Japan to unveil record $735 bn budget with ramped-up defence spending

By Takashi Umekawa  The Japanese government is expected to approve a record initial budget Friday for the next fiscal year that will ramp up spending on defence and support for regional economies. 

The budget for the year starting in April 2025 will total around ¥115.5 trillion ($735 billion), according to a draft of the plan obtained by Bloomberg on Wednesday. While the draft shows the government will still have to lean heavily on debt issuance to help fund the spending, record tax receipts will enable the cutting back of fresh bond issuance by almost a fifth to ¥28.6 trillion. 

 

The increase from the current fiscal year’s initial annual budget of ¥112.6 trillion is around 2.6 per cent, largely in line with the government’s forecast for overall inflation in this fiscal year. Ministries had earlier requested total outlays of ¥117.6 trillion. 

 

Among the biggest increases are a jump of more than 10 per cent in defence spending to ¥8.5 trillion and an increase of around 7 per cent in grants to local governments. 

 

Prime Minister Shigeru Ishiba is a strong advocate of raising spending on defence and improving the working conditions of those employed in the nation’s military amid a tense regional security environment. Still, the rise in the defense budget largely fits in with increases already planned over coming years. 

 

Boosting grants to local governments hits another key theme for the premier, who has long called for more central government support for regional revitalisation.

 

The paper showed ¥38.3 trillion allocated for social security, up from ¥37.7 trillion. The upcoming budget does not include reserve funds for price relief and wage growth measures. While record tax receipts of ¥78.4 trillion will help limit reliance on government debt, the latest budget plan would add to Japan’s debt pile.

 

The International Monetary Fund already estimates the nation’s debt load at over 250 per cent of gross domestic product in 2024.  

 

Still, the cutting back of fresh bond issuance comes at a key time for the government given that the Bank of Japan is likely to continue raising interest rates. That will put upward pressure on debt-servicing costs. 

 

The government has set the accumulated rates for calculating the nation’s debt-servicing cost at 2 per cent for the latest budget, up from 1.9 per cent in the current year’s initial budget, according to people familiar with the matter.