Key facts
- Japan's budget requests for fiscal 2027 total a record 143 trillion yen ($918 billion).
- A new uncapped investment category for growth areas like AI and space accounts for 12 trillion yen.
- Debt-servicing costs have reached a record 36.64 trillion yen.
- The assumed interest rate for budget calculations was raised to 3.8% from 3.0%.
Japan's budget requests for fiscal 2027 have reached a record 143 trillion yen ($918 billion), marking the fourth consecutive year of increases and approaching pandemic-era spending levels. The expansionary fiscal policy is spearheaded by Prime Minister Sanae Takaichi's agenda, which includes a new uncapped special investment category totaling 12 trillion yen for strategic sectors like artificial intelligence and semiconductors. However, this surge in spending comes as Japan's fiscal health is already the weakest among major advanced economies, with rising interest rates increasing the cost of servicing its debt. Debt-servicing costs alone have hit a record 36.64 trillion yen, prompting the Ministry of Finance to raise its assumed interest rate for budget calculations to 3.8% from 3.0%. The Health, Labor and Welfare Ministry submitted the largest request at 36.58 trillion yen, reflecting rising costs associated with an aging population. The Defense Ministry requested 8.84 trillion yen, including funds for developing attack drones. Many ministries also submitted requests without specifying amounts, indicating the final budget could grow further. Financial markets remain wary of the government's expanding fiscal commitments and are focused on the scale of new government bond issuance, which Takaichi aims to keep around 40 trillion yen.