* 106.6 trln-yen budget contains COVID reserve of 5 trln yen * FY2021/22 budget approval may pave way for more spending * Finmin vows to combat virus, revive economy, fix finances Japan’s record $1 trillion budget for the upcoming fiscal year was approved by parliament on Friday, raising speculation of still more spending in response to the coronavirus pandemic. The 106.6 trillion yen ($975.83 billion) budget for the year beginning April 1 features 5 trillion yen in emergency spending related to the pandemic. That follows three COVID-19 packages worth a combined $3 trillion already rolled out in the current fiscal year. The world’s third-largest economy stands on the cusp of a slump in the current quarter due to a second coronavirus-related state of emergency that was imposed from early January through last week for Tokyo and some other areas. The economy last contracted in the April-June quarter last year. Some analysts anticipate more spending will be announced as politicians pile pressure to keep the fiscal spigot wide open, while government borrowing costs are kept low due to money printing from the central bank. “Large economic measures will be sought in the fiscal 2021 albeit at a smaller scale than the current fiscal year,” said Koya Miyamae, senior economist at SMBC Nikko Securities. “As the low interest rate policy drags on, the autonomous mechanism won’t work in the way that encourages politicians to aim for fiscal reform.” Finance Minister Taro Aso has so far resisted further spending, arguing that the government’s immediate focus is to enact the budget and emergency reserves can be tapped as needed. The budget reached the record high level for the upcoming fiscal year due to snowballing social security spending to support Japan’s rapidly ageing population as well as record defence spending to counter threats from North Korea and China. It also contains spending to achieve digital transformation and carbon neutrality, further straining the industrial world’s heaviest debt burden at more than 2.5 times of Japan’s economy.