Evaluating Consumption Tax Cuts and JGB Issuance

Mizuho analysts dispute claims that a 1% consumption tax rate on food can be implemented without increasing JGB issuance, citing significant funding gaps in their simulations.

Key Takeaways

• 1.The Japanese government is considering a two-year reduction of consumption tax on food and beverages to 1%, claiming it can be funded without new JGB issuance.
• 2.Mizuho's analysis suggests the tax cut would create a multi-trillion yen funding gap, overshooting the FY2026 JGB issuance baseline by JPY 10.8tn to 13.1tn over two years.
• 3.The plan relies on unrealistic tax revenue elasticity assumptions (2.6 to 4.6), which far exceed historical levels (averaging 1.2 to 2.3 since FY2022).

Table of Contents

• Evaluating claims that the consumption tax can be cut without increasing fresh JGB issuance
• Important Disclosure Information
• Analyst Certification
• Disclaimer

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