Budgetary Request Marks New Record

The Ministry of Finance (MOF) on August 31st closed budget requests from other ministries for fiscal year 2027. As Prime Minister Sanae Takaichi removed the limit of request to encourage investment for economic security, the total amount of the requests far exceeded that of last year, leaving concern on fiscal resource. Reflecting that concern, long-term bond yieald immediately showed steep hike. 

The MOF pulls each ministry’s budget request together for next fiscal year in every August. It examines those requests between September and December, and some projects which is not necessary in terms of national interest are removed. This has been recognized as an exclusive authority given to the MOF. With detailed examination by the MOF, a draft of annual budget is formulated in late December and it will be submitted to and discussed by the Diet from January to March. With approval of both chambers of Diet, the budget plan will be applied to new fiscal year starting April.

 

With great influence of Ministry of Economy, Trade and Industry (METI), which focuses more on economic growth than fiscal discipline, Takaichi is not satisfied with the ordinary system of budget formulation. She removed limit of request, which had been set every year, and created a limitless quota for investment for economic growth and economic security. As the result of new system, total amount of budget request for FY2027 was estimated to around 143 trillion yen, significantly exceeding the request last year with 122 trillion yen.

 

Each ministry became active to take this opportunity of expanding its annual budget. Ministry of Defense (MOD) requested the record high of 8.89 trillion yen for FY2027. That included introduction of AI in its command-and-control system, development of cloud system for the ministry. Taking account of revision of National Security Strategy later this year, MOD requested cost for deployment of long-range missile loaded on unmanned submarine.

 

Ministry of Health, Labour and Welfare requested 36. 58 trillion yen. That included some investments, which would meet economic growth strategy, for taking advantage of AI in development or examination of new drug or support for pharmaceutical start-ups. The METI demanded 2 trillion yen for supporting businesses on AI, semiconductor or robot out of 8.89 trillion yen of its total request.

 

The ministry that requested greatest amount of budget for FY2027 was MOF with an amount of 38.69 trillion yen. The budget for redemption of governmental bonds issued in the past is 36.63 trillion yen. The cost for redemption for the yield would be 16.58 trillion yen, based on calculation of the MOF assuming the yield in FY2027 at 3.8 percent. The assumed yield rose 0.8 point from 3.0 percent in FY2026.

 

Reflecting market’s concern on Takaichi’s fiscal policy, 10-year governmental bonds yield temporary marked 2.950 percent, with increase of 0.025 point from the previous business day, on the same day when the request for 2027 budget was closed on August 31st. The long-term bonds yield exceeded 3 percent the next day, leaving concern on funding of businesses and each household’s payment for housing loan. Takaichi faces necessity of maintaining confidence on her fiscal policy.

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