The Japanese government has approved a record 122.3-trillion-yen ($782 billion) budget for the 2026 fiscal year, addressing rising defence costs, social security obligations, and persistent inflation pressures.
The budget allocates a record nine trillion yen for defence spending, reflecting Prime Minister Sanae Takaichi’s push to modernise Japan’s military in the face of escalating tensions with China.
Defence Minister Shinjiro Koizumi described the allocation as “the least we need to fulfil our defence responsibilities as Japan faces its most severe and complex security environment since the end of the war.”
In recent years, Japan has shifted from its strict pacifist stance, pursuing “counterstrike” capabilities and raising military expenditure to two percent of GDP.
At the centre of this year’s defence plan is 100 billion yen for the SHIELD coastal defence system, designed to deploy drones to prevent foreign incursions.
The project, dubbed Synchronised, Hybrid, Integrated and Enhanced Littoral Defence (SHIELD), is expected to be operational by March 2028.
The budget comes amid heightened tensions between Tokyo and Beijing over Taiwan. In November, Takaichi suggested Japan could intervene militarily in the event of an attack on the self-ruled island, which China claims as its territory.
Economic Concerns
While the budget aims to bolster national security and social services, market analysts have raised concerns about Japan’s already high debt-to-GDP ratio, projected at 232.7 percent this year, the highest among major economies.
The government also approved an additional 21.3-trillion-yen stimulus in November, further expanding public spending.
Financial markets have responded with a weaker yen and rising government bond yields.
Nomura Research Institute economist Takahide Kiuchi warned that any further increase in spending could intensify market instability, potentially raising the cost of imports and affecting Japanese households.
Takaichi emphasised that the budget is intended to ensure citizens have access to welfare, healthcare, quality education, and employment opportunities, while maintaining fiscal responsibility. She reaffirmed her commitment to avoiding “irresponsible bond issuance or tax cuts.”
The draft budget will now be submitted to parliament for approval.
