Ueda says food tax freeze to have limited inflation impact
Governor Kazuo Ueda says a proposed food tax freeze will only temporarily lower prices. He expects the bank to meet its inflation goal as wages steadily rise.
The Governor of the Bank of Japan stated on Tuesday that a proposed suspension of the food sales tax in Japan would likely have a minimal impact on long-term inflation expectations. Kazuo Ueda indicated that the central bank remains confident in its ability to meet its 2% inflation target through sustainable economic cycles.
The administration of Prime Minister Sanae Takaichi is currently considering a two-year freeze on the 8% consumption tax applied to food, a proposal that is undergoing deliberation among various political parties. While such a move could lead to a temporary decline in consumer prices, Ueda argued that the broader inflationary outlook remains stable.
The plan, if implemented, may temporarily push down prices.
Ueda noted that consumers generally make financial decisions based on a long-term perspective. He suggested that a temporary tax holiday would not fundamentally alter how the public perceives future price trends.
Therefore, the plan is likely to have only a limited impact on medium- and long-term inflation expectations.
The Governor also pointed to a tightening labor market and changing corporate behaviors as key drivers for a healthy wage-price cycle. Despite government measures to control energy costs, underlying inflationary pressures are expected to persist.
Underlying inflation is expected to accelerate gradually.
The central bank will continue to guide its policy to ensure that inflation stably achieves the 2% target, accompanied by consistent growth in wages.
