Japan Approves Record $785 Billion Budget to Tackle Debt and Boost Defense

Japan has approved a record budget for the next fiscal year totaling 122.3 trillion yen, or about $785 billion, aiming to balance economic stimulus with debt control while increasing spending on defense and social welfare.

Japan is seeking to reassure investors amid rising government bond yields and a weaker yen by limiting the growth of new bond issuance, raising it only slightly to 29.6 trillion yen from 28.6 trillion yen this year.

The country’s reliance on debt is expected to fall to 24.2%, the lowest level since 1998, reflecting Japan's commitment to fiscal discipline despite global economic challenges.

Revenue and debt servicing

Tax revenues are projected to rise 7.6% to a record 83.7 trillion yen, helping finance higher spending, though not enough to fully offset rising debt servicing, social security, and defense costs.

Debt servicing costs, including interest payments and redemptions, are expected to jump 10.8% to 31.3 trillion yen, based on an assumed interest rate of 3%, the highest in nearly three decades following the Bank of Japan’s shift away from ultra-loose monetary policy.

Record debt burden

Japan holds the highest debt burden among advanced economies, exceeding twice the size of its economy, making it highly sensitive to borrowing cost increases and complicating long-term fiscal planning.