Japan pushes record FY2027 budget with higher debt costs, proposes steep food tax cut and seeks defense spending for drones, AI, missiles

The Finance Ministry’s draft budget for fiscal 2027 totals 143.07 trillion yen, the fourth consecutive record high, and includes a 36.64 trillion‑yen debt‑service cost as interest rates are assumed to rise to 3.8 percent. The Health, Labour and Welfare Ministry requests the largest share at 36.58 trillion yen to meet rising pension, health‑care and nursing‑care expenses. Prime Minister Sanae Takaichi announced a plan to reduce the consumption tax on food and beverages from 8 percent to 1 percent for two years starting April 2027, with a later move to a zero rate funded by cash benefits, an action expected to generate an annual shortfall of roughly 5 trillion yen.

The defence ministry has submitted a request of 8.9 trillion yen for the next fiscal year, aiming to add attack drones, long‑range cruise missiles, submarine‑launched hypersonic missiles and an AI‑driven command platform. Critics warn the tax cut could widen the fiscal gap and risk a bond‑rating downgrade.