Japan's cabinet approves record $785 billion budget, vows to keep debt in check

Japanese Prime Minister Sanae Takaichi’s cabinet on Friday (December 25, 2025) approved a ‍record $785 billion budget for the next fiscal year, aiming ​to strike a balance between her proactive fiscal ‌policy and debt blowout concerns by limiting ​new bond issuance. Faced with rising government bond yields and a weak yen, the Takaichi administration has stepped up efforts to reassure investors that the government will not resort to irresponsible debt issuance or tax cuts. The budget for the year ​starting from April, to be submitted to parliament ⁠early next year, will total a record 122.3 trillion yen ($784.63 billion), exceeding this year’s initial budget of 115.2 trillion yen. Still, ​new government bond ⁠issuance will increase only slightly from this year’s 28.6 trillion yen to 29.6 trillion yen, with the debt dependence ratio falling to 24.2%, the ‌lowest since 1998. Higher tax revenues, projected to rise ‌7.6% to a record 83.7 trillion yen, will help fund increased spending, though ‍they will not fully offset surging debt-servicing costs, along with higher social welfare and defence outlays. Debt-servicing costs ‍for interest payments and debt redemption will jump 10.8% to 31.3 trillion yen, with the assumed interest rate set at 3.0%, the highest level in 29 years, as the Bank of Japan exits ultra-loose monetary policy. Japan already has the highest debt burden in the developed world at more than ⁠twice the size of its economy, making it highly sensitive to rising borrowing costs ​and complicating Takaichi’s plans to pursue aggressive fiscal stimulus ⁠measures. Takaichi intends to drop the idea of using the annual primary budget balance as Japan’s fiscal consolidation goal and set a new goal that extends through several years ⁠to allow more flexible spending. ($1 = 155.8700 yen) Published - December 26, 2025 07:22 am IST

Preview: ~295 words