Takaichi Promises Japan's Food Tax Cut Without New Debt as Diet Opens 69-Day Session

Japanese Prime Minister Sanae Takaichi used her policy address to parliament on Monday to make a pointed promise to bond investors: her government's planned cut to the consumption tax on food will be paid for without selling new deficit-financing bonds. The speech opened a 69-day extraordinary session of the Diet that runs until December 12.

A tax cut with a message for markets

The centrepiece of the session is legislation to lower the consumption tax on food and beverages from 8% to 1% for two years starting in April, combined with cash payments to low- and middle-income households. Takaichi framed the measure as a way to give families a little more breathing room while prices keep rising.

The harder part is the funding. Japan carries the heaviest public debt load in the Group of Seven, and investors have been watching closely for signs that a tax cut would be financed with fresh borrowing. Takaichi addressed that directly, telling lawmakers the money would be found without deficit bonds and asking markets to rest easy. She described this year as the first of what her administration calls "responsible and proactive" public finances, a slogan meant to signal that spending for growth and fiscal sustainability can be pursued at the same time.

She also said the government would look at prices, tax revenue, interest rates and debt-servicing costs together when deciding how many bonds to issue, and would take necessary steps if markets made unusual moves. That line matters because Japanese government bond yields have climbed sharply over the past year, and the Bank of Japan raised its policy rate to 1.25% in September, its highest level in about three decades.

Growth first, with a five-year plan

Takaichi called economic growth her top priority and promised a five-year domestic investment action plan by the end of the year. The plan will focus on economic security, cyber defence, artificial intelligence and semiconductors, with the government taking the lead on investment in sectors it sees as having strong growth potential. The idea is that higher employment and wages will feed back into tax revenue and keep the debt ratio in check.

The government plans to submit 21 bills during the session. Besides the tax cut, they include measures to diversify Japan's crude oil sources as the Middle East conflict continues to disrupt supply, and rules on land purchases near sensitive national security sites. A carried-over bill to trim the number of lower house seats, a condition of the ruling coalition's agreement, will also be debated.

Politics and diplomacy

Takaichi's Liberal Democratic Party and its partner, the Japan Innovation Party, hold more than two-thirds of the lower house after a landslide win in February, which lets them override the upper house, where they lack a majority. That gives her considerable room to push her agenda, although opposition parties argue the tax cut arrives too late to provide real relief.

On foreign policy, she called China an important neighbour and said Tokyo wants constructive and stable ties, while making clear Japan would continue to press Beijing on its conduct. She also signalled interest in moving forward on constitutional revision.

Why it matters beyond Japan

Japan is a major source of global capital, so any shift in how Tokyo manages its debt can ripple through bond and currency markets worldwide, including flows into emerging markets such as India. Investors appeared in a buying mood on Monday: the Nikkei 225 jumped about 2.4% to close at roughly 69,947, briefly crossing 70,000 during the session, helped largely by softer US jobs data and renewed enthusiasm for AI stocks.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.