Japan OKs record budget spending

Takaichi's cabinet approves draft $783 billion budget, with emphasis on fiscal discipline

- LEIKA KIHARA MAKIKO YAMAZAKI

People walk through Shinjuku shopping area in Tokyo in September.

Japan’s government yesterday proposed record spending for next fiscal year while curbing debt issuance, underscoring Prime Minister Sanae Takaichi’s challenge in boosting the economy while inflation remains above the central bank's target.

Her cabinet approved a draft budget of $783 billion that addresses market jitters by capping bond issuance and reducing the proportion of the budget financed by fresh debt to the lowest in almost three decades.

Also complicating Ms Takaichi’s policy challenge, core inflation in Tokyo stayed above the Bank of Japan’s 2% target this month while the yen remains weak, bolstering the central bank's case to keep raising interest rates.

The record 122.3-trillion-yen budget for the year starting in April, a core part of Ms Takaichi’s “proactive” fiscal policy, will likely underpin consumption but could also accelerate inflation and further strain Japan’s tattered finances.

Investor unease about fiscal expansion in an economy with the heaviest debt burden in the industrialised world has driven super-long government bond yields to record highs and weighed on the yen.

“We believe we have been able to draft a budget that not only increases allocations for key policy measures but also takes fiscal discipline into account, achieving both a strong economy and fiscal sustainability,” said Finance Minister Satsuki Katayama.