The Japanese government approved this Friday (26) the initial budget proposal for 2026, which includes record spending of 122.3 trillion yen (approximately €660 billion) to finance unprecedented expenditure on defense and social programs, according to local press.
The proposal also includes issuing 29.58 trillion yen (approximately €160 billion) in bonds, according to the Japanese news agency Kyodo.
The measure will need the support of some opposition parties to be approved by Parliament during the regular session that begins in January, although Prime Minister Sanae Takaichi has included some demands from major parties to ensure its approval.
The budget proposal includes more than nine trillion yen (approximately €49 billion) for defense spending, a record amount that comes after Takaichi promised US President Donald Trump to strengthen Japan’s military capabilities.
According to the economic newspaper Nikkeimuch of the funding will go towards purchasing drones and long-range missiles.
The budget also allocates more than 39 trillion yen (approximately €212 billion) for social spending, an increase that reflects the challenges to public finances posed by Japan’s aging population.
The government also expects tax revenue to rise to almost 84 trillion yen (approximately €455 billion), a new record, thanks to improving corporate profits.
“The budget for fiscal year 2026 strengthens key policies while respecting financial rules and pursuing a strong economy,” government spokesman Minoru Kihara said at his daily press briefing on Friday.
Takaichi, who advocates increased public spending to boost Japan’s stagnant economy, won approval mid-month for a supplementary budget of 18.3 trillion yen (more than €100 billion) for the remainder of the 2025 fiscal year (ending March 2026), the largest amount since the start of the Covid-19 pandemic.
That allocation was crucial to financing an ambitious stimulus plan aimed at mitigating the effects of persistent inflation, but it also left investors on edge due to Japan’s reliance on debt issuance and contributed to raising Japanese bond yields to levels not seen since the 1990s.
