Japan’s Katayama Pledges Falling Debt Ratio, Says Tax Cut Will Not Rely on Deficit Bonds

Japanese Finance Minister Satsuki Katayama has assured the International Monetary Fund that Tokyo’s planned consumption tax cut on food and new cash benefits will be paid for without issuing deficit-financing bonds, according to a statement the Ministry of Finance published for the 54th meeting of the International Monetary and Financial Committee (IMFC) in Bangkok on October 17. She also pledged to steadily bring down Japan’s heavy public debt burden relative to the size of its economy.

The remarks come as investors scrutinise Prime Minister Sanae Takaichi’s spending agenda amid a global bond sell-off, and as the yen trades close to levels that have previously prompted official intervention.

Tax cut and benefits to be funded without new deficit debt

In the statement, Katayama said Japan will cut the consumption tax rate on food and beverages for two years and introduce well-targeted benefits tailored to household income from fiscal year 2029. She said both measures will be financed without resorting to deficit bonds, and that the government will reduce its reliance on supplementary budgets.

Japan, she said, aims to “place the government debt to GDP ratio on a firm declining path” while pursuing what Tokyo calls responsible and proactive public finances. The minister argued that domestic investment for growth has long been insufficient and said the government will promote bold investment in strategic sectors. She also described Japan as transitioning to an environment of positive inflation and interest rates.

On the global outlook, Katayama warned of heightened uncertainty, saying the situation in the Middle East is disrupting energy supplies and logistics, and called for free and safe navigation through the Strait of Hormuz. She singled out arbitrary export restrictions on critical minerals as a downside risk to the world economy. Japan’s support for Ukraine has reached about US$20 billion, the statement added.

IMF wants clarity on funding

The pledge follows pressure from the Fund itself. Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, told Reuters in Bangkok that Japan needs to clarify how it will fund its spending plans and set out a medium-term fiscal framework. “Markets are concerned about the fiscal risks because of the uncertainty,” he said, referring in part to the two-year consumption tax cut due to start next April.

Srinivasan said the Bank of Japan was doing the right thing in normalising policy and might need to tighten faster if inflation outpaces forecasts. The BOJ lifted its policy rate to a 31-year high of 1.25% in September, and markets are pricing in another increase in December, Reuters reported. BOJ Governor Kazuo Ueda, who also attended the Bangkok meetings, signalled the central bank would not tolerate an inflation overshoot.

Katayama’s written statement did not address the yen or currency intervention. Speaking to reporters earlier in the week, she declined to say whether an extra budget would be needed, adding that any additional package would focus on urgent policy priorities, FXStreet reported. The dollar was trading around 158.17 yen at the time. Japan and the United States carried out a coordinated intervention on July 31 to halt the yen’s slide toward near 40-year lows, according to Reuters.

What’s next

Investors will watch for concrete funding details as the Takaichi government’s tax and benefit plans move through parliament, and for any decision on a supplementary budget. Attention will also turn to the BOJ’s upcoming policy meetings, where further rate increases remain on the table, and to the yen’s moves against the dollar after the Bangkok meetings.