Japan's VAT Cut Plan Sparks Inflation Fears as Yen Weakens

Japan's Prime Minister Sanae Takaichi has unveiled plans to slash the value-added tax (VAT) rate on food and drink from 8% to a mere 1%, making it effectively zero for two years starting April 2027. The ambitious move aims to boost consumption, but faces stiff opposition within the Liberal Democratic Party (LDP), with critics arguing that no financial provisions have been made for the measure.

The government's proposal, championed by Prime Minister Takaichi, is expected to cost around ¥10 trillion (approximately €55.1 billion). However, the plan has met with skepticism from within the LDP, with former Defence Minister Tomomi Inada questioning the lack of financial provisions for the measure.

Meanwhile, Japan's Finance Minister Satsuki Katayama has assured that 'the utmost vigilance' will be exercised to manage the country's finances amidst rising inflationary pressures and a weakening yen. The Bank of Japan has left its key interest rate unchanged at 1% but hinted at future increases due to concerns over the yen's weakness.