The economic impact of the temporary suspension of the consumption tax policy that threatens Japan's GDP growth strategy

Japan’s temporary suspension of the consumption tax on food has been pointed out to potentially cause complex economic trade-offs. According to Jin10’s report, this policy is expected to result in a reduction of fiscal revenue equivalent to 0.8% of GDP, which could significantly impact the country’s fiscal management.

Marcel Tiliant, Head of Capital Economics for the Asia-Pacific region, has noted that the suspension of the consumption tax could lower the inflation rate by about 2 percentage points and potentially push Japan’s overall inflation into negative territory. This deflationary pressure also poses a risk of offsetting the effects of monetary policy aimed at economic recovery.

On the other hand, Tiliant also highlights Japan’s proactive aspects. He points out the country’s consistent achievement in reducing budget deficits beyond expectations each year and states that even if deficits temporarily widen this year and next, a steady nominal GDP growth could continue to lower the public debt-to-GDP ratio. In other words, in the long term, Japan’s GDP growth could become a key factor in sustaining debt sustainability.