Japan passes a temporary reduction in food consumption taxes; Takashi pledges to restore original tax rates after two years, but concerns remain over funding sources.

(1) The Japanese Cabinet has approved a plan to temporarily reduce the consumption tax rate on food and non-alcoholic beverages from the current 8% to 1%, with implementation expected to begin in April next year. The government designates this measure as a transitional policy aimed at helping households ease cost-of-living pressures until a new tax credit system is introduced in 2029. (2) Prime Minister Sanae Takaichi emphasized that restoring the tax rate to 8% after two years is crucial for maintaining market confidence and fiscal sustainability, and pledged to uphold this position without alteration. (3) However, since Takaichi has yet to announce a clear funding plan to make up for the annual tax revenue shortfall estimated to exceed 4 trillion yen, public concerns persist that the tax cut may further exacerbate the fiscal situation.