Japan's FY2026 financial plan seeks an unprecedented ¥122 trillion, mainly due to mounting debt expenses.

Japan is set to face another year of record-breaking budget requests, with the Ministry of Health, Labor and Welfare requesting a record 34.79 trillion yen for fiscal 2026. This is primarily due to rising welfare costs associated with an aging population.

The Ministry of Defense's budget request for the same period also reached a record high of 8.79 trillion yen, as Japan plans to increase spending to address regional security challenges.

These budget requests mark the third consecutive year of record highs, with the total budget requests by Japanese ministries amounting to 122.45 trillion yen. This is a significant increase from the current record budget of 115.2 trillion yen.

The increase in spending is likely to further strain Japan's fiscal health, which is currently the worst among major developed economies. Borrowing costs in Japan have increased recently due to expectations of further rate hikes by the Bank of Japan and concerns over Japan's fiscal health.

Debt-servicing expenses requested by the Finance Ministry for fiscal 2026 have risen by 14.8% from the previous year's initial budget, reaching a record 32.39 trillion yen. Rising interest rates are contributing to increased debt-servicing costs.

The Ministry of Health, Labor and Welfare accounted for the largest share of the total budget requests for fiscal 2026. The draft budget will be compiled by the end of December and then presented to parliament for deliberation.

With the ruling bloc having lost control of both chambers of parliament, Prime Minister Shigeru Ishiba's minority government is facing calls to increase spending or cut taxes. However, with the record high budget requests, finding a balance will be a challenge.

The draft budget will then be presented to parliament for deliberation. With opposition backing needed to pass the spending plan, it remains to be seen how the budget for fiscal 2026 will shape up.