Japan Plans $189 Billion Bond Issuance as Record Budget Signals Expansionary Fiscal Policy

Japan is preparing to issue new government bonds worth approximately $189 billion to help finance a record-breaking national budget for the next fiscal year, according to a draft budget reviewed by Reuters. The move highlights the government’s continued commitment to expansionary fiscal policy as it grapples with rising costs tied to social welfare, defense, and debt servicing.

The draft budget, expected to be finalized on Friday, marks the first annual spending plan under Prime Minister Sanae Takaichi, who assumed office in October. Takaichi has positioned “proactive” fiscal spending as a cornerstone of her economic strategy, aimed at revitalizing Japan’s economy amid persistent structural challenges.

Under the draft, bond issuance for fiscal year 2026 is estimated at around 29.6 trillion yen, exceeding the 28.6 trillion yen planned for the current fiscal year. This increase confirms earlier reporting by public broadcaster NHK. The overall size of the new budget is projected to reach roughly 122.3 trillion yen, surpassing this year’s already historic 115.2 trillion yen and setting a new record for government spending in Japan.

Tax revenues are also expected to rise, hitting an estimated 83.7 trillion yen compared with about 80.7 trillion yen this fiscal year. While this represents a record high, it remains insufficient to fully cover expanding expenditures, particularly as Japan faces mounting pressures from an aging population, higher defense outlays, and substantial debt repayment obligations.

The planned spending follows a sizable 21.3 trillion yen stimulus package approved in November through a supplementary budget. That package focused on easing the burden on households struggling with rising living costs, further reinforcing the government’s growth-oriented stance.

However, concerns about debt oversupply have begun to impact financial markets. Japanese government bond yields have climbed, with 30-year bond yields rising to 3.45%, a new record high. These market reactions have prompted the administration to moderate its rhetoric around aggressive fiscal expansion.

Despite signaling some flexibility around long-standing fiscal consolidation goals, Prime Minister Takaichi has emphasized restraint. In a recent interview, she stated that the government would avoid “irresponsible” debt issuance or broad tax cuts, while acknowledging that Japan’s debt-to-GDP ratio, though gradually improving, remains elevated.