Japan’s ministries seek record 114.3 trillion yen budget for FY2024/25

JAPAN’S government ministries have requested a record 114.3 trillion yen (S$1.10 trillion) for next fiscal year’s budget, the finance ministry said on Tuesday (Sep 5), with rising fuel and utility costs adding to spending needs.

The expected demands for the fiscal year starting April 2024 prompted a finance ministry official to warn against unchecked spending.

“We will strive to shift the emergency budget footing to a peace time budget,” the official said. “We must achieve both fiscal reform and economic growth.”

The Bank of Japan’s (BOJ) recent policy tweaks have sent interest rates higher, boosting debt-servicing costs, while defence and social security spending has also risen.

While snowballing debt has added to the industrial world’s heaviest debt burden, lawmakers’ demands have not abated.

In addition to a planned extra budget that subsidies utility fees, the government is preparing another subsidy to lower petrol prices.

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While all these undercut fiscal reform, Prime Minister Fumio Kishida vows to achieve primary budget surplus by the fiscal year ending in March 2026, excluding new bond sales and debt servicing costs.

Following the BOJ decision in July to allow its benchmark 10-year bond yield target to move up to 1 per cent from 0.5 per cent previously, the government raised its assumed interest rates, as applied to interest payments on debt.

The assumed interest rate would increase to 1.5 per cent for the next fiscal year from the current record low of 1.1 per cent, bringing debt-servicing costs for interest payments and debt redemption to 28.14 trillion yen, versus 25.25 trillion yen this year.

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For the current fiscal year, the annual budget hit a record 114 trillion yen, boosted by steps to cope with Covid-19.

Social security accounts for nearly one-third of budget spending, making it the lion’s share of the overall budget, followed by debt-servicing costs, which make up more than a fifth. Defence outlay is estimated at a record 7.705 trillion yen, up from this year’s 6.788 trillion yen. REUTERS