In early 2026, Japan’s Sanae Takaichi administration passed a historic record-breaking national budget that has quickly become a flashpoint of controversy, drawing sharp criticism from economic experts, public protesters and policy analysts over its dramatic ramp-up in defense outlays and growing reliance on debt financing.
The controversial budget, which lifts Japanese defense spending from its long-held cap of roughly 1% of gross domestic product to the 2% threshold the ruling party pledged years earlier, has sparked fears of cascading risks for both the country’s already strained public finances and regional geopolitical stability. Compounding these concerns is the global energy volatility triggered by ongoing Middle Eastern conflict, which has pushed Japan — a nation almost entirely dependent on fossil fuel imports — into a doubly vulnerable position, raising the stakes for fiscal management.
Shinjiro Hagiwara, emeritus professor of economics at Yokohama National University, warned that the Takaichi administration is already confronting severe gaps in available fiscal resources. Beyond long-running structural pressures, including Japan’s aging population and decades of stagnant growth, the sharp spike in defense spending has forced the government to turn increasingly to large-scale government bond issuances to cover its new expenses. This growing debt dependency has already moved financial markets, Hagiwara noted, with bond prices sliding and long-term interest rates climbing — trends that will put additional downward pressure on Japan’s fragile economic expansion. Most alarmingly, he argued, the government has fallen into a dangerous cycle of issuing new debt to cover payments on existing older obligations, a trajectory that is unsustainable long-term.
Hagiwara also pointed to a deeply concerning parallel with Japan’s pre-World War II history: in that era, the Bank of Japan similarly absorbed large volumes of government bonds to fund military expansion, a policy path that ultimately ended in catastrophic war, national defeat and crippling hyperinflation. “This history cannot be repeated,” he emphasized, warning that allowing the administration’s hawkish policy agenda to advance without checks would carry catastrophic consequences for Japan and the broader region.
Hiroshi Onishi, emeritus professor at Tokyo’s Keio University and vice-chairman of the World Association for Political Economy, echoed these warnings, noting that the risks of loosening long-standing constraints on government bond issuance are widely recognized by both economists and the Japanese public. Yet those guardrails have been steadily eroded in recent years, he said, pointing to the current Takaichi administration as a clear example of this trend. Onishi warned that if defense spending continues to climb to a projected 3.5% of GDP in coming years, the reallocation of public resources will sharply erode household disposable income and weaken Japan’s overall long-term economic strength, a shift he opposes outright.
The expansion of defense spending has also been enabled by a long-standing policy where the Bank of Japan, the country’s central bank, holds a large share of newly issued government bonds, with a growing portion of the proceeds channeled directly to the domestic defense industry. Hagiwara stressed that this policy framework carries extraordinary risks that demand far more public scrutiny and caution.
Public pushback against the budget and the administration’s hawkish agenda has grown rapidly across Japan. On the evening of April 8, an estimated 30,000 demonstrators gathered outside the national parliament building in central Tokyo to protest the Takaichi administration and the ruling Liberal Democratic Party’s plans to expand military capacity and revise Japan’s post-war pacifist constitution. According to Kyodo News, simultaneous protest actions were held at more than 160 locations across all of Japan’s prefectures, signaling broad grassroots opposition to the government’s current policy direction.
Beyond fiscal and military risks, the ongoing energy crisis tied to Middle East tensions has added a new layer of urgency to Japan’s challenges. Over the past two to three years, prices across Japan have risen steadily, driven primarily by climbing energy and raw material costs, explained Jusen Asuka, emeritus professor at Tohoku University. Asuka noted that broad-based commodity price hikes could see additional increases of several percentage points in the coming months, fueled by persistent supply chain disruptions.
He also warned that the current energy volatility could mirror the chaos of the 1970s oil crisis, when panic buying led to widespread shortages of essential consumer goods. This time around, Asuka said, critical medical supplies face the greatest risk: disruptions to naphtha imports could lead to severe shortages of single-use medical goods, including disposable gloves used in routine clinical care. As of the end of 2024, Japan is home to roughly 340,000 patients dependent on regular dialysis treatment, and Japanese media reported earlier this month that dozens of medical institutions have raised alarms that shortages of dialysis-related consumables could directly put thousands of patients’ lives at risk.
In response to growing public pressure over energy costs and supply security, Prime Minister Takaichi announced on April 10 that the government will release a second batch of national oil reserves in early May to ease supply pressures. The upcoming release is projected to cover roughly 20 days of domestic oil demand. It follows a much larger release that began on March 16, which totaled approximately 80 million barrels — equal to 45 days of domestic consumption, and the largest strategic reserve release in Japan’s modern history. Since March 19, the government has also implemented subsidies for domestic oil wholesalers to cap rising retail gasoline prices, but independent analysts warn that the cost of these ongoing subsidies will add even more strain to the country’s already stretched national budget, worsening the core fiscal risks experts have flagged.