Japan’s Cabinet, led by Prime Minister Sanae Takaichi, approved a record ¥122.3 trillion budget on Friday for the fiscal year beginning April 1, 2026, which includes ¥29.6 trillion in government bonds to cover a projected revenue shortfall. The proposal is set to be submitted to parliament for approval at the next regular Diet session, beginning January 23.
The 2026 budget exceeds the current fiscal year’s initial allocation by ¥7.1 trillion. Government debt-related costs — covering both principal and interest payments — are projected at ¥31.3 trillion, accounting for a quarter of total spending and marking a historic high. Rising interest rates have contributed to increased debt-servicing costs, with interest payments alone expected to reach an unprecedented ¥13 trillion. The Finance Ministry revised its projected interest rate for debt calculations to 3%, up from 2.6% used in August estimates.
On the revenue side, Japan expects a record tax income of ¥83.7 trillion. Social security spending remains the largest expenditure category at ¥39.1 trillion, while non-social security outlays total ¥31.1 trillion, including ¥8.8 trillion for defense — reflecting the government’s ongoing military buildup. Markets are increasingly scrutinizing Japan’s fiscal sustainability, particularly following a ¥21.3 trillion stimulus package announced in November.
Amid the budget approval, Prime Minister Takaichi is reportedly considering a visit to the United States in March, which would be her first trip since taking office in October. Sources say the visit aims to facilitate talks with U.S. President Donald Trump ahead of his planned April meeting with Chinese President Xi Jinping. The discussions are expected to focus on coordinating Japan-U.S. policy toward Beijing, particularly amid rising tensions over Taiwan, where Takaichi has warned that a potential Chinese use of force could threaten Japan’s survival and justify exercising its right to collective self-defense.
Takaichi and Trump are also likely to discuss strengthening security cooperation, expanding supply chains for critical minerals, and selecting projects for Japan’s pledge of $550 billion in U.S. investments and loans under a bilateral trade agreement. This would mark the second meeting between the two leaders, following their first encounter in Tokyo in October.
In Japan, deliberations on the budget bill will be held in the House of Councilors, the upper chamber of parliament, in March. Although the ruling coalition of the Liberal Democratic Party and the Japan Innovation Party lacks a majority in the Upper House, the opposition Democratic Party for the People has expressed support for enacting the 2026 budget, potentially clearing the way for Takaichi’s subsequent U.S. trip.
