Supplemental Budget Passes the Diet

The Diet passed a supplemental budget for supporting households which are suffering from price inflation caused by the war in Iran on June 5th. Although Prime Minister Sanae Takaichi has been reluctant to form a supplemental budget, international security situation did not allow her keeping her own words. Total spendings amounting over 3 trillion yen will be brought by issuance of governmental bonds. Takaichi still insists on her political agenda named “responsible and proactive public finances.” 

Exact amount of spendings of the supplemental budget in fiscal year 2026 is 3.1135 trillion yen. It can be broken down to 1) 2.5 trillion yen for the reserve to meet situation in the Middle East, 2) 513.5 billion yen for refilling the reserve in annual budget for FY2026, and 3) 100 billion yen for local governments that need to support households using liquified petroleum gas.

 

2.5 trillion yen is expected to be spent for subsidy to support gasoline price. Making a clear contrast from European countries, cars in Japan heavily depend on gasoline for their fuel. After the United States and Israel attacked Iran and Iran laid effective blockade in the Strait of Hormuz, Takaichi introduced subsidy on gasoline to maintain its price at 170 yen a liter. As the war is dragged out for months, Takaichi now needs to find further financial resource to continue her policy.

 

Takaichi also included in the annual budget for FY2026 subsidy for payment for electricity and gas in each family. That was deducted from the reserve in FY2026 annual budget. 513.5 billion yen in the supplemental budget is to compensate that spendings. The rest of 100 billion yen will be distributed to consumers of LPG, who are mainly living in local communities.

 

It is obvious that the supplemental budget mostly relies on the “reserve.” “In order to provide for unforeseen deficiencies in the budget, a reserve fund may be authorized by the Diet to be expended upon the responsibility of the Cabinet,” saysArticle 87 of the Constitution of Japan. Takaichi has authority to mobilize national budget for “unforeseen deficiencies” with checking of the Diet.

 

Some opposition parties in the Diet, the Democratic Party for the People (DPP), Japan Conservative Party and Team Miral, voted for the supplemental budget, understanding urgency of the budgert. But Constitutional Democratic Party of Japan (CDPJ) and Komeito were skeptical about arbitral use of the reserve. Although CDPJ and Komeito submitted an alternative budget for spendings not dependent on the reserve, it was dismissed with opposition of leading parties.

 

The budget passed the Diet leaving some financial concerns behind. One is how Takaichi can put a period on subsidy for gasoline. It is obvious that support for gasoline price is not sustainable as long as current high price continues. While Takaichi announced that she would take flexible measures, the leader of DPP, Yuichiro Tamaki, demanded to set a stricter threshold to activate subsidy for gasoline.

 

Another concern is primary balance of the nation. At the time when Takaichi Cabinet approved FY2026 annual budget, she expected first surplus of the primary balance for the first time since 1998. However, issuance of national bonds for the supplemental budget will return the balance into a deficit again. As Takaichi emphasizes her effort for healthy operation of national budget, the markets closely watch the move of her handlings of fiscal policy.

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