The draft of the annual economic and fiscal policy guidelines, presented on Friday, stated that Japan will aim to achieve higher disposable household income through wage growth that consistently outpaces inflation, “not through tax cuts.”
The opposition Constitutional Democratic Party of Japan and Japan Innovation Party both have been pushing for a zero consumption tax rate on food for certain periods to cushion the impact of U.S. tariffs and inflation on households.
Komeito, Japan's junior ruling coalition partner, said on Friday it would discuss a potential reduction in the consumption tax rate for food as a key policy topic, though it decided not to include the potential tax cut in its election campaign pledge.
But some lawmakers even within his Liberal Democratic Party also support the idea of tax cuts, fearing a major LDP defeat in the upcoming election with the support rate for Ishiba's cabinet stuck at around 30%.
The debate on potential tax cuts has fuelled concerns over Japan's worsening public finances and helped boost volatility in the Japanese government bond (JGB) market, with super-long yields having spiked to record highs last month.
It also said Japan should promote domestic ownership of government bonds to avoid further rises in long-term interest rates caused by supply-demand imbalances.
The primary budget balance, which excludes new bond sales and debt-servicing costs, is a key gauge of the extent to which policy measures can be funded without resorting to debt.
Japan's public debt stands at more than twice the size of its economy, by far the worst in the industrial world.
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