Editorial: Japan’s record budget requests elicit sense of crisis as interest rates return

A “world with interest” has made a comeback in Japan, placing a burden on the nation’s debt-reliant finances. But the government seems to lack a sense of crisis over this serious state of affairs.

The deadline for requests from government ministries and agencies for the fiscal 2025 budget has passed, with the total amount of requests expected to reach some 117 trillion yen (about $800 billion), marking a record high for the second year running.

Next fiscal year’s budget will be the first since the Bank of Japan ended its negative interest rate policy. The cost of principal and interest payments on Japanese government bonds is expected to surge by close to 2 trillion yen (about $13.7 billion) from the current level to reach some 29 trillion yen ($198.2 billion). In fiscal 2027, it is calculated the figure will top 34 trillion yen ($232.4 billion) with the amount of repayments only ballooning.

In spite of this, there has been no restraint in the expanding of budget requests. This reflects the stance of Prime Minister Fumio Kishida, who has advanced indiscriminate spending. Meanwhile, the sources of funding for ever-increasing spending on defense and measures to combat the declining birth rate remain vague.

In the latest budget demand, there were requests for items for which no monetary amounts were specified. These ranged widely from support for the mass production of semiconductors to boosting resilience of national territory, and measures to offset rising commodity prices.

Originally such requests were intended as an exceptional measure for situations where budgetary amounts couldn’t be estimated amid uncertainty over the future, as seen during the COVID-19 crisis. If ministries and agencies are trying to secure large budgets with limitless requests, it will only exacerbate a lack of fiscal discipline.

The government has established a special framework that allows for an increase in budgetary requests by cutting existing budgets, but it is doubtful whether this will lead to effective allocations. An example of this is the “Vision for a Digital Garden City Nation” promoting revitalization of regional areas through information technology. The prime minister has promoted this since he took office, but the concentration of resources in Tokyo has not been rectified at all. Just how long does the government intend to give preferential treatment to a project with weak results?

One reason for the ballooning requests is that the ruling coalition is increasing pressure for more spending ahead of the upcoming House of Representatives election.

The government expects the primary balance, a key indicator of fiscal health, to move into the black in fiscal 2025, but it is relying on high growth in tax revenue. If Japan continues to lean on optimistic estimates and spend lavishly, it will become stuck in a quagmire of debt.

Kishida indicated that he would compile economic measures this fall. The new administration, which will be inaugurated following the Liberal Democratic Party’s presidential election this month and take over, could compile a large supplementary budget.

The balance of national and local debt combined exceeds 1,200 trillion yen (over $8.1 trillion). If it increases further, confidence in the country’s finances will decline, and interest rates on government bonds could increase even more. The burden on future generations will only grow heavier.

The new administration should not follow in the line of lax finances, but outline a path to economic recovery.