Japan's record defense spending wish list piles pressure on fiscal 2027 budget

Japan's fiscal 2027 budget requests are expected to top 130 trillion yen (about $818 billion), driven largely by a record defense expenditure request of around 8.9 trillion yen, Kyodo News reported on Friday.

That's a sharp rise from the current fiscal year's initial budget of 122.31 trillion yen, and could climb further when the budget is finalized later this year.

The Defense Ministry's wish list covers interceptor drones, introducing AI into command-and-control systems, and further deploying long-range missiles with "counterstrike capabilities."

Social security spending, on pensions and medical costs, is also set to rise by around 390 billion yen, due to Japan's aging population.

Ministries and agencies must submit their budget requests for fiscal 2027, which runs from April 2027 to March 2028, by the end of this month. The Ministry of Finance will then finalize the budget by year's end.

Notably, Prime Minister Sanae Takaichi's government has dropped spending caps on some priority projects. This is seen as a major factor behind the unusually large increase.

With tax revenue forecast at around 83 trillion yen for fiscal 2026, budget requests exceeding 130 trillion yen would leave a gap of roughly 50 trillion yen, likely meaning new debt issuance and more strain on Japan's already stretched finances.

Rising government bond yields are also increasing the country's debt-servicing burden, twisting the knife further into public finances.