Japan food tax cut plans moved closer to approval after the ruling party backed a cut in the food consumption tax, with funding still unclear and fresh pressure building on the yen.
Japan’s ruling party approved a government plan to lower the food consumption tax to 1% from 8%, according to Nikkei. The cut would start next April and last for two years. Moreover, the plan is part of a broader pledge linked to Prime Minister Takaichi.
The proposal still faces more steps before it becomes law. Cabinet approval is being sought early next month. After that, the government aims to submit the needed bill at an autumn extraordinary session of the Diet.
Japan Food Tax Cut Timeline
Before cabinet review, the ruling party’s top decision-making body may examine the draft as soon as this week. Therefore, the measure appears to be moving quickly through party channels. However, the source said uncertainty remains over how the package will be paid for.
The tax move is not the only measure in the plan. From June, the package includes about 600 billion yen a year in cash payments for low- and middle-income households. Payments would vary by income level.
Funding Questions Weigh on Yen
Together, the tax cut and cash transfers mark a large near-term fiscal commitment. Meanwhile, the government has not set out a clear funding source. Its current plan relies on non-tax revenue, existing tax receipts, and savings from reviews of tax preferences and subsidies.
However, the article said those funding items have not been detailed in concrete terms. As a result, currency markets are likely to focus on the lack of a clear financing plan. The source said that concern adds to existing worries about Japan’s debt path.
The article also said traders may see the package as another reason for yen weakness. In addition, it said the plan adds fiscal risk to the yen’s existing sensitivity to the widening rate gap with the US. Until funding details emerge, the source said the package is more likely to remain a background headwind for the yen than a trigger for a sharp standalone move.
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Source: InvestingLive
