The International Monetary Fund (IMF) has warned Japan against cutting sales tax when borrowing costs on public debt are set to double, comments that come as Prime Minister Sanae Takaichi prepares to speed up debate on a potential suspension of the sales tax on food.<\/p>\n
\u201cThe authorities should avoid reducing the consumption tax, an untargeted measure that would erode fiscal space and add to fiscal risks,\u201d the IMF said Wednesday in its latest concluding statement after an Article IV consultation on Japan.<\/p>\n
Japan shouldn\u2019t be loosening its fiscal policy when debt servicing and welfare costs are likely to keep increasing and eventually adding to the nation\u2019s elevated debt level, the IMF\u2019s mission chief for Japan, Rahul Anand, told reporters on Tuesday after the release of the statement.<\/p>\n
Those borrowing costs will be driven up in part by increases in the Bank of Japan\u2019s policy rate, Anand said. The IMF expects the BOJ to raise the rate twice this year and once more in 2027 to a neutral level of 1.5%.<\/p>\n
Takaichi is preparing to fast-track deliberations on possibly pausing the sales tax on food for two years in line with a campaign pledge she made as she led her Liberal Democratic Party to its biggest-ever electoral triumph earlier this month.<\/p>\n
Following her landslide win, Takaichi said the plan wouldn\u2019t require additional bond issuance to cover the estimated \u00a55 trillion ($32.7 billion) annual hit to revenue as she tried to reassure investors concerned about the nation\u2019s finances.<\/p>\n
The fund acknowledged that limiting the tax suspension to food and keeping it temporary would help moderate the fiscal impact, while calling for a budget neutral, time-bound approach that targeted vulnerable households and firms.<\/p>\n
On broader fiscal policy, the IMF urged Japan to adopt a credible medium-term framework, anchored by a clear fiscal target. Takaichi has said her administration will focus on lowering the nation\u2019s debt-to-gross domestic product ratio, effectively playing down a long-standing goal to achieve a primary balance surplus, a tougher yardstick.<\/p>\n
Anand acknowledged that Tokyo has made progress in narrowing its primary budget deficit to one of the smallest in the Group of Seven economies, with nominal economic growth also likely to help lower the debt burden to GDP in coming years. But Japan\u2019s debt level remains the highest among major economies, and with interest payments on debt rising and spending to increase on health and long-term care for an aging population, public debt will grow, Anand said.<\/p>\n
The fund projects interest payments on outstanding public debt will double by 2031 compared with 2025, as maturing debt is refinanced at higher yields.<\/p>\n
\u201cHigh and persistent debt levels, together with a deteriorating fiscal balance, leave Japan\u2019s economy exposed to…<\/p>\n","protected":false},"excerpt":{"rendered":"The International Monetary Fund (IMF) has warned Japan against cutting sales tax when borrowing costs on public debt…\n","protected":false},"author":2,"featured_media":45080,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[174],"tags":[2726,5034,5312,191,189,825,650,188,190,6112,1549],"class_list":["post-45079","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-bonds","tag-consumption-tax","tag-debt","tag-economy","tag-economy-of-japan","tag-imf","tag-inflation","tag-japans-economy","tag-japanese-economy","tag-jgb","tag-taxes"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts\/45079","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/comments?post=45079"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts\/45079\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/media\/45080"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/media?parent=45079"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/categories?post=45079"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/tags?post=45079"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}