Summary
Japanese Prime Minister Sanae Takaichi has announced plans to pause the country's consumption tax if her party wins upcoming elections, which has caused global market concerns. Investors are worried about the impact on Japan's debt levels, which are already the highest among advanced economies. These concerns have led to increased volatility in Japanese government bonds and the yen.
Key Facts
- Japan’s Prime Minister Sanae Takaichi plans to halt the consumption tax on food and non-alcoholic drinks for two years if her party wins.
- The proposed tax pause is estimated to create a yearly revenue shortfall of 5 trillion yen ($31.71 billion).
- Takaichi suggests this shortfall could be managed by reviewing current expenses and tax breaks but gave no detailed plan.
- Japan’s largest stimulus since the COVID-19 pandemic, worth 21.3 trillion yen ($137 billion), was approved in November, including various subsidies and handouts.
- Market turmoil is due to concerns about Japan's high debt levels, with the country’s debt-to-GDP ratio over 230%, the highest among developed countries.
- Japanese government bond yields have risen significantly, with 40-year bond yields reaching record highs, reflecting investor unease.
- Global markets are also worried due to high deficits in other major economies.
- The Bank of Japan has reduced bond purchases, moving away from ultra-low interest rates and limiting its ability to intervene in the market.
