The International Monetary Fund (IMF) has warned Japan against cutting sales tax when borrowing costs on public debt are set to double, comments that come as Prime Minister Sanae Takaichi prepares to speed up debate on a potential suspension of the sales tax on food.
“The authorities should avoid reducing the consumption tax, an untargeted measure that would erode fiscal space and add to fiscal risks,” the IMF said Wednesday in its latest concluding statement after an Article IV consultation on Japan.
Japan shouldn’t be loosening its fiscal policy when debt servicing and welfare costs are likely to keep increasing and eventually adding to the nation’s elevated debt level, the IMF’s mission chief for Japan, Rahul Anand, told reporters on Tuesday after the release of the statement.