Japan Signals Possible Extra Budget to Counter U.S. Tariff Impact

Japanese Prime Minister Shigeru Ishiba said Monday the government may compile an extra budget to offset economic pressures from U.S. tariffs, a move that could further strain Japan’s already fragile public finances.

Following a major defeat in last month’s upper house election, Ishiba’s minority coalition faces mounting pressure from opposition parties to boost spending and cut Japan’s sales tax. While not committing to a figure, analysts estimate the package could reach around 10 trillion yen ($67.7 billion), likely requiring additional debt issuance.

Ishiba told parliament the decision will depend on cross-party discussions, and if approved, the budget could be submitted during an extraordinary parliamentary session in September. The additional spending would add to the record 115.5 trillion yen budget for the current fiscal year, nearly a quarter of which is allocated to debt servicing. Rising interest rates from the Bank of Japan could push those costs even higher.

Japan’s recent trade agreement with U.S. President Donald Trump aims to ease tariffs on key exports, including automobiles, but the timing of a reduction from 25% to 15% on vehicles and parts remains unclear, clouding recovery prospects for the export-driven economy.

With inflation and rising food prices eroding household consumption, opposition parties have called for reducing or scrapping the sales tax, currently 10% (8% for food). However, Ishiba, known as a fiscal conservative, remains cautious as the levy helps fund ballooning social welfare costs for Japan’s rapidly ageing population.

Decades of large stimulus programs and soaring welfare expenses have left Japan’s public debt at 250% of GDP—the highest among major economies. Any new extra budget, while offering short-term relief, risks deepening long-term fiscal challenges as the nation struggles to balance economic support with fiscal sustainability.