Japanese Prime Minister Sanae Takaichi is preparing to implement a temporary reduction to the country's reduced consumption tax rate on food, according to a media report on Wednesday. The move is being framed by the government as a targeted, time-limited measure to help households cope with persistent upward pressure on living expenses.
The report said Takaichi has informed senior Liberal Democratic Party (LDP) officials that she plans to lower the reduced sales tax on food items from the present 8% level to 1% for a two-year span beginning in April 2027. It added that the prime minister discussed the plan on Tuesday with former prime minister Taro Aso and LDP Secretary General Shunichi Suzuki, and that Aso indicated he would not oppose moving forward if the government chose to do so.
Officials expect the cabinet to formally approve the proposal at a meeting in early August, after which legislation would be submitted during an extraordinary parliamentary session later in the year, the report said. The tax cut is described as part of a broader strategy by Takaichi to cushion households from the effects of ongoing inflation.
Takaichi has indicated the temporary reduction would ultimately be replaced by a new support programme aimed specifically at low- and middle-income households, although details of that follow-on programme were not provided in the report.
The proposal has met resistance from some quarters. Members of the ruling coalition as well as opposition lawmakers have questioned how the government would compensate for the decline in tax receipts at a time when Japan already carries one of the largest public debt loads in the world. Those fiscal concerns have risen to prominence among investors in recent weeks.
Market reactions have reflected those fiscal worries. The report noted that Japanese government bond yields climbed to multi-decade highs earlier this month amid investor concern that Takaichi's expansionary spending agenda could put additional strain on public finances even as the Bank of Japan proceeds with monetary policy normalization.
The coming weeks will likely focus on cabinet consideration of the proposal and the drafting of legislation for the extraordinary parliamentary session, as the government balances household relief against questions about fiscal sustainability and market reactions in the sovereign bond market.