• Japan's government approved a record budget of 122.3 trillion yen ($782 billion) for fiscal 2026.
• The budget includes 9 trillion yen for defense spending to enhance military capabilities against China.
• Concerns grow over Japan's already high public debt ratio reaching 232.7% of GDP.
• Japan plans to develop advanced defense technologies, including the Shield coastal defense system.
• Prime Minister Takaichi advocates for proactive fiscal policies to combat inflation and drive growth.

The Japanese government has officially approved a record budget amounting to 122.3 trillion yen ($782 billion) for the fiscal year starting April 2026. This monumental budget reflects increased allocations for various sectors, including 9 trillion yen earmarked for defense spending. Prime Minister Sanae Takaichi emphasized the necessity of this budget amid "the most severe and complex security environment since the end of the war," particularly in light of rising tensions with China, according to Indiatimes and South China Morning Post.

At the forefront of the military expenditures is the development of the SHIELD coastal defense system, which aims to bolster Japan's ability to counter any potential invasions using drones. This system is part of a broader strategy that highlights Japan's commitment to enhancing its defense capabilities amidst growing unrest in the region, as commented on by a defense ministry briefing, according to South China Morning Post and Anadolu Agency.

Notably, Japan's public debt is a growing concern as it reaches a staggering 232.7% of GDP, posing risks to its economic stability. The financial market responded to news of the record budget by driving down the yen’s value and increasing the benchmark yield for Japanese government bonds. Economists warn that if spending rises beyond the already approved budget, it could lead to further turmoil in Japan’s bond market, echoing events from the previous year, as noted by observers, including executive economist Takahide Kiuchi from Nomura Research Institute, according to Indiatimes and South China Morning Post.

In addition to military enhancements, this budget addresses the growing social security expenses exacerbated by Japan's aging population and low birth rates. Prime Minister Takaichi has stated, “What Japan needs right now is not the undermining of our strength as a nation through excessive austerity fiscal policies, but rather the bolstering of our national strength through proactive fiscal policies,” reinforcing her vision for economic growth while managing inflation pressures, according to South China Morning Post and Anadolu Agency.