Japan PM Takaichi Considers Temporary Food Tax Cut to 1%, Yomiuri Reports

Japanese Prime Minister Sanae Takaichi is preparing to move forward with a temporary but significant cut to the sales tax on food, aiming to ease the burden of persistent inflation on households, according to a report from the Yomiuri newspaper.

The Proposed Tax Cut

The proposal involves slashing the reduced consumption tax rate on food items to 1% from the current 8%, the Yomiuri reported on Wednesday. The tax cut would be in effect for two years, beginning in April 2027.

According to the newspaper, Takaichi has already informed senior figures within the ruling Liberal Democratic Party (LDP) of her intentions. The prime minister reportedly discussed the plan on Tuesday with former Prime Minister Taro Aso, who indicated he would not object, and LDP Secretary General Shunichi Suzuki.

Fiscal Concerns and Market Reaction

The potential tax cut has drawn criticism from lawmakers in both the ruling coalition and opposition parties. The primary concern is how the government would offset the loss in tax revenue at a time when Japan carries one of the world's heaviest public debt burdens.

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This fiscal uncertainty comes as investors are increasingly focused on Japan's financial stability. Yields on Japanese government bonds (JGBs) recently climbed to multi-decade highs amid expectations that expansionary spending could further strain the country's finances, even as the Bank of Japan proceeds with monetary policy normalization.

Path to Implementation

The Takaichi administration's plan is to have the proposal approved at a cabinet meeting in early August, the Yomiuri said. The government would then submit the required legislation to parliament during an extraordinary session later in the year.

The prime minister has stated that the temporary tax reduction would eventually be phased out and replaced by a new support program targeted specifically at low- and middle-income households.