Japan Plans Food Tax Cut to Combat Living Costs

The Government of Japan will finalize an outline on Tuesday for a consumption tax cut and household payouts designed to mitigate the impact of rising living costs. The proposal includes slashing the 8 percent levy on food to 1 percent for two years beginning in April 2027, with additional payouts intended to effectively eliminate the tax burden on food purchases.

This policy is expected to create a revenue shortfall of approximately 5 trillion yen. While the government asserts it will not use deficit-covering bonds, relying instead on non-tax revenues and reviews of existing subsidies, the current outline lacks specific funding details.

The absence of a clear funding mechanism, paired with the ambitious spending plans of Prime Minister Sanae Takaichi, has triggered market volatility. The benchmark 10-year Japanese government bond yield has risen above 3 percent, drawing criticism from U.S. Treasury Secretary Scott Bessent.