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3d ago

Japan’s PM Rejects Debt-Funded Tax Cuts as Economy Contracts and Fiscal Woes Deepen

Prime Minister Ishiba warns of rising borrowing costs and a fiscal state worse than Greece’s, prioritizing financial stability over election-driven stimulus demands.

Japanese Prime Minister Shigeru Ishiba speaks to reporters at the prime minister’s official residence in Tokyo, Japan, 17 April 2025. FRANCK ROBICHON/Pool via REUTERS/File Photo
Shigeru Ishiba, Japan's prime minister, warned the country cannot afford tax cuts paid by issuing new debt.
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Overview

  • Prime Minister Shigeru Ishiba has ruled out tax cuts financed by new debt, citing Japan’s deteriorating fiscal health and rising interest rates.
  • Japan’s economy contracted by an annualized 0.7% in Q1 2025, marking its first decline in a year, driven by weak consumption and trade challenges.
  • Ishiba described Japan’s fiscal situation as worse than Greece’s, emphasizing the dangers of increasing debt amidst rising borrowing costs.
  • Finance Minister Katsunobu Kato warned that losing market trust could lead to sharp interest rate hikes, a weaker yen, and excessive inflation.
  • The Bank of Japan has ended its decade-long stimulus, raised short-term rates to 0.5%, and reduced bond purchases, contributing to higher long-term borrowing costs.