Japan's parliament on Thursday enacted a 112.57 trillion yen ($744 billion) budget for fiscal 2024 starting in April, the second-largest, to better respond to security threats and demographic challenges, ease the pain of inflation and rebuild earthquake-hit areas.

The budget includes a record 7.95 trillion yen in defense spending as the nation seeks to bolster defense capabilities in the face of threats from China and North Korea. The government revised its initial plan and double the amount of emergency funds to 1 trillion yen after a deadly quake hit central Japan on New Year's Day.

Although the government has been seeking to trim its spending to pre-pandemic levels after it swelled in recent years to cope with the COVID-19 pandemic and the cost-of-living crisis, it faces high hurdles because it has already decided to sharply increase spending on defense and on child-related policy in the coming years.

The rapid aging of society is also boosting social security costs, which totaled a record 37.72 trillion yen, or about a third of the general-account budget for the next year.

Japan's parliament enacts a 112.57 trillion yen ($744 billion) budget for fiscal 2024 during an upper house plenary session in Tokyo on March 28, 2024. (Kyodo) ==Kyodo

The budget is "aimed at addressing pressing challenges that cannot be postponed, in line with the changing times during the historical transitional period. We will implement it in a steady manner," Finance Minister Shunichi Suzuki told reporters after the budget was enacted.

The enactment of the state budget was certain after the more powerful House of Representatives approved it in a rare Saturday session on March 2 as opposition parties had hardened their stance and ramped up criticism of Prime Minister Fumio Kishida over his party's political funds scandal.

Japan's Constitution mandates that a budget is enacted 30 days after approval by the lower house in the event of unresolved differences between the two chambers. Both houses of chamber are currently controlled by the ruling bloc of the Liberal Democratic Party and Komeito party.

On Thursday, however, opposition parties interrupted parliamentary deliberations with the government over the funds scandal. The budget for the next fiscal year passed the House of Councillors around three hours later than originally planned.

Despite the prime minister's focus on helping struggling households hit by inflation, public support for the Cabinet remains at low levels.

Kishida said at a press conference later Thursday that his government will continue making efforts to realize and "stabilize wage growth that exceeds price hikes."

As the yen's plunge has pushed up import prices and triggered cost-push inflation at home, Kishida said the government will take "all possible measures" to curb excessive moves in the Japanese currency.

Japanese Prime Minister Fumio Kishida holds a press conference in Tokyo on March 28, 2024, after parliament enacts a 112.57 trillion yen ($744 billion) budget for fiscal 2024. (Kyodo) ==Kyodo

The budget allocates funds to expand the scope of child allowances to include high school-age children and ensure pay hikes for workers, including truck drivers, as the logistics industry is expected to face severe labor shortages following the introduction in April of a cap on overtime work hours.

The government will also seek to boost the economy's growth potential through investment in semiconductors, artificial intelligence and green transformation.

About a third of the total spending, or 35.45 trillion yen, will be funded by issuing Japanese government bonds. The government assumes the benchmark yield on 10-year Japanese government bonds to be 1.9 percent for fiscal 2024, up from 1.0 percent a year earlier.

The budget was finalized before the Bank of Japan raised its interest rate on March 19 for the first time in 17 years, after its efforts to keep borrowing costs extremely low in recent years helped limit the rise in debt-servicing costs.

At its policy meeting earlier in the month, the BOJ removed its yield cap program, under which 10-year yields were allowed to rise only moderately, with 1.0 percent set as its rough upper limit.

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