Japan approves record budget of $785 billion, pledges to control public debt.

According to Reuters, the government of Japanese Prime Minister Sanae Takaichi approved a record budget of 122.3 trillion yen (equivalent to $785 billion) for fiscal year 2026 on December 26, far exceeding this year's initial budget of 115.2 trillion yen.

The draft budget for fiscal year 2026 shows a 9.4% increase compared to 2025.

Japan now has the highest debt burden among developed countries, more than twice the size of its economy, making it highly sensitive to rising borrowing costs and further complicating Prime Minister Takaichi's plans to pursue aggressive fiscal stimulus measures.

Notably, the Japanese government has approved a record defense budget exceeding 9 trillion yen (US$58 billion) for next year, aimed at bolstering counter-offensive and coastal defense capabilities with cruise missiles and unmanned weapons as tensions rise in the region. This also marks the fourth year of Japan's ongoing five-year program to double annual arms spending to 2% of its gross domestic product.

This increase comes as Japan faces escalating tensions from China. Japanese Prime Minister Sanae Takaichi stated in November 2025 that the country's military could intervene if China took action in Taiwan.

Japan is enhancing its long-range missile strike capabilities to attack enemy targets from afar, a major shift from its post-World War II principle of limiting the use of force to self-defense.

The current security strategy, adopted in 2022, identifies China as the country's greatest strategic challenge and calls for the Japan Self-Defense Forces to play a more active role in the security alliance with the United States.

The new budget plan allocates more than 970 billion yen (US$6.2 billion) to enhance Japan's long-range missile capabilities. This plan includes the purchase of 177 billion yen (US$1.13 billion) of domestically developed and upgraded Type-12 land-to-ship missiles, with a range of approximately 1,000 km (620 miles).