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Japan is preparing to break its own fiscal record. Faced with stubborn inflation, rising household costs and slowing growth momentum, Prime Minister Sanae Takaichi’s government is weighing an initial budget of more than ¥120 trillion for the next financial year - the largest ever in the country’s history. The proposed outlay underlines Tokyo’s willingness to spend aggressively to shield citizens from price pressures, even as concerns mount over Japan’s already heavy public debt burden.

If approved, the budget for the fiscal year starting April will cross the previous record of ¥115.2 trillion set for fiscal 2025. Officials say the sharp rise reflects higher personnel costs, social spending commitments and debt servicing needs, all amplified by persistent inflation.

The push for a bigger budget comes as Japan continues to grapple with higher food, energy and daily living costs. While inflation has helped lift tax revenues, it has also squeezed household purchasing power, prompting the government to prioritise relief measures.

Earlier this week, parliament cleared a supplementary budget worth ¥18.3 trillion for fiscal 2025, aimed at easing cost-of-living pressures. Despite lacking a clear majority in the upper house, the ruling Liberal Democratic Party secured support from sections of the opposition after accepting demands related to public relief and local assistance.

Alongside fresh spending, Japan’s debt obligations are climbing. For fiscal 2026, debt-related costs - including interest payments and bond redemptions are expected to cross ¥28.2 trillion, another record. Japan already has the highest public debt among advanced economies, a reality that continues to worry investors and policy experts alike. Even so, the government argues that sustained support is necessary to prevent inflation from choking growth and domestic demand.

A significant portion of the latest spending package is aimed directly at households. Around ¥8.9 trillion has been earmarked for measures such as electricity and gas subsidies in the first quarter of next year, cash support for families with children, and increased transfers to local governments. The focus, officials say, is on cushioning the most vulnerable while maintaining consumer confidence during a period of elevated prices.

Beyond immediate relief, the government is also looking to the long term. About ¥6.4 trillion has been set aside for investment tied to crisis management, economic resilience and future growth sectors. Prime Minister Takaichi has repeatedly described this approach as building a “strong economy” capable of withstanding global shocks. The supplementary budget is being positioned as the largest stimulus since fiscal 2022, when Japan ramped up spending during the pandemic.

Security remains another priority. The package includes ¥1.7 trillion for defence and diplomatic initiatives, allowing Japan to meet its goal of lifting defence-related spending to 2 per cent of GDP by fiscal 2025 - earlier than originally planned. This reflects Tokyo’s growing focus on regional security and strategic preparedness.

Financial markets have responded nervously to the prospect of higher spending and increased bond issuance. The yen has weakened, while Japanese government bonds have seen selling pressure, pushing long-term interest rates higher in recent sessions. Despite an expected ¥2.9 trillion rise in tax revenues, the government plans to raise about ¥11.7 trillion through fresh bond issuance, funding more than 60 per cent of the latest stimulus - a move that has added to market unease.