Japan prime minister Takaichi to dissolve parliament Friday and call national election

Japanese Prime Minister ‌Sanae Takaichi on Monday called ⁠a snap general election with a vow to suspend an ‍8% food levy for two years, echoing proposals by her rivals despite the potential ‌strain on the country’s already precarious finances.

A consumption tax cut that many opposition parties have also proposed would create a huge hole in state revenue at a time when concern over Japan’s fiscal health is pushing up bond yields to multi-decade highs.

Japan levies an 8% consumption tax on food and a 10% levy on other goods and services, helping to fund rising social welfare costs ⁠among a rapidly aging population.

Takaichi said that a two-year exemption of the 8% food levy would cushion the blow to households from rising living costs. The government will not issue debt to fund the suspension, she said, adding that other measures could include a review of existing subsidies.

“We will overhaul past economic and fiscal policy. My administration will put an end to an excessively tight fiscal policy and a lack of investment for the future,” Takaichi told a press conference.

The growing prospect of a sales tax cut and expectations that Takaichi will use an election victory to solidify her expansionary fiscal policies sent the yield on the 10-year Japanese government bond to a 27-year high of 2.275% on Monday.

“I can’t see why Japan needs a consumption tax cut after compiling a significant stimulus package to counter rising inflation,” said Keiji ‌Kanda, a senior economist at the Daiwa Institute of Research.

“I’m worried these steps could accelerate inflation and lead to further rises in bond yields.”