Japan plans ¥3 trillion supplementary budget for 2026 fiscal year

Tokyo — The Japanese government will prepare an additional budget of over ¥3 trillion (approximately $19 billion) for the 2026 fiscal year to counter rising energy prices amid prolonged Middle East tensions, Prime Minister Sanae Takaichi said on Monday. Takaichi said the draft budget is likely to be submitted to parliament next week. She also stated the government will use a ¥500 billion contingency fund to help households cover utility bills from July to September, when air conditioning demand rises. The support measure, scheduled for cabinet approval on Tuesday, is expected to reduce energy costs by around ¥5,000 per household over three months, Takaichi said. Takaichi said the additional budget for the current fiscal year starting in April will be funded through additional deficit-covering bond issuance. However, she dismissed concerns that the move would affect the bond market. Market worries over Japan’s worsening fiscal condition and accelerating inflation have driven up borrowing costs, with 10-year government bond yields reaching a three-decade high. Takaichi also explained that total bond issuance would remain unchanged as the government no longer needs to issue around ¥3 trillion in bonds previously planned for the 2025 fiscal year due to higher tax revenues and other income sources. The government will also establish a special contingency fund to address Middle East situation impacts, such as soaring crude oil prices, Takaichi said. “We will step up efforts to ensure people’s livelihoods, jobs, and economic activities remain unaffected,” she said, adding the planned budget is designed to “do everything possible to minimise risks.” Takaichi’s announcement follows calls from both ruling and opposition parties for the government to prepare a supplementary budget to tackle rising crude oil prices after US and Israeli strikes on Iran in late February and the effective closure of the Strait of Hormuz. Resource-poor Japan heavily relies on Middle Eastern oil imports via the Strait of Hormuz, a major global energy transit route. As a result of Japan’s efforts to diversify suppliers, Takaichi said the country’s oil procurement will reach around 80% of last year’s level and it is likely to secure supply until spring 2027. Meanwhile, the prime minister maintained her stance against asking Japanese citizens to reduce energy use. She said Japan has not reached a stage where the government needs to make such a request “in a way that hampers economic activity.” When asked about the possibility of revising subsidies for distributors to maintain average petrol prices at around ¥170 per litre, she did not rule it out. Several lawmakers from both ruling and opposition parties previously proposed reducing petrol subsidy programmes to ease fiscal pressure on the heavily indebted nation.