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yesterday

LDP Endorses Takaichi’s Two-Year Cut of Food Consumption Tax to 1%

Markets and fiscal hawks warn the revenue loss could strain Japan’s public finances.

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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/File Photo
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Overview

  • The ruling Liberal Democratic Party advanced the proposal through key committees and left the final call to tax policy chief Itsunori Onodera after intense party debate on Aug. 3.
  • The plan would cut the consumption tax on food from 8% to 1% for two years starting in April 2027 and include cash payments for low- and middle-income households plus a planned income-linked relief programme in fiscal 2029.
  • Officials and analysts put the immediate revenue hit at roughly 4.4–5 trillion yen and say the measure could create an estimated social-security shortfall of about 10 trillion yen over two years if funding is not identified.
  • The IMF and former ministers have warned the untargeted cut could erode fiscal credibility, and markets have already pushed long-term government bond yields higher and weakened the yen, testing Tokyo’s ability to manage borrowing costs.
  • Supporters say the move will give fast relief to households, while opponents warn the pledged return to 8% after two years and unclear funding could make the issue a major factor in the 2028 Upper House election.