Japan delays food tax cut decision, unveils 370 trillion‑yen investment roadmap

Japan's cabinet approved a new "bone‑thick" basic economic and fiscal policy on 21 July, outlining a 370 trillion‑yen public‑private investment framework with no statutory budget caps. The roadmap targets AI, semiconductors, quantum computing, defence, pharmaceuticals, shipbuilding and other strategic sectors, aiming to mobilise private capital alongside government funds.

The plan also postpones a decision on a consumption‑tax cut for food items to early August. The government is considering lowering the rate from 8 % to 1 % for two years beginning April 2027, complemented by cash payments to achieve an effective zero rate. Estimated revenue loss is 4.8‑5 trillion yen annually, and funding sources remain contested within the ruling Liberal Democratic Party and opposition parties. The policy shifts fiscal evaluation from a primary‑balance focus to the debt‑to‑GDP ratio, prompting market concerns about fiscal discipline, rising long‑term bond yields, yen depreciation and higher mortgage costs for households.

Analysts note that the tax cut would benefit higher‑income households more, while the investment plan could boost growth but also increase public debt. The government plans to issue "bridge" bonds and tap tax‑free revenues for the investment programme, while keeping social‑security spending largely unchanged.