Tokyo approved a record budget for the coming year, focused on boosting growth and upgrading Japan’s defenses, but analysts are concerned about the country’s mounting debt.
New conservative Prime Minister Sanae Takaichi sparked tensions with Beijing recently by suggesting Japan could get involved if China invaded Taiwan, and the new budget will step up defense spending to 2% of GDP.
The decision sparked an increase in bond yields, bad news for a country as indebted as Japan: Even small rises “translate into surging interest bills,” The Economist noted recently. Tokyo’s comparatively small deficit and steady recent inflation had helped it avoid the worst trouble, but the big-spending new budget on top of a weak yen may pile on pressure.
