Japan’s Fiscal 2025 Budget Reaches Record High ¥115.5 Trillion

Japan’s government approved a ¥115.5 trillion budget for fiscal 2025 on December 27, 2024, which was a 2.6% year-on-year increase. Following a slight dip last year, the budget set a new record and topped ¥110 trillion for the third successive year.

Social security spending accounted for a third of the total, rising by 1.5% to ¥38.3 trillion, funding healthcare needs for the country’s aging population, as well as measures to tackle the decline in births. Servicing the national debt by redeeming or paying interest on previously issued government bonds increased by 4.5% to ¥28.2 trillion, or almost a quarter of overall spending. Defense spending spiked by 9.5% to ¥8.7 trillion in response to the growing severity of the security environment.

Revenue is forecast to set a new record for the sixth consecutive year, rising to ¥78.4 trillion. This is boosted by price rises and solid corporate performance, as well as the lack in the current budget of the flat-rate tax reductions implemented in fiscal 2024.

The amount of new government bonds issued to make up for the revenue shortfall will drop 19.2% to ¥28.6 trillion, falling below ¥30 trillion in an initial budget for the first time in 17 years. Japan’s bond dependency ratio, which indicates the ratio of debt to revenue, is now 24.8%.

The outstanding amount of issued government bonds increases each year and is predicted to reach ¥1.13 quadrillion by the end of fiscal 2025. This includes ¥10.5 trillion in interest payments. Interest has become a factor again after the Bank of Japan switched from its policy of negative interest rates, and if long-term rates rise they will put further pressure on public finances.

(Translated from Japanese. Banner photo © Pixta.)