Market reaction presses Takaichi administration to adjust Basic Policy: Japan Economics Update

Research evidence excerpt

Market reaction presses Takaichi administration to adjust Basic Policy: Japan Economics Update

overnment, the possibility of increasing domestic

investment within the existing permissible deviation range, while leaving the benchmark

portfolio itself unchanged, does not appear to have been completely ruled out.

As of end-March 2026, GPIF’s domestic bond share was 26.91% and its domestic equity share

was 23.81%, meaning both had deviated somewhat from the 25% benchmark portfolio as a

result of rebalancing associated with market-value fluctuations. However, as the permissible

deviation range is ±6% for both, it is institutionally possible to increase domestic bond holdings

to some extent within the scope of rebalancing.

Outlook for consumption tax cut remains fluid

Meanwhile, discussions around the proposal to cut the consumption tax on food from 8% to 1%

for two years from FY27 have been bumpy. A decision had originally been expected in June, but

was postponed in absence of a resolution on funding and other issues. The outlook for the

discussions had become unclear, but in a party leaders’ debate in the Diet on 15 July, PM

Takaichi indicated that discussions at the National Council on Social Security would continue

through the end of July, with the council expected to reach a conclusion in early August. This

appears to be a schedule worked backwards from the goal of submitting related legislation to

an extraordinary Diet session in the autumn. Given that cash register modifications are said to

take around six months, further delays look difficult if the tax cut is to start in April 2027.

We think the likelihood is slightly higher that PM Takaichi will ultimately push through the

measure ahead of next spring’s unified local elections. The source of funding (JPY4-5trn)