Japan's budget requests from ministries and agencies for fiscal 2027 starting April are set to top 130 trillion yen ($819 billion), significantly higher than last year's record of 122 trillion yen due to the government's promotion of growth investment, sources close to the matter said Friday.
In a major budget drafting reform, Prime Minister Sanae Takaichi's government has not set caps on ministries' requests for growth strategy spending. It will also secure funds for policies needing multiyear implementation, rather than drawing up the initial budget on the assumption that a supplementary budget will be crafted for additional spending.
The draft budget expected by year-end could swell from the amount initially requested, given that spending will not be finalized for many items until negotiations conclude, the sources said.
With tax revenue for fiscal 2026 forecast by the government at 83 trillion yen, requests totaling over 130 trillion yen will likely lead to new debt issuance, dealing a further blow to the country's fiscal health, already the worst among advanced economies.
Ministries and agencies face a deadline at the end of this month to submit budget requests for the next fiscal year ahead of the Finance Ministry's compilation of the budget by the end of this year.
Among the requests, the Ministry of Economy, Trade and Industry is seeking around 7.7 trillion yen, including special account spending, with some 4.5 trillion yen planned for growth strategy investment in areas including the development of artificial intelligence and semiconductors.
Eying aggressive investment in human resource development in fields related to digitalization, the Ministry of Education, Culture, Sports, Science and Technology is asking for around 8.7 trillion yen, up 2.8 trillion yen from the previous year.
The Defense Ministry is requesting a record 8.9 trillion yen to deploy interceptor drones and take other measures to accelerate Japan's defense buildup.
The Foreign Ministry will likely ask for 1.2 trillion yen, up from the 870 billion yen it sought in its fiscal 2026 request, aiming to expand its official development assistance and security assistance programs to strengthen ties with like-minded countries. It is requesting over 200 billion yen under the growth strategy category.
Social security expenditures such as pension and medical costs are expected to increase around 390 billion yen from the previous year, reflecting the continued aging of the population.
Debt-servicing costs, covering interest on existing bonds and redemptions, are expected to exceed the 31.3 trillion yen the government earmarked in the fiscal 2026 budget, the sources said.
The Finance Ministry set the assumed interest rate used to calculate interest payments at 3.0 percent for fiscal 2026 and is expected to set it at 3.8 percent for fiscal 2027, they said.
Government bond yields have trended higher on market expectations that the Bank of Japan will continue raising interest rates after lifting its key policy interest rate to a 31-year high of 1.0 percent in June.
Takaichi said in July that the new growth investment framework is designed to significantly increase domestic private-sector capital investment.
She has said the predetermined request limits known as "ceilings" will not be imposed, aiming to promote economic growth and strengthen national security.
