TOKYO • Japan's Cabinet yesterday approved a record 106.6 trillion yen (S$1.37 trillion) budget for the next fiscal year starting in April, the Ministry of Finance said, as coronavirus and stimulus spending puts pressure on already dire public finances.

The annual budget, which is 3.8 per cent higher than last year's initial budget, also received a boost from record military and welfare outlays.

The government approved a ninth consecutive rise in military spending, funding the development of an advanced stealth fighter and longer-range anti-ship missile to counter China's growing military power.

The Ministry of Defence will receive 5.34 trillion yen for the year starting in April, up by 1.1 per cent from this year.

Policymakers globally have unleashed a torrent of monetary and fiscal stimulus to prevent a deep and prolonged recession as the pandemic shut international borders and sent many out of work.

In Japan, fiscal reform has been shelved as Prime Minister Yoshihide Suga prioritised efforts to contain the pandemic and boost growth, despite public debt being at more than twice the size of Japan's US$5 trillion (S$6.7 trillion) economy.

"How to balance the coronavirus response with fiscal reform has hardly been debated in Japan," said Totan Research chief economist Izuru Kato. "Ultra-low interest rates under the Bank of Japan's prolonged monetary easing may have caused fiscal discipline to be paralysed."

The spending plan, which was in line with a Reuters report out last week, must be approved by Parliament early next year. With Mr Suga's large majority in Parliament, enactment of the budget is all but certain.

It will be rolled out along with a third extra budget for this fiscal year as a combined 15-month budget intended for seamless spending to ease the virus pain and back Mr Suga's goal of achieving carbon neutrality and digital transformation.

"We had to strike a right balance between the needs to prevent the spread of infections, revive the economy and achieve fiscal reform," Finance Minister Taro Aso told reporters after a Cabinet meeting. "That was the most difficult task in compiling this budget."

The government's fiscal 2021 primary budget deficit - excluding new bond sales and debt servicing - is seen at 20.4 trillion yen, more than double this year's initial estimates, making the budget-balancing goal even more elusive.

Mr Suga is also continuing the controversial military expansion pursued by his predecessor, Mr Shinzo Abe, to give Japan's forces new planes, missiles and aircraft carriers with greater range and potency against potential foes, including neighbouring China.

Japan is buying longer-range missiles and considering arming and training its military to strike distant land targets in China, North Korea and other parts of Asia.

A planned jet fighter, the first in three decades, is expected to cost around US$40 billion (S$54 billion) and be ready in the 2030s.

Japan will also spend US$323 million (S$432 million) to begin development of a long-range anti-ship missile to defend its south-western Okinawan island chain.

Other big purchases include US$628 million for six Lockheed F-35 stealth fighters, including two short-takeoff and vertical-landing B variants that will operate off a converted helicopter carrier.

The military will receive US$912 million to build two compact warships that can operate with fewer sailors than conventional destroyers.

Japan also wants two new warships to carry powerful new Aegis air and ballistic missile defence radars that have as much as three times the range of older models.

The government has not yet estimated the cost of the plan, which replaces a project cancelled in June to construct two ground Aegis Ashore stations.

REUTERS, BLOOMBERG