Japan fiscal 2027 budget requests expected to exceed 130 trillion yen

Japanese government ministries and agencies are expected to submit fiscal 2027 budget requests exceeding 130 trillion yen, a record high. This increase is driven by a new budget drafting reform under Prime Minister Sanae Takaichi, which removes previous spending caps on certain investment projects to promote a “strong and prosperous Japan.”

Key spending areas include a record request of approximately 8.9 trillion yen from the Ministry of Defense for interceptor drones, artificial intelligence in command-and-control systems, and long-range missiles. Additionally, social security costs for pensions and medical care are projected to rise by roughly 390 billion yen due to an aging population.

The Finance Ministry is also considering raising the assumed interest rate on long-term government bonds to 3.8% for the fiscal 2027 budget. This is a significant increase from the 3% rate used in the fiscal 2026 budget and is intended to account for rising long-term interest rates and the risk of sudden spikes. This adjustment is expected to substantially increase the country's debt-servicing costs, potentially straining Japan's fiscal health as the government forecasts tax revenues of approximately 83 trillion yen for fiscal 2026.