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I spent a portion of today at the National Archives for a book project — more details about this soon — so today’s update is on the shorter side. Barring any major news, I will also likely be taking next week off.
The Liberal Democratic Party (LDP) formally approved Prime Minister Takaichi Sanae’s consumption tax cut, though there were some notable abstentions. The plan attracted significant criticism from opposition parties, suggesting the government’s legislation could face a difficult path through the Diet, particularly as lawmakers flag concerns — many shared by LDP lawmakers — about the tax cut’s impact on government finances and market confidence.
On Wednesday, 5 August, the Liberal Democratic Party (LDP) formally approved Prime Minister Takaichi Sanae’s plan to cut the consumption tax on foodstuffs to 1%, enabling the plan to also be approved by the cabinet on Wednesday. The basic policy now approved, the government will now work on drafting up the formal proposal. Among other things, the government will work on how to fund the tax cut, which could mean roughly JPY 10tn in foregone revenue over two years, as Takaichi has repeatedly stressed it will not be supported by bond issuance and that there is no risk to funding for social security. There are growing calls that the government could use the proceeds from recent foreign exchange interventions Foreign Exchange Fund Special Account (FEFSA), though Chief Cabinet Secretary Kihara Minoru has said that these funds cannot be used for this purpose (some of the obstacles are outlined here). Finance Minister Katayama Satsuki said Wednesday that the government will provide a plan for funding the tax cut by the second week of December, as part of the broader budgetary process for FY2027. Kihara added that the government will explain the tax cut to the US government and market participants amidst concerns expressed by US officials about the direction of macroeconomic policy.
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