Japan unveiled on Friday a record ¥114.4 trillion ($863 billion) budget for the next fiscal year from April, pushed up by increased military spending and higher social security costs catering to a fast-aging population, piling on more debt.

The budget — endorsed by Prime Minister Fumio Kishida's Cabinet on Friday — features record military and welfare spending as Japan confronts regional security challenges from an ever-assertive China and an unpredictable North Korea.

Kishida's controversial plan to double Japan's defense spending to 2% of gross domestic product by 2027 contributed to a record ¥6.8 trillion increase in spending, adding to the nation's public debt already exceeding 2.5 times the size of its economy.

To fund spending for military facilities, warships and other vessels, the government decided to issue in fiscal 2023 just over ¥434 billion of construction bonds, which are usually used to finance infrastructure spending, but not military equipment.

"I believe those ships can be considered assets worth asking for the people to share costs," Finance Minister Shunichi Suzuki told reporters when asked about the decision, while adding the move should not be seen as abandoning fiscal restraints.

The need for more military spending comes at a time of intensifying economic challenges as the Ukraine war, soaring inflation and rising rates worldwide push the global economy to the brink of recession.

For fiscal 2023, the defense spending will rise to ¥6.8 trillion, up ¥1.4 trillion from this year. The government also set aside ¥3.4 trillion to help finance its five-year defense build-up plan.

All of this means a longer road to reducing Japan's debt, as Tokyo aims to achieve a primary budget surplus, excluding new bond sales and debt servicing costs, by the fiscal year ending March 2026.

On the brighter side, tax revenue is estimated at a record ¥69.4 trillion thanks in part to recovery in corporate profits, allowing the government to reduce new bond sales by ¥1.3 trillion to ¥35.6 trillion.

Still, the budget's debt dependency ratio stood at 31.1%, underscoring the fiscal constraints faced by the government. The budget assumed next fiscal year's exchange rate at ¥137 to the dollar, the weakest since 2010, in calculating fiscal 2023 spending for defense and diplomacy, the officials said.