Japan's ruling party has approved a plan to cut the food consumption tax from 8% to 1% for two years starting next April, alongside roughly ¥600 billion a year in cash transfers, with no funding source yet named. The unresolved financing question is adding to concerns over Japan's fiscal trajectory and weighing on the yen.
Japan's ruling party tax and social security committee has approved a government proposal to cut the food consumption tax from 8% to 1% for a two-year period starting next April, according to Nikkei. The party has not said how it will pay for the cut, and that funding gap is emerging as a fresh drag on the yen.
Approval moves toward the cabinet
The proposal now heads through several approval stages. The government is seeking cabinet sign-off early next month. It also plans to bring legislation before an autumn extraordinary session of the Diet. Before that, the ruling party's top decision-making body may review the draft as soon as Wednesday, pointing to swift movement through internal party channels.
Cash transfers add to the bill
The tax cut is not the only measure on the table. Starting in June, the plan adds roughly ¥600 billion a year in cash transfers to low- and middle-income households, with payments scaled according to income. Combined, the two measures add up to a sizeable near-term commitment at a time when Japan's public finances are already under scrutiny.
Funding gap keeps yen under pressure
The package's biggest unresolved question is how Japan will pay for it. The government plans to draw on non-tax revenue, existing tax receipts, and savings from reviewing tax preferences and subsidies, but none of these sources has been detailed. As a result, traders are likely to read the plan as reinforcing the case for continued yen weakness, layering fresh fiscal risk on top of the currency's existing sensitivity to the widening rate gap with the US.
Source: Investinglive
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