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Japan's Prime Minister Rejects Debt-Funded Tax Cuts Amid Rising Fiscal Pressures

Shigeru Ishiba warns of financial risks from increasing debt as interest rates rise and social welfare costs escalate.

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 cutting Japan's consumption tax through new borrowing, citing the nation's rising debt and fiscal constraints.
  • Japan's economy contracted by an annualized 0.7% in Q1 2025, reflecting vulnerabilities in growth and external trade pressures.
  • The Bank of Japan raised short-term interest rates to 0.5% in January and is scaling back bond purchases, driving up yields and government borrowing costs.
  • Finance Minister Katsunobu Kato emphasized the need to maintain market trust to avoid sharp rate increases, a weaker yen, and runaway inflation.
  • Calls for tax cuts and increased spending from lawmakers intensify ahead of the July upper house election, but the government remains cautious about loosening fiscal policy.