Prime Minister Sanae Takaichi's cabinet approved a record ¥122.3 trillion draft budget for fiscal 2026 on December 26, following the ruling parties' endorsement of a related tax reform plan the prior week. The budget boosts social security and defense spending and will go to parliament on January 23.
This approval comes after the Liberal Democratic Party (LDP) and its coalition partner approved the FY2026 tax reform plan on December 19, as previously reported.
The general account spending totals ¥122,309.2 billion—a record surpassing the fiscal 2025 initial budget of ¥115,197.8 billion and marking the second consecutive yearly high. Projected tax revenue hits ¥83,735 billion due to inflation and corporate earnings but covers only part of expenditures, necessitating ¥29,584 billion in new bonds (up from ¥28,647.1 billion), or 24.2% of revenue.
Social security, over 30% of the budget, rises 2.0% to ¥39,055.9 billion, including a 3.09% hike in medical fees tied to wage increases. Debt-servicing costs reach another record ¥31,275.8 billion, with interest payments projected at ¥13 trillion based on a 3.0% rate amid Bank of Japan policy shifts and concerns over expansionary fiscal moves.
Defense spending climbs to a record ¥8,984.3 billion, having met the 2% GDP target early. Highlights include ¥1,239 billion for semiconductors and AI, plus ¥700 billion for free high school tuition and elementary meals from FY2026. This builds on a November ¥21.3 trillion stimulus amid rising bond yields and a weak yen.
Emphasizing "responsible and proactive" finances against inflation, the draft will be submitted to the Diet's ordinary session starting January 23 for enactment by March 31.
