Japan FY2028 budget requests to hit record $895 billion, but bond market and US pressure may curb spending

Japan's government is preparing to submit budget requests for the fiscal year through March 2028 that are expected to reach a record high of approximately 143 trillion yen ($895 billion). This significant increase, surpassing the previous year's record of 122 trillion yen, is largely driven by Prime Minister Sanae Takaichi's administration's push for growth investment and a reform in the budgeting process.

In a notable shift, the government has removed caps on ministries' requests for growth strategy spending. Furthermore, it intends to secure funding for policies requiring multiyear implementation directly within the initial budget, rather than relying on supplementary budgets for additional spending later in the fiscal year. This move aims to improve transparency by curbing the use of extra budgets, according to the Finance Ministry.

The Ministry of Finance is requesting a substantial 229 billion yen for bond service expenses. The expected jump in total requested spending may initially raise concerns among investors regarding the sustainability of Takaichi's fiscal plans. However, the increase also reflects a broader reform of the nation's budget process, which may make direct year-on-year spending comparisons more complex. The risk of higher long-term bond yields could make Japan more careful about government spending.