The Japanese government approved on Friday a record budget for the next fiscal year, aimed at financing both increased defense spending and rising social security costs, as persistent inflation continues to weigh on consumption.
The budget, totaling 122.3 trillion yen (about $785 billion) for the fiscal year starting on April 1, 2026, allocates around 9 trillion yen to defense, as Prime Minister Sanae Takaichi seeks to accelerate the country’s military modernization.
The proposed budget exceeds the 115 trillion yen requested for the current fiscal year.
Markets are concerned about the Takaichi government’s massive spending plans, which could further burden Japan’s public debt, already expected to exceed 232% of GDP in 2025, according to the International Monetary Fund (IMF).
Earlier in December, Parliament approved a large supplementary budget to fund a stimulus plan worth more than $115 billion, a move that weakened the yen and pushed up yields on Japanese government bonds.
A weak yen increases import costs for Japan, which relies heavily on foreign supplies for food, energy, and raw materials.
The draft budget must still be approved by Parliament.
