Overview
- Prime Minister Sanae Takaichi is finalizing a plan to lower the reduced consumption tax on food from 8% to 1% for two years starting next April and aims for a cabinet decision in early August.
- A National Council on Social Security working group could not agree on concrete funding for the cut, leaving financing unresolved as the proposal moves toward autumn legislation.
- A council proposal would pair the tax cut with a new benefit system from April 2027, saying the combined measures would cost about ¥5 trillion a year with an offset of roughly ¥600 billion annually and plans to cover the hole through subsidy cuts and tax changes rather than new bond issuance.
- The plan has drawn pushback from some LDP and opposition lawmakers who warn that rapid tax reversals would disrupt the economy, and investors have driven Japanese government bond yields to multi-decade highs signaling concern about higher borrowing needs.
- Households could see immediate price relief on food, local and national government revenues would fall sharply, and the debate will test whether policy makers can find offsetting savings without adding to Japan's large public debt.