Following a significant victory in the House of Representatives elections, Prime Minister Sanae Takaichi's administration is poised to accelerate discussions on her campaign promise of a two-year suspension of the consumption tax on food. This plan aims to stimulate a ‘strong economy’ through various investments, including those focused on crisis management and growth. However, the effectiveness of such a tax reduction in revitalizing the Japanese economy remains debatable, particularly in the context of rising inflation and existing employment challenges.

In an interview with Ryutaro Kono, chief economist at BNP Paribas Securities, concerns are raised regarding the equitable benefits of consumption tax reductions. While low to middle-income individuals may seemingly benefit, Kono points out that the primary consumers of food tend to be those with higher incomes. Consequently, a uniform reduction may inadvertently provide financial relief to groups that do not require it, complicating the fiscal landscape. Moreover, Japan is experiencing a near full-employment scenario, leading to concerns that increasing fiscal expenditure to stimulate demand may instead exacerbate inflation without a corresponding increase in production capacity.

Kono further elaborates that the current political climate, with both ruling and opposition parties advocating for what he terms 'tax-cut populism,' reflects a failure to implement necessary policies in the past. This trend raises questions about Japan's future economic direction amid such proposed reforms and the broader implications of tax policy on social equity and economic stability in the face of ongoing inflationary pressures.