FY2025 Supplemental Budget Passes the Diet

The House of Councillors approved Sanae Takaichi Cabinet’s FY2025 supplemental budget bill on December 16th. The budget passed the Diet. While the budget focused on measures to help households, which have been suffering from price inflation, it included some policies which required imposing further tax. As doubts on efficiency of the budget for stimulating Japanese economy expand, credibility on financial balance of Japanese government is eroded by a great amount of issuance of governmental bonds. 

The size of the budget has swollen to 18.3 trillion yen to help car users through gasoline tax cut, to support families with children through national subsidy which would be 20 thousand yen for each family, and to provide local governments with financial resources so that they can distribute vouchers or other kinds of coupons to the people. To promote those economic policies, the budget assumed issuing 11.6 trillion yen of additional Japanese governmental bonds (JGBs).

 

To implement her conservative agenda, Takaichi accumulated defense budget to fulfill Japan’s pledge for a 2 percent target against Japan’s GDP in this fiscal year, which was two years earlier than originally scheduled. To compensate the spendings for defense, Takaichi government is going to raise corporate tax by 4 percent from FY2026 and income tax by 1 percent from FY2027. Tobacco tax will eventually rise by 0.5 percent per cigarette for each of three times through FY2027.

 

Not only those tax increases offset against gasoline tax cuts and other subsidies for families, the financial mobilization may cause further price inflation for consumers. Former prime minister Shinzo Abe promoted weak-yen monetary policy to support exporters, which caused price inflation in imported goods. It is notable that Takaichi is a firm advocator of that Abenomics, upholding a slogan of “strong economy.”

 

The Bank of Japan is expected to raise its policy interest rate in coming policy meeting later this month. Takaichi’s large-scale spending plan contradicts with that JOB policy which is aimed at containing price inflation. Real wages in October 2025 declined by 0.7 percent, marking a consecutive down for these ten months. Reflecting concerns of market on great issuance of JGBs, financial markets showed a triple low in late November. Interest of long-term bonds shows a gradual hike toward 2 percent, the highest level in these 18 years.

 

One of the main reasons why Takaichi needed to formulate that great amount of budget is that she had to meet various demands from other parties. Gasoline tax cut was requested not only Takaichi administration’s coalition partner, Japan Innovation Party, but some opposition parties including the Democratic Party for the People (DPP). Takaichi is going to raise the threshold of income tax to annual income of 1.78 million yen, to implement an agreement with the DPP and Komeito in December 2024.

 

As long as Takaichi insist on “strong economy,” on diplomacy of Japan blooming at the center of the world, and on active spendings for those policies, Japan is going to keep on expanding its budget in FY2026 and later.

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