FY2027 Budget Policy: Investment Framework and Active Fiscal Policy

On July 30, 2026, Prime Minister Takaichi held the 12th Council on Economic and Fiscal Policy meeting of 2026 at the Prime Minister’s Office, discussing the overall budget and the FY2027 budget request policy based on the Cabinet Office midyear estimate and medium- to long-term economic and fiscal projections.

The midyear estimate indicated that, while rising crude oil prices would weigh on the economy in FY2026, income growth from wage increases and policy effects would provide support, with real growth projected at approximately 0.9% in FY2026 and approximately 1.1% in FY2027. It also expressed the view that a private-demand-led cycle, in which income growth generates consumption and investment, was beginning to emerge.

The primary balance is expected to be approximately balanced in the previous fiscal year, and the projections indicated that even if sufficient economic growth were achieved and additional real fiscal spending of 10 trillion yen were assumed each year, the debt-to-GDP ratio would decline steadily and the primary balance would move into surplus from FY2027 onward.

Through the investment framework, the government aims to carry out domestic investment, including crisis-management and growth investments, with predictability and raise the potential growth rate. The policy also calls for reflecting increases in wages and procurement prices in budget requests.

The government indicated that it would connect proactive fiscal spending to growth while giving due consideration to fiscal sustainability and market confidence. It will communicate with markets transparently and carefully.

The “Strong and Prosperous Japan” investment framework will be established separately from regular expenditures, with no ceiling on requests. It will allow appropriate requests for the required amounts, including itemized requests, and because necessary budgets can be requested sufficiently, no operation equivalent to the conventional ceiling will be imposed.

Budget requests and proposals will reflect increases in wages and procurement prices, continuing the accurate reflection of economic and price trends achieved in the FY2026 budget. The government will also reduce reliance on supplementary budgets and include permanent measures in the initial budget, using item-only requests when necessary.

In future budget formulation, priority will be given to the effects on economic growth rather than the total amount of fiscal spending, and spending priorities across all measures will be reassessed, including reviews of subsidies and funds. Based on the “Basic Policy 2026,” the government will prepare a budget that balances the transition to a growth-oriented economy with fiscal sustainability.