Budget Request Expands with Active Investment

Encouraged by the policy for active investment by Prime Minister Sanae Takaichi, the ministries are making active request for FY2027 budget. It is likely that the total amount of all the requests will exceed 130 trillion yen for the first time. As Takaichi removed limit of budget request from each ministry, a great question remains: How the government can find the resource for the requests. 

Every ministry makes budget request to the Ministry of Finance (MOF) by the end of August every year. The MOF examines details of the request through the fall and formulate a budget draft in December. The budget plan made by the MOF is submitted to ordinary session of the Diet, which is ordinarily convoked in January, and the budget bill is discussed in both chambers of the Diet. The leading parties make effort to pass the bill by the end of March, because new fiscal year starts in April.

 

The total amount of request in 2025 was 122 trillion yen, marking the record high. But the request this summer is expected to rise to 130 trillion yen. Since she took the seat in October 2025, Takaichi has been promoting her economic policy, represented by the phrase of “responsible and proactive fiscal policy.” Takaichi proposed 370 trillion yen of investment by private sector and the government by 2040. Lack of credible plan to secure fiscal resource caused depreciation of Japanese yen and long-term interest hike.

 

Reflecting growingly unpredictable security situation around Japan and demand of the United States to increase defense budget of its allies, Ministry of Defense is going to request 8.9 trillion yen for FY2027. The ministry expects defense budget to include cost for “new warfare” with drones and AI, for enhancement of domestic productivity of defense equipment and for better treatment of personnel of Japan Defense Forces.

 

On the other hand, the MOF is considering that payment for reimbursement of governmental bonds will rise to the record high of 36.6 trillion yen in FY2027. The ministry estimates that interest rate for the reimbursement will be 3.8 percent, 0.8 point higher than FY2026 budget. It reflects current rise of long-term interest. In FY2026, about 25 percent of all the spendings was occupied by the reimbursement. The budget can lose flexibility with increase of the cost for governmental bonds.

 

Nevertheless, Takaichi does not seem to stop expanding national budget. She expects increase of tax revenue. The settlement of national budget in FY2025 increased by 6.4 trillion from the original estimate. Takaichi seems to believe economic growth can compensate increase of reimbursement of governmental bonds or growing spendings for defense or social security.

 

Budget request of ministries had been called “ceiling”, because the MOF caps requests from other ministries to keep healthy balance of national budget. However, Takaichi no longer be too careful in promoting investment policy. Her fiscal policy may cause vicious cycle of economy with unrealistic fiscal resource, concern on increase of national debt, depreciation of yen, higher price inflation and further issuance of governmental bonds.

Comments

Post a Comment

Popular posts from this blog

LDP Kickoffs Presidential Election

The Liberal Democratic Party (LDP)   kicked off  its presidential election campaign on September 22 and five lawmakers officially submitted their candidacy to the party. Having lost majority in both Houses of the Diet under the leadership of Prime Minister Shigeru Ishiba, the presidential election should be about how to regain power through reform of the party. Nevertheless, the candidates do not talk much about the reform, rather focusing on economic policies for the people or maneuvers to attract the opposition parties.   Those five candidates are former Minister on Economic Security Takayuki Kobayashi, former LDP Secretary General Toshimitsu Motegi, Chief Cabinet Secretary Yoshimasa Hayashi, former Minister on Economic Security Sanae Takaichi and Miniser of Agriculture, Forestry and Fisheries Shinjiro Koizumi.   Kobayashi insists on temporary income tax cut with a fixed rate, which return is bigger for high-income taxpayers than them with low-income. Identifying h...
Read more

BOJ Begins to Sell ETF

The Bank of Japan (BOJ) decided to keep its short-term rate at 0.5 percent in its Monetary Policy Meeting on September 19 th . While it had been expected that the bank would not change the policy rate in the meeting, the meeting unanimously agreed on beginning to sell exchange-traded funds (ETF). Although the policy reflected the bank’s determination for normalizing its monetary policy, the Governor of JOB, Kazuo Ueda, predicted that it would take a hundred years to release all the ETF it possesses. While the BOJ started buying ETF, a financial product which is equivalent to investment trust, in 2010, the bank abruptly increased its quantity of purchase in 2013, under the leadership of then governor, Haruhiko Kuroda, who exchanged an accord with Shinzo Abe administration to cooperate to get rid of deflation and to achieve stable economic growth. The amount of ETF bought by the BOJ has reached 37 trillion yen.   Purchase of ETF by a central bank has been recognized as a prohibited m...
Read more

Defense Ministers Meet in Seoul

Minister of Defense Gen Nakatani visited Republic of Korea and had a meeting with ROK Minister of National Defense Ahn Gyu-back. It was the first time for Japanese defense minister to have a bilateral ministerial meeting in these ten years. Both ministers reconfirmed importance of trilateral security cooperation including the United States to deal with another trilateral cooperation by China, Russia and North Korea.   In the  press conference  after the meeting, Nakatani stressed importance of maintaining bilateral relationship between Japan and ROK, or Japan-ROK-U.S. relationship in a volatile security environment. Both ministers agreed on promoting discussion by both defense authorities and exchange of personnel. They also agreed on further cooperation in cutting edge technologies including artificial intelligence, unmanned system or the space. They will maintain joint exercise called “Freedom Edge,” in which multiple countries participate.   Their bilateral relati...
Read more