscal 2026 budget, after the 10-year government bond yield hit 3% for the first time since 1996.
That pushed requests for debt-servicing costs, including interest payments and debt redemption, to a record ¥36.64 trillion, ¥5.36 trillion more than in the current fiscal year.
Katayama said the government is closely watching the bond market, and that higher interest rates raise debt-servicing costs for the government, households and businesses alike, while boosting interest income. – Reuters
