Japan’s budget requests have reached an unprecedented level for the upcoming fiscal year, surpassing $800 billion, according to the finance ministry’s announcement on Wednesday. As the world’s fourth-largest economy grapples with curbing expenditures and rising debt-servicing costs, the situation has become increasingly challenging.
A new leadership race could further complicate Tokyo’s attempts to regain fiscal discipline. This month’s election for the ruling party’s leader—and, by extension, the next prime minister—could lead to a snap parliamentary election, adding more uncertainty to the fiscal landscape.
The budget requests, totaling a record 117.6 trillion yen ($811.93 billion), come as the Bank of Japan gradually exits its decade-long stimulus program. This shift means the government can no longer depend on ultra-low borrowing costs or rely on the central bank to finance its debt.
The finance ministry projects that the assumed interest rate will rise to 2.1% for the fiscal year beginning in April, up from the current year’s 1.9%. This increase will push debt-servicing costs for interest payments and debt redemption to 28.9 trillion yen, up from 27 trillion yen this year.
Government ministries have been permitted to request additional funds without specifying amounts to support expanding childcare and counter rising prices, which could further elevate budget demands.
Japan, burdened with the highest debt among industrialized nations at more than twice the size of its economy, has reiterated its commitment to achieving a primary budget surplus by the next fiscal year. However, fixing the country’s strained public finances has become a central issue in the ruling party’s leadership election set for September 27.
Hideo Kumano, chief economist at Dai-ichi Life Research Institute, noted that an economic package likely to be formulated under the next prime minister will reveal their stance on fiscal discipline, including whether to extend energy subsidies.
Kono Taro, the digital transformation minister and a candidate in the leadership race, described Japan’s fiscal situation as an “emergency” and emphasized the need to restore fiscal discipline. Another contender, Takayuki Kobayashi, has proposed a new package to alleviate the impact of rising prices, prioritizing the economy over financial concerns. Meanwhile, Toshimitsu Motegi, another hopeful, expressed his desire for a comprehensive stimulus package to sustain economic recovery.
Saisuke Sakai, senior economist at Mizuho Research and Technologies, warned that with a lower house election on the horizon, there could be growing calls for increased spending, which might hinder efforts to achieve a primary budget surplus.
