The Japanese government has approved a record-breaking budget of approximately ¥122.31 trillion for fiscal year 2026, marking the largest national budget in the country's history. The announcement, made on December 26, 2025, represents an increase of over ¥7 trillion from the current fiscal year and signals significant implications for foreign residents living and working in Japan. According to NHK, the unprecedented budget size reflects Japan's efforts to balance economic growth with fiscal sustainability amid ongoing demographic and economic challenges. Prime Minister Takaichi emphasized that the budget aims to achieve "a strong economy while maintaining fiscal sustainability," setting the stage for what promises to be contentious debates in the upcoming parliamentary session. The government has scheduled the ordinary Diet session to convene on January 23, 2026, where the budget and related legislation will be deliberated. For expats, this timeline is crucial as any policy changes affecting taxation, social services, or business regulations will likely be decided during this session. Prime Minister Takaichi has expressed her commitment to securing early passage of the budget and associated bills, suggesting the government will prioritize swift implementation of its economic policies. A significant development that directly impacts foreign residents is the government's intention to introduce a "refundable tax credit" system, known in Japanese as "kyufu-tsuki zeigaku kojo." According to NHK's reporting on the Economic and Fiscal Policy Council meeting, Prime Minister Takaichi has instructed relevant ministers to deepen discussions on this tax reform measure. This system, common in many Western countries, would allow taxpayers to receive direct payments if their tax credits exceed their tax liability—a departure from Japan's current system where credits can only reduce taxes owed to zero. For foreign workers and business owners in Japan, this proposed tax credit system could represent a meaningful change in how tax benefits are distributed. Currently, lower-income earners who don't pay sufficient income tax cannot fully benefit from tax deductions. The refundable credit system would ensure that tax benefits reach all eligible taxpayers regardless of their income level, potentially providing more equitable support for families and lower-income workers, including many expats in service industries or starting their careers in Japan. The record budget size raises questions about Japan's fiscal health and long-term economic direction. The government plans to address these concerns in the "Basic Policy on Economic and Fiscal Management and Reform," commonly called the "Honebuto no Hoshin" (Skeleton Policy), scheduled for formulation in summer 2026. This policy document will outline fiscal management targets and economic priorities that will shape Japan's economic landscape for years to come. For businesses employing foreign workers or expat entrepreneurs, the budget discussions may also affect corporate tax policies, social insurance contributions, and business support programs. While specific allocations haven't been fully detailed, the substantial increase suggests expanded government spending across multiple sectors, potentially including infrastructure, technology, and social welfare programs. The opposition Constitutional Democratic Party has already signaled its intention to hold the government accountable, requesting regular party leader debates between April and June 2026. These debates will likely scrutinize the budget's details and may result in modifications or additional policy commitments affecting various aspects of life in Japan. Foreign residents should monitor developments in the Diet proceedings, particularly regarding tax reform and social welfare policies. Any changes to the tax system, including the proposed refundable tax credit, would likely take effect in the following fiscal year, giving taxpayers time to adjust their financial planning accordingly. Consulting with tax professionals familiar with both Japanese and international tax law will be increasingly important as these reforms take shape.