Japan passes record ¥122 trillion budget amid global turmoil

As the annual budget approved by Prime Minister Sanae Takaichi's Cabinet in December does not include concrete steps to cushion the potential economic impact from the Iran war and surges in crude oil prices, opposition lawmakers have already called on the government to consider drafting a supplementary budget.

In response to the crisis triggered by the U.S.-Israeli war against Iran that began on Feb. 28, the government resumed gasoline subsidies to curb rises in pump prices in mid-March but decided to do so by tapping the fiscal 2025 reserve fund.

Finance Minister Satsuki Katayama told reporters after the enactment of the budget that it is "too early" to predict the impact of the Middle East situation or to craft a supplementary budget.

The government has not ruled out using up to 1 trillion yen in reserves booked in the fiscal 2026 budget, but those funds are allocated for emergency response measures, such as in times of massive natural disasters.

Although the ruling camp led by Takaichi's Liberal Democratic Party is in the minority in the 248-member House of Councillors, the draft budget passed the upper chamber with support that included a minor right-wing opposition party. It cleared the more powerful House of Representatives on March 13.

The general account budget, reflecting Takaichi's expansionary fiscal stance and aggressive investment in strategic areas of semiconductors and artificial intelligence technology, is at a record high for the second consecutive year.

It includes rises in welfare expenditure amid the aging of the population, and a record 9.04 trillion yen for defense-related purposes.

While revenues have grown from last year, the government plans to issue 29.58 trillion yen in new bonds to cover a shortfall, underscoring Japan's heavy reliance on debt at a time when its fiscal health is the worst among Group of Seven economies.

Takaichi's announcement in January of a snap election, held on Feb. 8, had delayed the start of deliberations on the fiscal 2026 draft budget by around a month compared with previous years.

Capitalizing on the supermajority the ruling LDP won in the election, it was able to push the initial draft budget through the lower house by cutting short deliberations, overriding opposition protests.

But in the upper house, the opposition did not allow the LDP-led coalition to control the pace of deliberations, thus blocking Takaichi's bid to have the annual budget enacted in time for the new fiscal year.

After it became certain that the budget would miss the deadline, an 8.56 trillion yen stopgap budget was enacted on March 30 to fund government spending for 11 days from April 1.

The provisional budget, the first to be drafted since 2015 under then Prime Minister Shinzo Abe, has been absorbed into the fiscal 2026 budget.

It covered basic government services, including welfare payments and new policies such as an expansion in private high school tuition subsidies.

The Constitution stipulates that a budget is automatically enacted if the upper house fails to vote on it within 30 days of receiving it from the lower house, which in this case would be April 11, as the lower house's vote takes precedence.

Instead of waiting for automatic enactment, the LDP focused on putting the draft annual budget to a vote in the upper house as soon as possible and secured support from the Conservative Party of Japan in exchange for discussing the minor party's immigration policy and other agenda items.

Earlier, it was reported that Japan was considering a record initial budget exceeding 120 trillion yen for fiscal 2026.