Japan junior coalition partner leader urges tax relief while defending BOJ independence.
Summary:
Junior coalition leader backs swift food tax suspension, targeting fiscal 2026 rollout.
Foreign reserves flagged as funding option, potentially reducing need for new debt issuance.
BOJ independence emphasised, with rate decisions left to the central bank.
Further rate hikes possible, given weak yen and inflation considerations.
Policy mix balancing act, combining fiscal support with cautious monetary tightening
The head of Japan’s junior ruling coalition partner has called for swift implementation of a two-year suspension of the food sales tax while warning politicians not to interfere in Bank of Japan monetary policy decisions.
Hirofumi Yoshimura, leader of the Japan Innovation Party (Ishin), said the government should move at the earliest possible date to suspend the current 8% consumption tax on food, arguing that households continue to face pressure from rising living costs. Japan levies an 8% rate on food and 10% on most other goods. Prime Minister Sanae Takaichi has pledged to roll out the suspension during fiscal 2026, and Yoshimura’s comments suggest coalition backing for proceeding without delay.
To fund the measure, Yoshimura said authorities should consider tapping non-tax revenue sources, including potential surpluses from Japan’s vast foreign exchange reserves. Japan holds around $1.4 trillion in reserves, traditionally viewed as a buffer for currency intervention. Drawing on these funds could help finance the tax relief without issuing additional government debt, though it would likely draw scrutiny from markets concerned about fiscal discipline.
On monetary policy, Yoshimura stressed that decisions on interest rates should remain solely within the Bank of Japan’s remit. While acknowledging that further rate hikes could increase mortgage costs and weigh on households, he said the current weak yen environment means additional tightening is possible. The BOJ raised its policy rate to 0.75% in December and markets are pricing in the possibility of another increase by April.
Yoshimura’s remarks highlight the coalition’s balancing act: supporting fiscal stimulus to bolster growth while signalling respect for central bank independence. The weak yen remains a focal point for investors, as it supports exporters but increases import costs and inflation pressures. Officials have refrained from specifying currency levels that would trigger intervention, emphasising instead the need for timely and appropriate responses.
The comments reinforce expectations that Japan’s policy mix will combine targeted fiscal support with gradual monetary normalisation as authorities seek to manage currency volatility and inflation risks.
