Japan is set to approve a roughly 112 trillion yen ($789 billion) draft budget for fiscal 2024 on Friday, marking the first decline in spending in 12 years as COVID-related funding was curbed, but faces challenges maintaining fiscal discipline amid record outlays on defense and social security.
The figure compares with a record 114.38 trillion yen initial general-account budget for the current business year to next March. About a quarter of the total, or around 27 trillion yen, will be used to service debt as Japan's fiscal health remains the worst among developed nations.
The budget size is still historically large, underlining the difficulty of reducing spending to pre-pandemic, "peacetime" levels as envisaged by the government.
Prime Minister Fumio Kishida believes that priority should be given to boosting the economy over fiscal rehabilitation. Recent years, marked by the COVID-19 pandemic and a cost-of-living crisis, have witnessed a significant surge in fiscal spending.
With everyday goods like food items becoming pricier and fuel costs surging, the government has unveiled a slew of mitigation measures, coming at a time of slumping public support for Kishida's Cabinet.
Fiscal 2024 is the second year of a government plan until fiscal 2027 to substantially increase defense spending to a combined 43 trillion yen. Japan is also ramping up spending on child care support while addressing ballooning social security costs due to a rapidly aging society.
The government expects a record tax revenue of around 69 trillion yen, despite its plan to offer a 40,000 yen tax cut per person from June to help fight inflation, according to sources close to the matter. This comes as rising prices have boosted consumption tax revenue.
Japan plans to issue government bonds to meet about 30 percent of its spending needs for fiscal 2024, roughly unchanged from the current year.
The Bank of Japan is still committed to its policy of ultralow rates but has already allowed 10-year Japanese government bond yields to rise above its previously rigid 1.0 percent ceiling. Higher yields would mean increased interest payments and debt redemption costs for Japan.
