Questions have been raised over how to fund fiscal policy and social security in connection with a consumption tax cut, while the continued accumulation of government debt and compliance with the Public Finance Act are under scrutiny. The debate also extends to experts and the Bank of Japan's policy operations.
There have been calls for the reflationary policies and expanded fiscal spending pursued by the Takaichi administration to end deflation to be consistent over the long term with monetary policy aimed at containing inflation. At the same time, government bond debt has reached approximately ¥1,100 trillion, ranking second in the world by debt-to-GDP ratio according to an IMF comparison. The soundness of fiscal policy and the treatment of deficit-financing bonds are once again under scrutiny.
Many experts believe that returning the consumption tax rate to 8% in 2 years would be difficult, and that if it is not restored, the burden could fall on workers. There is debate over moves to make up the funding shortfall resulting from the tax cut through social insurance premiums, and concerns have been raised that this would increase the burden on workers.
Former Bank of Japan Executive Director Yamamoto Kenzō (山本謙三) says that using tax cuts to address rising prices is a fiscal policy error. He criticises the continued disregard for the 3 principles of the Public Finance Act, increased issuance of government bonds and the easing of the Bank of Japan's underwriting of government bonds, arguing that interest-rate policy by the Bank of Japan is the appropriate means of addressing inflation.
The Bank of Japan implemented a 0.25% rate hike at its September Monetary Policy Meeting, setting the policy rate at 1.25%. The US Federal Reserve also raised rates shortly beforehand, and developments in the Japan-US interest-rate differential may be affecting the yen's depreciation.