TOKYO, Dec 26 (Reuters) - Japanese Prime Minister Sanae Takaichi's cabinet on Friday approved a record $785 billion budget for the next fiscal year, aiming to strike a balance between her proactive fiscal policy and debt blowout concerns by limiting new bond issuance.
Faced with rising government bond yields and a weak yen, the Takaichi administration has stepped up efforts to reassure investors that the government will not resort to irresponsible debt issuance or tax cuts.
The budget for the year starting from April, to be submitted to parliament early next year, will total a record 122.3 trillion yen ($784.63 billion), exceeding this year's initial budget of 115.2 trillion yen.
Still, new government bond issuance will increase only slightly from this year's 28.6 trillion yen to 29.6 trillion yen, with the debt dependence ratio falling to 24.2%, the lowest since 1998.
Higher tax revenues, projected to rise 7.6% to a record 83.7 trillion yen, will help fund increased spending, though they will not fully offset surging debt-servicing costs, along with higher social welfare and defence outlays.
Debt-servicing costs for interest payments and debt redemption will jump 10.8% to 31.3 trillion yen, with the assumed interest rate set at 3.0%, the highest level in 29 years, as the Bank of Japan exits ultra-loose monetary policy.
Japan already has the highest debt burden in the developed world at more than twice the size of its economy, making it highly sensitive to rising borrowing costs and complicating Takaichi's plans to pursue aggressive fiscal stimulus measures.
Takaichi intends to drop the idea of using the annual primary budget balance as Japan's fiscal consolidation goal and set a new goal that extends through several years to allow more flexible spending.
($1 = 155.8700 yen)
(Reporting by Makiko YamazakiEditing by Shri Navaratnam)
