Japan's Prime Minister Sanae Takaichi is closing out the year of 2025 by approving a record 782 billion U.S. dollars budget for the next fiscal year, including the largest defense budget on record.
While supporters call it necessary, critics warn that it could rattle markets in a country already carrying the highest debt burden among advanced economies.
In Japan, the current economic situation is increasingly characterized by the rising cost of living, as prices have continued to outpace the income growth of many households and real wages remain under pressure.
"Because of giving birth, I couldn't work, and because of that, our household income is going down, and expenses are going up. So compared to a normal year, I think there is not that much money we could put towards savings," said a Japanese resident.
There is a similar uncertainty in the business community, where companies are dealing with higher costs at home and shifting trade conditions overseas.
Kosuke Ogura, an aerospace product designer, noted that the uncertainty stems from U.S. President Donald Trump's fluctuating tariff policies. However, drawing on his background in technology, he remains optimistic about the future.
"The tariff policies of U.S. President Trump have changed, so it is hard to read how things will go. Economic support for growth fields like AI, space, and deep tech has been announced, so in my work too, it should be easier than this year," he said.
And it is against the surging of cost-of-living backdrop that Japan’s new prime minister is moving ahead with her big fiscal push.
Earlier this month, the Japanese parliament passed a 118 billion U.S. dollar supplementary budget to fund a new stimulus package, with about 57 billion dollars setting aside for cost-of-living support, including tax cuts, subsidies, and cash handouts.
Now, her cabinet has finalized the budget blueprint for the fiscal year beginning next April. The draft totals roughly 782 billion dollars and includes a record increase in defense spending. Yet Japan's fiscal push is facing growing scrutiny.
"These measures mainly cushion the impact rather than fundamentally lowering prices. They buy time, but without productivity gains and wage growth, households will continue to feel pressure once the subsidies are withdrawn. If wages rise is sustainable, many other problems would become more manageable. Without that, the strategy will struggle to deliver lasting results," said Yosuke Suzuki, a member of the House of Representatives for the Constitutional Democratic Party of Japan.
Japanese gov't approves record 782 bln USD budget for next fiscal year
