Japan tax cut for food purchases in focus as election approaches

[TOKYO] A possible cut to the tax on food purchases in Japan has emerged as a focal point ahead of a snap election expected to be held next month, after reports over the weekend that the ruling Liberal Democratic Party (LDP) is weighing campaigning on the idea.

Prime Minister Sanae Takaichi is set to lay out her plans at a press conference later on Monday (Jan 19) for an election expected to be held as soon as Feb 8.

A temporary cut to the sales tax on food is already included in a ruling bloc agreement that Takaichi signed with junior partner Japan Innovation Party (JIP). A Kyodo report said the ruling bloc is mulling a tax plan that will include the sales tax suspension, with plans to implement it as soon as January next year.

Soaring food costs are a key component driving broader inflation higher, with data on Friday expected to show consumer price growth has stayed above the central bank’s 2 per cent target for four straight calendar years. The proportion of food spending within overall household consumption came to 28.9 per cent in November, the highest for that month since comparable data became available in 2000.

Voter frustration over the costs of living was a major factor leading to setbacks for the LDP in the last two national elections. Currently, Japan applies an 8 per cent tax on most purchases of food and non-alcoholic beverages, compared with a standard consumption tax rate of 10 per cent.

On Sunday, LDP Secretary-General Shunichi Suzuki avoided providing specifics on the plan when asked about the reports during a broadcast on NHK.

“It would be inappropriate for me to comment at this stage when no conclusion has been reached. However, our basic position is to faithfully implement what is written in the coalition agreement with JIP, since this matter has been clearly outlined there,” he said.

Reports of the plan emerged after the largest opposition party linked up with a former ruling coalition partner last week, forming a larger opposition bloc called the Centrist Reform Alliance. On Friday, co-leader Yoshihiko Noda said his party would look to cut the sales tax while maintaining fiscal discipline and not issuing additional deficit bonds.

If Takaichi announces plans to suspend the sales tax on food, it looks likely that the two biggest forces in parliament will wind up campaigning on similar sales-tax platforms ahead of the election.

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Expectations for stronger demand amid speculation over lower levies lifted some food-related stocks in Tokyo on Monday morning. Yamazaki Baking shares rose as much as 7.1 per cent, the most since Aug 2025, while 7-Eleven operator Seven & i Holdings shares gained more than 4 per cent.

Takaichi appears to be banking on her high personal approval ratings to consolidate power in the powerful lower house of parliament, where the ruling bloc holds a slim majority. A win in the upcoming election would give Takaichi a public mandate to pursue expansionary fiscal policies.

A poll by the Asahi newspaper conducted over the weekend showed that support for Takaichi remained high at 67 per cent, with 52 per cent saying that the ruling bloc should win a majority.

Still, half of the respondents disagreed with plans for a snap election, with 36 per cent supporting the timing of the election and 50 per cent disagreeing.

Although local media estimates based on the previous lower house poll in 2024 showed that the merger between the largest opposition Constitutional Democratic Party and the LDP’s former partner Komeito could tip the scales in some districts and make for a much closer election, the broader public appears sceptical of the new opposition alliance.

In the Asahi survey, 69 per cent said that the new party would not be a viable force against the ruling bloc, compared with 20 per cent who thought it would be. BLOOMBERG