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Japan’s record ¥122.3 trillion budget tests growth vs. debt balance

Prime Minister Takaichi bets on stimulus and fiscal restraint—but can Japan’s economy outpace its debt? Critics question the long-term risks.

,   and  Administrator
2 min read
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Japan’s record ¥122.3 trillion budget tests growth vs. debt balance

Japan’s government has unveiled a record budget of ¥122.3 trillion for the 2026 fiscal year. Prime Minister Sanae Takaichi aims to balance economic growth with debt control, despite concerns over heavy borrowing. The plan follows a major stimulus package introduced late last year to boost the country’s sluggish recovery.

The draft budget, set for final approval on Friday, will be submitted to parliament early in 2026.

Takaichi’s administration, elected in October 2025, has pushed for an expansionary fiscal policy. In late November 2025, the government announced a ¥21.3 trillion stimulus package. This included direct spending, tax relief, and credit guarantees to lift growth to 1% in 2026 and raise tax revenues.

The new budget for the fiscal year starting in April relies on ¥29.6 trillion in bond issuance. While this remains substantial, the share of debt financing will drop to 24.2%—the lowest since 1998. Takaichi has described the approach as 'responsible and proactive,' focusing on long-term economic strength rather than immediate debt reduction.

Private-sector members of a government advisory panel have urged clearer plans for lowering Japan’s debt-to-GDP ratio. The prime minister has acknowledged the high debt levels but insists the budget maintains fiscal discipline. She has ruled out reckless borrowing or 'turbo tax' cuts, signalling a cautious shift in policy.

The total spending of ¥122.3 trillion (RM3.1 trillion) builds on the previous year’s stimulus efforts. Takaichi argues the draft budget supports growth while ensuring sustainability. Critics, however, remain wary of Japan’s persistent debt burden.

The finalised budget will be presented to parliament in early 2026. With debt dependence at its lowest in decades, the government aims to prove it can manage growth without worsening long-term liabilities. The success of this strategy will depend on whether tax revenues rise as projected and economic targets are met.

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