Japan's cabinet approves record budget, faces tough parliament fight

By Makiko Yamazaki

TOKYO (Reuters) -Japanese Prime Minister Shigeru Ishiba's cabinet on Friday approved a record $730 billion budget for the next fiscal year, while limiting new bond issuance to the lowest in 17 years on the back of record tax revenue.

However, Ishiba's minority government faces a tough political battle with opposition parties to pass the budget through parliament early next year, potentially damaging his already weak standing in the polls.

The budget for the fiscal year that starts in April is estimated at 115.5 trillion yen ($732.36 billion), up 2.6% from the current year's 112.6 trillion yen, driven by debt-servicing and social security costs.

But record tax revenue is likely to help reduce new bond issuance to 28.6 trillion yen, the lowest since 2008.

As a result, the debt dependence ratio will stand at 24.8%, meaning new bond sales account for a quarter of the budget. It represents the first drop below 30% since 1998.

Japanese Finance Minister Katsunobu Kato said at a news conference on Friday that the government "will continue working to achieve both economic turnaround and fiscal health."

He also said the government is sticking with its goal to deliver a primary budget surplus by the next fiscal year, though a detailed estimate would not be released until early 2025.

As the budget plan needs support from opposition parties to pass parliament, Ishiba's minority government could be forced to yield to their demands and revise part of the plan during parliament deliberations.

The key opposition Democratic Party for the People (DPP) is demanding a more aggressive lifting of the income tax threshold in effective tax cuts, potentially hurting tax revenue.

(Reporting by Makiko Yamazaki; Editing by Sam Holmes)