Japan’s government has approved a record budget spending worth $939 billion for the coming fiscal year, the Ministry of Finance said on Friday, as it tries to balance the need to boost growth and manage the industrial world’s heaviest public debt burden.

The 102.7 trillion yen ($939 billion) general-account budget for the year beginning April 1 marks a 1.2% rise from the current year, boosted by record outlays for welfare and the military and other spending aimed at boosting the economy.

Prime Minister Shinzo Abe has prioritised growth over fiscal reforms under his ‘Abenomics’ reflationary policy of monetary stimulus and flexible spending, and planned spending has increased for eight straight years.

Part of the planned spending will help finance a $122 billion fiscal package put together this month by Abe’s cabinet to shore up growth beyond the 2020 Tokyo Olympics after hits from the US-China trade war and an Oct. 1 sales tax hike to 10%.

Meanwhile, Shinzo Abe attended the construction completion ceremony of the New National Stadium on December 15 in Tokyo. With him were Minister for the Tokyo Olympic and Paralympic Games Seiko Hashimoto, Minister of Land, Infrastructure, Transport and Tourism Kazuyoshi Akaba, Tokyo Governor Yuriko Koike, and Tokyo Organising Committee of the Olympic and Paralympic Games Vice President Toshiaki Endo Tomohiro Ohsumi.

Abe’s administration is counting on economic expansion to boost tax revenues to help finance debt, as limited scope for monetary stimulus prompts global policymakers to focus on fiscal spending.

“We’ll continue efforts on reform of expenditure so as to juggle both economic revival and fiscal reform,” Finance Minister Taro Aso told reporters after a cabinet meeting.

“We are striving to achieve a primary budget surplus,” he said, shrugging off a view that the Bank of Japan’s ultra-low rate policy is allowing the government to effectively bankroll its debt.

Parliament must now approve the spending plan, along with a separate extra budget for this fiscal year, early in 2020.

“Despite the tax hike, public finances are worsening as the government expands spending to ease the pain of the higher levy,” said Koya Miyamae, senior economist at SMBC Nikko Securities.

Japan’s public debt is more than double the size of its $5 trillion economy, by far the highest among advanced economies. Bond yields have been suppressed by the BOJ’s money printing under a policy that caps 10-year JGB yields around 0%, allowing the government to rely on cheap borrowing.

Helped in part by additional revenues from the sales tax hike, Japan plans to cut new bond issuance for a 10th straight year - to 32.6 trillion yen from 32.7 trillion yen this year.

But the government is still relying on its rosy forecast of 1.4% real GDP growth for the next fiscal year - private-sector economists predict around 0.5% - which is expected to help boost annual tax income to a record 63.5 trillion yen.

The budget plan would leave the debt-dependency ratio at 32%. The government’s primary budget deficit - excluding new bond sales and debt servicing - is seen at 9.2 trillion yen, 50 billion yen wider than this year.

The heavily indebted government will scrape together money from non-tax revenue such as budget reserves to fill a funding gap, according to the plan. It has also set aside 1.8 trillion yen for the stimulus package aimed at boosting consumer spending and infrastructure investment. The 2020/21 draft budget comes on top of additional proposed spending of 4.5 trillion yen for this fiscal year, making it harder to achieve a target to balance the budget by the end of March 2026.

The announcement was in line with a Reuters report published on Wednesday. ($1 = 109.3700 yen)

Japan’s annual core consumer inflation ticked up in November and a key price gauge hit a more than three-year high, suggesting that firms are gradually passing on rising labour and tax hike costs to shoppers.

All the same, inflation remained distant from the Bank of Japan’s 2% target, underscoring the challenge the central bank faces in propping up prices as the economy shows sign of slowing.

The core consumer price index (CPI), which excludes volatile fresh food prices, rose 0.5% in November from a year earlier, government data showed on Friday, matching a median market forecast and accelerating from a 0.4% gain in October. The so-called core-core inflation index, which strips away the effect of both volatile fresh food and energy costs, was up 0.8% in November, marking the fastest year-on-year increase since April 2016.

Reuters