The upper house of the Japanese parliament has enacted a state budget of ¥122.3 trillion (€664bn), the largest allocation in the country's history. The move reflects PM Takaichi's goal of an expansionary fiscal policy.
Japan’s fiscal budget for 2026 was enacted on Tuesday following its approval in the upper house of the parliament, funding the state with ¥122.3 trillion (€664bn), the largest allocation in the nation's history.
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The spending bill’s passage comes after the government was forced to enact an emergency stopgap budget on 30 March, after it was clear the upper house of the parliament would not approve the full budget before 31 March, the end of the fiscal year.
The more powerful lower house of the Japanese parliament had already approved the budget on 13 March as it is controlled by a two-thirds majority of Prime Minister Sanae Takaichi’s ruling Liberal Democratic Party (LDP).
However, in the upper house, the LDP and its coalition partner, the Japan Innovation Party, are four seats short of a majority in the 247-member chamber.
It was the first time in 11 years that the Japanese state's spending bill failed to pass before 1 April as a result of PM Takaichi’s decision to call a snap election in February, a month that the lower house normally spends debating the budget.
It was the first Japanese general election held in February since 1990, making the situation rather abnormal.
The budget’s approval confirms PM Takaichi’s aim for an expansionary fiscal policy with the bill including ¥39 trillion (€211.7bn) for social security expenses which represents around 32% of total spending.
Among other things, the new budget adds ¥700 billion (€3.8bn) for free high school tuition and public elementary school meals while ¥370 billion (€2bn) will be shared by the national and local governments.
The spending bill also includes ¥8.8 trillion (€47.7bn) for defence expenditures, an increase of ¥300 billion (€1.6bn) compared to last year. Investing more on defence is one of PM Takaichi's explicit policy goals.
This massive budget was drawn up amid pressure in financial markets, highlighted by rising government bond yields and a weakening Japanese yen.
Inflation fears and rising debt in Japan
Critics warn that the record spending package risks fuelling the very pressures it was supposedly drawn up to counter.
Japan’s public debt already stands at more than 250% of GDP, the highest among major economies, and the ¥122.3 trillion (€664bn) budget will require substantial borrowing.
With core inflation hovering above the Bank of Japan’s 2% target and the Japanese yen under sustained downward pressure, critics fear PM Takaichi’s overtly expansionary stance is simply "too loose".
Higher government bond yields in recent weeks signal growing market anxiety that loose fiscal policy could erode hard-won price stability and complicate the central bank’s efforts to normalise monetary policy.
On top of that, the current uncertainty over the Iran war is also casting a shadow on the Japanese economy.
The Strait of Hormuz is a critical energy artery for Japan, as more than 90% of its crude oil imports are from the Middle East, with the largest portion traversing the maritime chokepoint.
While the Japanese government insists the investments on defence, education and social security will support long-term growth, sceptics argue that without credible debt-reduction measures the budget may ultimately undermine Japan’s economic resilience.
