Takaichi pledges to cut Japan's food consumption tax to 1% without deficit bonds
Japanese prime minister Sanae Takaichi used her policy speech at the opening of an extraordinary Diet session on 5 October to put a sharp cut in the consumption tax on food at the centre of her economic agenda. The rate on food and beverages would fall from 8% to 1% for two years from April, combined with cash benefits for middle- and lower-income households, according to Kyodo's report of the speech carried by Bernama. The session runs for 69 days to 12 December.
The funding pledge is the part markets will parse most closely. "To ensure market confidence, we will secure funds without relying on the issuance of deficit-covering bonds," Takaichi said. Japan's fiscal position is the weakest in the G7, and the government's room for manoeuvre has been a persistent concern in the bond market since she took office in October 2025. The speech did not spell out which revenues or spending offsets would cover the cut.
Takaichi framed the measure as relief from inflation, saying it would "create even a little more room in household finances". Opposition parties have argued the plan will not deliver immediate help because the lower rate does not begin until April. The government intends to submit 21 bills during the session, including the legislation needed to implement the tax change.
The prime minister's political position is unusually strong for the task. Her Liberal Democratic Party and the Japan Innovation Party won well over two-thirds of the 465 lower house seats in February's general election, a margin large enough to override rejection by the upper house, where the ruling bloc is in a minority. The main opposition grouping, formed in January by lawmakers from the Constitutional Democratic Party and Komeito, split last month after its February defeat, though its former members still make up the largest opposition bloc in the lower house.
Beyond the tax cut, Takaichi said the government would draw up a five-year action plan to promote domestic investment by the end of the year, with priority for economic security, cyber defence, artificial intelligence, semiconductors and other strategic industries. Among the 21 bills is one aimed at diversifying Japan's sources of crude oil, a direct response to the Middle East conflict that has disrupted Gulf exports on which the resource-poor country depends.
She also returned to constitutional and electoral reform. A revision to the law governing constitutional referendums had, she said, "greatly advanced the conditions for the public to make their judgement", and she called for thorough deliberation of a carried-over bill that would automatically remove 45 proportional-representation seats from the lower house if no agreement is reached within a year of its enactment. On China, she called Beijing an "important neighbour" while saying Tokyo would "say what must be said".
The macro backdrop is subdued. The International Monetary Fund's October outlook, published on 13 October, forecasts Japanese growth of 0.7%, and the Fund's chief economist Silvana Tenreyro urged countries with high debt and deficits to begin fiscal consolidation and keep fiscal policy restrained while inflation risks are elevated, advice that sits awkwardly with a large tax cut even if it is fully funded.
What to watch next: the Diet's handling of the tax-cut bill over the session to 12 December, any detail on how the measure will be financed, and the reaction in Japanese government bond yields. The year-end investment plan and the oil-diversification bill will also indicate how far the government goes on energy security.
