Japan PM Sanae Takaichi Plans Temporary Food Tax Cut to Ease Inflation Pressure

Japanese Prime Minister Sanae Takaichi is preparing to introduce a temporary reduction in Japan's reduced consumption tax on food as part of a broader effort to help households cope with persistent inflation and rising living costs.

According to a report by the Yomiuri newspaper on Wednesday, the government plans to lower the food sales tax rate from the current 8% to 1% for a two-year period beginning in April 2027. The proposal is expected to become a key component of the administration's strategy to support consumers while the economy continues to face inflationary pressures.

The report said Takaichi discussed the plan with senior Liberal Democratic Party (LDP) leaders, including former Prime Minister Taro Aso and LDP Secretary General Shunichi Suzuki, on Tuesday. Aso reportedly expressed no objection if the government decides to move forward with the measure.

The Japanese government is expected to approve the proposal during a cabinet meeting in early August before submitting the required legislation to an extraordinary session of parliament later this year.

Takaichi has previously indicated that the temporary tax reduction is intended as a short-term measure and would eventually be replaced by a more targeted financial support program focused on low- and middle-income households.

Despite its potential benefits for consumers, the proposal has sparked debate among both ruling coalition members and opposition lawmakers. Critics argue that cutting the food consumption tax could significantly reduce government revenue at a time when Japan already faces one of the highest public debt burdens among developed economies. Questions remain over how the administration would finance the policy without worsening the country's fiscal position.

Investor concerns over Japan's public finances have intensified in recent weeks. Japanese government bond (JGB) yields climbed to multi-decade highs earlier this month as markets assessed the fiscal impact of Takaichi's expansionary spending agenda. The move comes while the Bank of Japan continues its gradual monetary policy normalization, adding another layer of uncertainty for financial markets.

The proposed food tax cut highlights the government's attempt to balance inflation relief for households with long-term fiscal sustainability, making it a closely watched policy initiative for investors, businesses, and consumers alike.