Japan PM Takaichi: government will cover necessary expenses as much as possible through the initial budget

Japan PM Takaichi: government will cover necessary expenses as much as possible through the initial budget

Japan PM Takaichi: Government to Prioritize Budget Efficiency Amid Fiscal Challenges

Japanese Prime Minister Sanae Takaichi has emphasized that the government will cover essential expenditures through the initial ¥122.3 trillion ($799 billion) budget for fiscal 2026, aiming to balance ambitious spending plans with fiscal sustainability. The budget, approved by the cabinet in December 2025 and finalized following Takaichi's re-election in February 2026, marks a 6.3% increase from the current fiscal year's allocation.

The budget includes a record ¥29.6 trillion in new government bond issuance, slightly higher than the previous year but representing a debt dependence ratio of 24.2%—the lowest since 1998. Takaichi's administration has sought to reassure markets by limiting bond issuance growth, even as it funds projects under a $550 billion trade agreement with the U.S., including energy infrastructure and industrial investments according to reports. Tax revenues are projected to rise 7.6% to ¥83.7 trillion, offsetting part of the increased spending, though debt-servicing costs are expected to jump 10.8% due to higher interest rates.

Takaichi faces scrutiny from the International Monetary Fund (IMF), which warned against suspending the sales tax on food purchases, citing risks to fiscal stability amid Japan's high public debt—over twice GDP. The prime minister has shifted rhetoric from "proactive" to "responsible" fiscal policy, stressing the need to maintain market confidence amid bond vigilante pressures and a weak yen.

To enhance predictability, Takaichi plans to introduce a multiyear budgeting framework, ring-fencing strategic investments to attract private capital. However, passing the full budget by March 2026 remains uncertain due to the snap election's disruption of legislative timelines. An interim budget may be required if delays persist, though a government shutdown is unlikely.

Takaichi's approach reflects a delicate balancing act: advancing growth-oriented investments while addressing debt concerns. With approval ratings above 65%, she aims to solidify her mandate while navigating market skepticism and structural fiscal challenges.

(https://www.bloomberg.com/news/articles/2026-02-18/takaichi-formally-elected-pm-eyes-expedited-budget-deliberation): Bloomberg, Reuters
(https://www.reuters.com/world/asia-pacific/japans-cabinet-approves-record-785-billion-budget-vows-keep-debt-check-2025-12-26/): Reuters
(https://asia.nikkei.com/politics/takaichi-signals-budgeting-reform-with-multiyear-framework-speech-draft): Nikkei
(https://www.reuters.com/world/asia-pacific/japan-pm-faces-challenges-selling-proactive-fiscal-policy-bond-vigilantes-2026-02-19/): Reuters