Budget requests by Japanese ministries and agencies for fiscal 2024 totaled a record 114.39 trillion yen ($779 billion), after higher bond yields pushed up debt-servicing costs on top of increased defense and social security spending, the Finance Ministry said Tuesday.
The amount surpassed the 111.66 trillion yen sought for fiscal 2022, previously the largest on record, with the Finance Ministry planning to scrutinize requests to trim total spending before it unveils a budget before the end of the year.
Japan could see its general-account budget for the next fiscal year hit a record as spending on priority areas such as child care support is set to increase. The initial budget for fiscal 2023 came to a record 114.38 trillion yen.
Japan faces an uphill battle to balance spending needs in the face of security threats from its neighbors, a cost-of-living crisis and a rapidly aging society with its goal of restoring fiscal health, the worst among developed economies.
For years, the Bank of Japan's ultraloose monetary policy has helped limit the rise in debt-servicing costs. Its massive buying of Japanese government bonds has kept long-term interest rates extremely low but has raised concern about its bloated balance sheet.
Still, the debt-ridden nation may be at a turning point as Japan is seen as standing a better chance of breaking free from years of deflation and the BOJ has loosened its grip on 10-year yields.
Costs for debt redemptions and interest payments rose to 28.14 trillion yen, up 2.89 trillion yen from fiscal 2023, after the ministry raised the assumed long-term interest rate used to calculate the figure, to 1.5 percent from 1.1 percent in recent years.
Under Prime Minister Fumio Kishida, Japan is seeking to substantially increase defense spending to better defend itself from security threats from China, North Korea and Russia. To seize what the premier sees as "the last" opportunity to reverse a downtrend in the nation's birthrate, the government will also expand child care support.
Japan is beefing up defense capabilities within the bounds of the war-renouncing Constitution under a five-year plan to spend 43 trillion yen through fiscal 2027.
The Defense Ministry sought 7.71 trillion yen, which includes costs to acquire counterstrike capabilities that will enable Japan to attack enemy targets to cope with ballistic missile threats.
The Ministry of Health, Labor and Welfare sought 33.73 trillion yen, up 586.6 billion yen from the current fiscal year, reflecting ballooning social security costs.
About a third of Japan's annual budget is dominated by funds for nursing care, medical and pension benefits.
The government is seeking to depart from crisis-mode spending in recent years to cope with the COVID-19 pandemic and the negative impact of Russia's war on Ukraine on the economy.
The target year for fiscal rehabilitation is approaching in fiscal 2025, though it will likely be missed based on current government estimates.
Cutting spending looks increasingly difficult, given some budget requests for priority areas such as child policy and inflation relief were made without specifying amounts. Details will be worked out toward the end of the year.
