TOKYO, Reuters – Fumio Kishhida, Japan’s Prime Minister approved Friday a record 940 billion dollar budget for next fiscal year. This is in addition to COVID-19 response costs that increase the cost of supporting an aging population and increasing military expenditures to deal with China.

Japan’s largest-ever budget is 107.6 trillion Japanese yen (or $9451.55 billion). It starts April and reflects its focus on the recovery of Japan’s pandemic-hit economy rather than long-term fiscal stability.

After 36 trillion yen in additional stimulus spending to support the recovery from COVID-19, parliament approves Kishida’s first annual budget.

However, there are still few opportunities to invest in areas such as digital transformation and green growth.

Budget includes 5 trillion Japanese yen to pay for COVID-19’s emergency costs. This record defense outlay is 5.37 trillion, which represents the highest-ever defence expenditure. It also contains a budget that has 24.3 trillion and 36.3 trillion respectively, as well as a large amount of debt servicing. Japan’s $5 trillion public debt is more than twice that of the country. It is the largest among industrialised nations.

Kishida promised to increase Japan’s financial stability in the long term. The budget anticipates borrowing of 36.9 trillion Yuen for the next fiscal year, which is lower than the original 43.6 trillion yen planned.

As COVID-19 reduces economic activity, lower borrowing will be replaced by higher taxes revenues. This record-breaking 65.2 trillion yen increase is the result of rising tax revenues.

According to the government, real economic growth is expected to grow by 3.2% during fiscal year 2022/23. This increase was higher than the 2.2% prior estimate.

It will still be hard to reach a primary surplus budget by the fiscal year 2025/26, as the government intends.

In FY2022/23 the primary deficit is not including new bond sales or debt servicing. It was at 13 trillionyen, an improvement on 20 trillionyen this year. However, it still falls short of government targets.

($1 = 114.2800 yen)