Bangkok – A senior International Monetary Fund official has expressed his support for Japan’s plan to lower the consumption tax on food as a temporary measure to address soaring prices. With Japan also planning to introduce a benefit program linked to income levels, Rahul Anand, IMF assistant director and mission chief for Japan, said the approach was “a very welcome step.” Still, he warned against fiscal deterioration, noting that Japan’s debt level is exceptionally high compared with those of other major economies. On Oct. 9, the Japanese government adopted a bill to lower the 8% consumption tax rate for food items to 1% for two years beginning in April next year and introduce the benefit program targeting low- and middle-income workers.
The Lower House is slated to begin deliberation on the bill Tuesday. The best way to support households adversely affected by a higher cost of living is through “targeted, temporary and also budget-neutral” measures, given Japan’s very high level of debt, he added. As for the rise in long-term interest rates, there are concerns about an increase in debt repayment costs.
With Japan’s social security spending expected to continue growing, Anand said, “it is important to build buffers,” while maintaining the downward trend in its debt-to-GDP (gross domestic product) ratio. On interest rate hikes by the Bank of Japan, Anand said, “Given such high uncertainties, we think that the BOJ is very appropriately conducting monetary policy.” He said that if the yen weakens further and leads to higher inflation, the BOJ would need to raise its policy rate. He also projected that the inflation rate in Japan would rise over the next few months and then decline toward the BOJ’s 2% target by the end of next year.
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