Japan's Proposed Tax Suspension Could Impact Inflation and Fiscal Revenue

Japan plans to suspend sales tax on food, potentially leading to a fiscal revenue loss equivalent to 0.8% of GDP, according to Jin10. Marcel Thieliant, head of Asia-Pacific at Capital Economics, suggests this move could decrease inflation by approximately two percentage points, possibly pushing overall inflation into negative territory. Despite this, Thieliant notes that Japan's budget deficit reduction has consistently exceeded expectations over the years. He emphasizes that even if the deficit expands this year and next, strong nominal GDP growth is likely to further reduce the public debt-to-GDP ratio rapidly.