The Japanese government on Friday approved a record ¥122.3 trillion ($782 billion) budget for the upcoming fiscal year starting April 2026, as it seeks
to fund higher defence spending and rising social security costs in an inflation-hit economy, according to AFP. A major highlight of the budget is nearly ¥9 trillion earmarked for defence, reflecting Prime Minister Sanae Takaichi’s push to rapidly strengthen Japan’s military amid deteriorating regional security conditions, particularly strained ties with China. The defence ministry warned that Japan faces its “most severe and complex security environment since the end of the war,” underlining the need to fundamentally enhance defence capabilities. Among the key proposals is ¥100 billion for the SHIELD coastal defence system, which would deploy drones to counter potential foreign troop invasions. The system is expected to be completed by March 2028. The new budget surpasses the ¥115 trillion allocation for the current fiscal year, which was itself a record. However, the expansion has fuelled concerns in financial markets about Japan’s already massive public debt. Japan holds the highest debt-to-GDP ratio among major economies, projected by the International Monetary Fund to reach 232.7% in 2025. Earlier this month, parliament also cleared an additional ¥21.3 trillion stimulus package, adding to investor unease. Markets have responded cautiously, with the yen weakening and government bond yields rising, prompting some comparisons to the UK’s 2022 bond market turmoil. While Takaichi has defended aggressive fiscal spending as necessary to boost growth and combat inflation, economists warn that further expansion, towards ¥125 trillion or more—could trigger deeper bond market stress. The draft budget now awaits parliamentary approval, even as Japan grapples with inflation, an ageing population, and its heavy reliance on imports amid a weaker currency.
