TOKYO: Japanese Prime Minister Sanae Takaichi renewed a pledge on Monday to cut a sales tax on food, after a historic election win brightened chances for stimulus measures that have rattled financial markets.
Takaichi’s ruling Liberal Democratic Party (LDP) romped to victory in Sunday’s poll, helped by a pledge to ease household living costs by suspending for two years the tax of 8% on food, a move she has called a “long‑cherished dream”.
“Responsible, proactive fiscal policy is at the core of the … policy transition,” Takaichi told a news conference, promising “the earliest date possible” for the tax suspension, while ruling out fresh debt issuance to achieve it.
“We must pull Japan out of excessively tight fiscal policy and a lack of investment.”
In an apparent vote of confidence in Takaichi’s fiscal policy, stocks swept to all-time peaks, while super-long bonds reversed early weakness. The yen rose after a verbal warning by Japan’s top currency diplomat held currency bears in check.
Earlier, investors wary of uncertainty about how Japan, labouring under the developed world’s highest debt burden, would fund the proposal, had triggered a selloff in government bonds, pushing the yen towards historic lows against other currencies.
Some analysts had suggested that Takaichi’s strong mandate might give her leeway to retreat from the plan, with heavy defeats at the ballot box handed to opposition parties calling for even bolder tax cuts.
Takaichi said cross-party debates on social welfare and taxation would help thrash out a timetable and ways to fund the suspension, as the government considered alternatives such as non-tax revenues and cuts to existing subsidies.
The government would overhaul its approach to planning the budget, she added, so as to smooth long-term funding for corporate investment in growth areas.
In television interviews the previous day as results rolled in, she had said she would move speedily to realise the pledge.–Reuters
