Prime Minister Fumio Kishida instructed his ministers on Wednesday to increase Japan's annual child care budget by around 3.5 trillion yen ($25 billion) during a three-year target period to cope with the declining birth rate.

The figure marks an increase from the around 3 trillion yen previously suggested for child care support from fiscal 2024. To secure part of the funding, the government will issue bridge bonds until it decides on an alternative, stable funding source by fiscal 2028, sources familiar with the discussions said.

Japanese Prime Minister Fumio Kishida (R) attends a panel meeting on the government's child policy in Tokyo on May 22, 2023. (Kyodo)

A draft plan detailing how the government aims to support child-rearing is expected to be unveiled as early as Thursday. Child policy is a focus area for the administration, with budget requests for the next fiscal year set to begin this summer.

Economic revitalization minister Shigeyuki Goto told reporters after visiting Kishida at his office that he was instructed by the prime minister to boost funding to address child poverty and abuse, as well as to enhance support for children with disabilities and those in need of constant medical care.

For the current fiscal year from April, around 4.8 trillion yen was allocated for a newly launched agency dealing with child and family-related issues. In the near future, the government aims to double its spending on child policy.

Japan has one of the world's fastest-aging populations with newborns slipping below 800,000 last year for the first time since comparable data became available in 1899.

As the country is already heavily indebted, finding a funding source is a challenge if it wants to increase spending. Bridge bonds are the same as deficit-covering bonds but the government specifies in advance the funding source to repay them.

Under the draft plan, the government will carry out spending reforms by fiscal 2028 to prevent additional burdens borne by taxpayers, the sources said.

It envisages the creation of a support fund scheme to which companies and other entities will contribute to boost child care assistance, the sources added.

Among the options floated within the government are raising social insurance premiums and asking for more contributions by companies that are currently used to provide child allowances and other support.

Japan's state budget has been expanding, with social security costs making up a large portion of the spending. In the face of growing security threats, Kishida has set a goal of boosting defense budget to a combined 43 trillion yen over the five years until fiscal 2027 and he has to decide when the government will raise taxes to cover part of the increased expenditure.