Proposal to Reduce Consumption Tax on Food and Beverages

The Japanese government is leaning toward a 1% consumption tax on food to combat inflation, which could be implemented faster than a 0% rate. However, the lack of identified funding for the resulting JPY 4.4 trillion revenue shortfall risks driving up long-term JGB yields.

Key Takeaways

• 1.The Japanese government is considering a 1% consumption tax rate on food and beverages for two years to expedite implementation compared to a 0% rate.
• 2.The tax cut would create a revenue shortfall of approximately JPY 4.4 trillion per year, with no specific funding source currently identified.
• 3.Uncertainty over funding for this tax cut could increase risk premia in the bond market, potentially pushing super-long JGB rates higher.

Table of Contents

• Thoughts on proposal to reduce consumption tax on food and beverages to 1% for two years
• Important Disclosure Information
• Analyst Certification
• Disclaimer

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