Record defence and social spending in Japanese budget

The measures will require the support of some opposition parties in parliament's regular session that begins in January, although Prime Minister Sanae Takaichi has included some demands from key parties to ensure the proposals pass.

The draft budget includes more than nine trillion yen for defence spending, a record that comes after Takaichi pledged to US President Donald Trump to bolster Japan's military capabilities.

According to the Nikkei business daily, much of the funding will go toward the purchase of drones and long-range missiles.

The budget also allocates more than 39 trillion yen to social spending, an increase that reflects the challenges to public finances posed by Japan's aging population.

The government expects tax revenues to rise to nearly 84 trillion yen, a new record, thanks to improved corporate earnings.

The fiscal year 2026 budget strengthens key policies while adhering to financial rules and pursuing a strong economy, government spokesman Minoru Kihara said at his daily press briefing. 

Takaichi, who favours increasing public spending to boost Japan's stagnant economy, secured approval mid-month for a supplementary budget of 18.3 trillion yen for the remainder of fiscal year 2025 (ending in March 2026), the largest sum since the COVID-19 pandemic.

The allocation was key to financing an ambitious stimulus plan aimed at alleviating the effects of persistent inflation, but it has also unsettled investors due to Japan's reliance on debt issuance and has contributed to pushing Japanese bond yields to levels not seen since the 1990s.