Japan Navigates Economic Tightrope with Record Budget and Reduced Debt Reliance

Tokyo, Friday, 26 December 2025.
On Friday, Prime Minister Sanae Takaichi’s cabinet approved a historic 122.3 trillion yen ($785 billion) budget, attempting a complex fiscal maneuver: increasing spending while simultaneously cutting reliance on new debt to its lowest level since 1998. This proposal arrives as Tokyo struggles with persistent inflation of 2.3% and a weakened yen, forcing the administration to balance economic stimulus with market reassurance. Beyond economics, the budget underscores a dramatic shift in security policy, allocating a record 9 trillion yen to defense in response to escalating tensions with China. With the Bank of Japan recently hiking rates to a 30-year high, this fiscal package represents a critical test of whether Japan can sustain growth and bolster national security without destabilizing its fragile financial recovery.