Government to require progress checks in fund reform

2026-08-16

The government will require progress checks and reviews for projects that use state funds. It will scrap the rule limiting support to three years, allowing longer-term assistance, while ending projects that produce little in the way of results partway through. The focus will be on 'smart spending' that helps lift the economy.

Tightening fund management

Japan's budget is based on the single-year principle, under which funds appropriated in a fiscal year must be spent within that year. Using funds set aside for specific projects can make it possible, as an exception, to provide support across multiple years. But because budget allocations can be made without Diet deliberation, the flow of money can be opaque. As of the end of fiscal 2024, there were 185 funds with balances reaching 17.6 trillion yen.

The Sanae Takaichi administration has placed growth investment in 17 strategic sectors at the core of its economic policy. It is considering multi-year support so companies and others can move ahead with long-term investment with greater confidence. Use of funds is one such tool, and the system will be reviewed starting with the fiscal 2027 budget.

Targets at each stage

The government will first abolish the three-year rule so support can continue more flexibly. It will tighten reviews and, depending on progress, stop funding in order to vary the level of support.

It will require a stage-gate approach that sets achievement targets at each stage for each project. Every fixed period, such as one year, the government will check whether milestones have been met, and if not, support will be ended. Funds such as the 1 trillion yen Space Strategy Fund have already adopted this format, and it will be made mandatory for other funds as well.

The government will also seek results in how money is provided. In addition to lump-sum subsidies, it will encourage the use of financial tools such as equity injections and loans, with an emphasis on investment returns. A fixed share of profits will be required to be paid into the national treasury.

Stronger oversight of execution

Oversight of implementation will also be strengthened. Disclosure of spending and balances will be changed from once a year to quarterly. The requirements for establishing funds will be clarified, and anti-fraud rules will be tightened. When subsidy operations are outsourced to the private sector, the supervising ministry will be able to more strictly verify the suitability of the contractor. A revision of the Subsidy Budget Optimization Act is also under consideration.

Fund balances once hovered at around 2 trillion yen a year, but they swelled amid support for companies during the COVID-19 pandemic. The Fumio Kishida administration introduced a rule that budget measures should, in principle, run for three years in an effort to review oversized funds. In 2024, it also decided to abolish 15 programs that had completed their roles. Under this reform, the government aims to prevent funds from swelling again.

At the 'Japan version of DOGE' initiative to review wasteful government spending, the public also submitted opinions on funds. Comments included concerns that checks by the Diet and the public may not be strong enough and that priority should be given to necessary projects.

The fiscal 2027 budget will be compiled from scratch by the Takaichi administration for the first time. In the budget request guidelines presented at the end of July, it removed ceilings, which are the upper limits on budget requests by each ministry, for fields related to growth and crisis management. Finance Minister Satsuki Katayama said, 'It is a groundbreaking measure symbolizing a turning point in the times. There is no longer anything that should be called a ceiling.'

If fiscal expansion becomes unchecked, pressure for a weaker yen and higher interest rates could intensify further. For the Takaichi administration to maintain market confidence, whether reforms to funds that serve as a vehicle for growth investment work will be a litmus test.

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