Japan govt approves record 122 trillion yen budget
 

On Friday, December 26, 2025, the Japanese government gave its approval to a record-breaking budget of 122.3 trillion yen ($782 billion) for the upcoming fiscal year. This massive spending plan, which begins in April 2026, aims to address several simultaneous crises: persistent domestic inflation, the skyrocketing costs of an aging society, and a rapidly deteriorating regional security environment.

A primary driver of this fiscal expansion is a substantial increase in military spending. Prime Minister Sanae Takaichi has allocated nine trillion yen toward defense, reflecting her administration’s goal of fundamentally upgrading Japan’s military hardware. The Ministry of Defense justified this by stating that Japan currently faces its most "severe and complex" security landscape since the end of World War II, specifically pointing to rising tensions with China.

The "SHIELD" Coastal Defense
The cornerstone of this military upgrade is a project known as SHIELD (Synchronized, Hybrid, Integrated and Enhanced Littoral Defense). The government has set aside 100 billion yen to begin developing this sophisticated coastal defense network, which will utilize a swarm of drones to detect and intercept potential foreign incursions. The administration hopes to have the system fully operational by March 2028, though the specific locations for the drone installations remain classified.

Economic Risks and National Debt
While the government argues that big spending is necessary to revitalize the economy, financial markets are reacting with significant caution. Japan already grapples with the highest debt-to-GDP ratio among major industrialized nations—projected to hit nearly 233% this year. Critics and economists have expressed concern that Takaichi’s "proactive fiscal policy" could lead to market instability similar to the "bond market turmoil" seen in the United Kingdom in 2022.

The value of the Japanese yen has continued to struggle, falling as investors worry about the long-term sustainability of such high debt levels. A weaker yen creates a secondary problem for the Takaichi administration: it drives up the cost of imported fuel and food. This puts further pressure on Japanese households, even as the Prime Minister pledges to use government funds to fight the very inflation that these fiscal policies may be exacerbating.

Social Security and Demographic Challenges
Beyond military and economic concerns, the budget is heavily weighed down by the "ballooning" costs of social security. Japan’s chronically low birth rate and aging population mean that a shrinking workforce must support an ever-growing number of retirees. These mandatory costs, combined with the new defense initiatives, have pushed the total budget significantly higher than the previous record of 115 trillion yen.

Prime Minister Takaichi remains steadfast, however, insisting that austerity would only further weaken the nation. She argues that the only path forward is to bolster national strength through targeted investment, though the draft must still face final approval by the Japanese parliament. As the yen and bond prices fluctuate, the administration finds itself walking a tightrope between national security needs and fiscal survival.