Budget requests by Japanese government offices for the next fiscal year likely hit a record of around 114 trillion yen ($780 billion), a Kyodo News tally showed Thursday, as increased debt-servicing costs added to the uptick in defense and social security spending.
The general account budget for fiscal 2024, starting next April, could surpass the 114.38 trillion yen allocated for the current year. The Finance Ministry will screen the requests before drafting the budget in December.
Ministries and agencies had to submit their requests to the ministry by Thursday. While the exact size of spending on priority areas has yet to be determined by the administration of Prime Minister Fumio Kishida, some requests were submitted without specifying amounts.
It is the first time in two years that the total size of requested spending has hit a record. Previously, the 111.66 trillion yen sought for fiscal 2022 was the largest.
Despite its goal of reining in spending that has swelled in recent years amid the COVID-19 pandemic and a cost-of-living crisis, the government faces a high hurdle in achieving a shift away from crisis-mode stimulus and reducing its heavy reliance on debt.
A substantial portion of this increased expenditure needs financing through the issuance of government bonds despite Japan's fiscal health already being the worst among developed nations.
The Finance Ministry estimates debt-servicing costs at 28.14 trillion yen, up 2.89 trillion yen from fiscal 2023, based on an assumed higher interest rate.
At a time when overseas bond yields have been on the rise due to aggressive rate hikes aimed at controlling surging inflation, the Bank of Japan has also begun permitting a greater increase in the benchmark 10-year Japanese government bond yield.
Kishida plans to expand the budget for child care support in a bid to reverse the nation's declining birth rate. He is looking to double the size of such spending by the early 2030s.
In the meantime, Japan is also bolstering its defense capabilities to counter security threats from China, North Korea and Russia by spending a total of 43 trillion yen in a five-year period to fiscal 2027.
For the second year of the intense defense build-up plan, the Defense Ministry requested a record 7.74 trillion yen, larger than its initial budget of 6.82 trillion yen for fiscal 2023.
Part of the funds would be used to build two destroyers equipped with the U.S.-developed Aegis missile interceptor system and to enhance Japan's "standoff" defense capacity, a key pillar of its move to acquire capabilities to attack enemy bases. Under the war-renouncing Constitution, Japan has maintained an exclusively defense-oriented policy.
Social security expenses, which comprise about a third of the state budget in the current year, are also expected to increase as Japan's rapidly aging population continues to add upward pressure on medical costs and pension benefits.
The Ministry of Health, Labor and Welfare requested 33.73 trillion yen, expecting total social security costs to increase by 520 billion yen for the next fiscal year.