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Why is Japan proposing a record budget now?
Japan's government is proposing a record ¥57.1 trillion increase to its 2026 budget mainly because of higher debt-servicing costs caused by rising interest rates and a weak yen. The government aims to fund increased social security, defense, and stimulus programs, but this raises concerns about long-term fiscal sustainability.
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How will rising interest rates affect Japan's economy?
Higher interest rates increase the cost of borrowing for Japan, especially as the government needs to issue more bonds to cover its expenses. This can lead to higher debt-servicing costs, putting pressure on public finances and potentially slowing economic growth if borrowing becomes too expensive.
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Is Japan's debt sustainable?
Japan's debt exceeds twice its GDP, which raises questions about its sustainability. While Japan has managed its high debt levels for years, rising interest rates and increased borrowing could make it more difficult to maintain fiscal health in the future.
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What does this mean for Japan's future spending?
The proposed budget indicates Japan will continue to prioritize social security, defense, and economic stimulus. However, mounting debt costs may limit future spending options or force the government to find new ways to balance growth with fiscal discipline.
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How is Japan trying to reassure investors?
Japan's government is taking measures such as slightly increasing bond issuance and emphasizing fiscal discipline to maintain investor confidence. Despite rising bond yields and a weak yen, these efforts aim to prevent market instability and keep borrowing costs manageable.