Japan's Ishiba rules out tax cuts days amid economic shrink

Ishiba warns of rising debt costs as BOJ hikes rates, faces pressure to cut tax ahead of election.

Japan will not resort to tax cuts funded by additional debt issuance, Prime Minister Shigeru Ishiba said on Monday (May 19, 2025), pushing back against political pressure to loosen fiscal policy ahead of an upper house election slated for July.

"Japan is seeing interest rates turn positive and its fiscal state is not good," Mr. Ishiba told parliament, warning of the rising cost of funding the country's already huge debt as the central bank hikes interest rates.

"While tax revenues are rising, social welfare costs are also increasing," he said.

With sticky food inflation hurting consumption and U.S. tariffs clouding the economic outlook, Mr. Ishiba has faced growing calls from ruling and opposition lawmakers to boost spending and cut Japan's consumption tax rate from the current 10%.

Finance Minister Katsunobu Kato said while Japan is not facing difficulty raising funds through debt issuance now, it must strive to maintain market trust in its finances.

"A loss of market trust in our finances could lead to sharp rises in interest rates, a weak yen and excessive inflation that would have a severe impact on the economy," Mr. Kato told the same parliament session.

After ending a decade-long stimulus policy last year, the Bank of Japan raised short-term interest rates to 0.5% in January and has pledged to keep hiking borrowing costs if inflation stays on track to durably hit its 2% target.