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Japan Plans Two-Year Cut of Food Consumption Tax to 1 Percent

The move creates a large revenue gap and must be finalised by a cabinet decision and Diet bills before it can start in April 2027.

Japanese Prime Minister Sanae Takaichi holds a press conference at the Prime Minister’s Office, as cabinet support falls, following the close of the 221st extraordinary session of the Diet, in Tokyo, Japan, July 27, 2026. David Mareuil/Pool via REUTERS
Japanese Prime Minister Sanae Takaichi holds a press conference at the Prime Minister’s Office, as cabinet support falls, following the close of the 221st extraordinary session of the Diet, in Tokyo, Japan, July 27, 2026. David Mareuil/Pool via REUTERS
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Overview

  • Prime Minister Sanae Takaichi told ruling party executives on Thursday that she will cut the reduced consumption tax on food and beverages from 8% to 1% for two years starting in April 2027.
  • The package pairs the temporary tax cut with targeted cash payments to low- and middle-income households worth about ¥600 billion a year to offset the burden for those groups.
  • Officials say the change would cost roughly ¥5 trillion a year and about ¥10 trillion over two years, and the government has not identified full funding sources.
  • LDP leaders have pledged not to use deficit-covering government bonds to finance the plan, but the proposal has drawn pushback from some ruling party members and many opposition lawmakers and faces a tricky Diet path.
  • Markets and economists have raised concern that the cut has already pushed up government bond yields and weakened the yen and that the measure could add to inflation while offering only limited lasting relief to households.