Japan’s Budget Demands Reach Record High Amid Intensifying Leadership Race

By Takaya Yamaguchi and Makiko Yamazaki

TOKYO – Japan’s budget requests for the upcoming fiscal year have reached a record high, surpassing $800 billion, as stated by the finance ministry. The country, ranked as the world’s fourth-largest economy, is grappling with the challenge of curbing expenditure amid rising debt-servicing costs.

The upcoming leadership elections could further complicate Tokyo’s attempts to establish fiscal responsibility. Voting this month for the ruling party’s new leader, and consequently the next prime minister, may prompt an early parliamentary election.

The proposed budget of 117.6 trillion yen (approximately $811.93 billion) comes at a time when the Bank of Japan is moving away from its long-standing stimulus measures. This shift means that the government can no longer count on ultra-low borrowing costs or rely on the central bank to finance its debt.

The anticipated interest rate for the fiscal year starting in April is projected to rise to 2.1%, up from the current year’s 1.9%. This increase will raise debt-servicing costs, with interest payments and debt redemption expected to climb to 28.9 trillion yen, compared to 27 trillion yen in the current year.

Government ministries have also been permitted to request unspecified funds for initiatives aimed at expanding childcare and alleviating inflation, contributing to the overall budgetary demands.

Japan, with the highest level of public debt in the industrialized world—exceeding twice the size of its economy—has reaffirmed its commitment to achieving a primary budget surplus by the following fiscal year.

Addressing the nation’s financial challenges has become a prominent topic in the ruling party’s leadership race scheduled for September 27. Hideo Kumano, chief economist at Dai-ichi Life Research Institute, noted that the expected economic package from the next prime minister, including potential extensions of energy subsidies, would reflect the new leader’s approach to fiscal responsibility.

Taro Kono, the digital transformation minister and candidate in the race, characterized the current fiscal situation as an “emergency,” emphasizing the need for Japan to restore fiscal discipline. Another contender, Takayuki Kobayashi, expressed intentions to introduce a new package to alleviate the burden of rising prices, stating, “The economy should be prioritized over finance.”

Toshimitsu Motegi, another aspirant, mentioned the need for a comprehensive stimulus plan to support ongoing economic recovery.

Saisuke Sakai, a senior economist at Mizuho Research and Technologies, remarked that with potential lower house elections approaching, there may be increasing calls for more spending. He cautioned that failing to streamline expenditures could hinder the goal of achieving a primary budget surplus.