Takaichi's Food Tax Cut Tests Markets Ahead of BOJ Meeting

Japanese Prime Minister Sanae Takaichi's government is preparing to lower the sales tax on food from 8% to 1% for two years starting in April next year, a move aimed at alleviating public frustration over rising food prices.

The proposal, which has already drawn concern from ruling and opposition lawmakers, would give the government a visible answer to household inflation but also increases scrutiny of how it will fund its policies.

With falling approval ratings, Takaichi's administration is under pressure to deliver immediate support to households, but any unfunded relief measure could unsettle markets further, deepening concerns over fiscal management and contributing to yen and bond-market instability.

The Bank of Japan begins its policy meeting on July 30-31, with markets expecting it to keep its policy rate at 1% while signaling that further rate hikes remain possible as price pressures build.