Takaichi's Tax Cut Gambit Risks Exacerbating Inflation in Japan

Japanese Prime Minister Sanae Takaichi is facing a significant drop in public support and has announced a plan to temporarily slash the food consumption tax from 8% to 1% for two years, starting in April 2027.

The move aims to provide relief to low- and middle-income households struggling with inflation, but it may exacerbate inflation and create a massive budget shortfall of up to 10 trillion yen ($81.2 billion) over the next two years.

Takaichi's Cabinet support has been sliding due to perceptions that she prioritized ideologically driven legislation over measures to ease economic pain, including reforms to the Imperial House Law that cemented male-only succession despite strong public opposition.

The tax cut represents an unconventional shift from targeted cash handouts and marks Japan's first consumption tax reduction since 1989. It will apply specifically to groceries, non-alcoholic beverages, and takeaway meals taxed at a reduced 8% rate, while dining out will remain taxed at the standard 10%.