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Japan
Intelligence for Better Decision Making
Japan Steps Up Critical Mineral Initiatives Amid China Export Controls
Jan. 21, 2026 | Energy & Natural ResourcesJapan is intensifying efforts to secure critical minerals and strengthen its supply chains amid China’s tightening export controls.
**Prime Minister Sanae Takaichi met with senior leaders of the Japan Business Federation (Keidanren), including chairperson Tsutsui Yoshinobu, to tackle China’s new restrictions on dual-use goods with potential military applications.**
She urged business leaders to diversify supply sources for critical materials and reinforce economic security. Takaichi called for conservation, reuse and recycling initiatives to build a resilient supply chain and reduce Japan’s reliance on any single country. She also proposed partnering with like-minded nations to coordinate responses and negotiate with China on export control measures.
**To support these efforts, the government allocated 39 billion yen from its reserve fund to diversify supply chains for critical minerals such as rare earth elements.**
The Japan Organization for Metals and Energy Security (JOGMEC) will manage these investments and assist Japanese companies in overseas mining and refining projects. In addition, the government designated 2 billion yen to expand marine product exports following China’s two-year suspension and recent resumption of Japanese seafood imports.
**Tsutsui emphasized the importance of maintaining dialogue with China at both political and economic levels, noting that trade relations hinge heavily on political dynamics.**
He urged the business community to engage proactively alongside government diplomacy, especially as bilateral ties remain strained by comments on a potential Taiwan contingency.
Japan Suspends Food Consumption Tax Amid Election-Driven Policy Shift
Jan. 21, 2026 | Governance & LawJapan’s political landscape is dominated by a debate over proposals to exempt food and beverage purchases from consumption tax.
**On January 19, 2026, Prime Minister Sanae Takaichi announced that the consumption tax on food and beverages—currently set at a reduced rate of 8 percent—will be suspended for two years as part of the Liberal Democratic Party’s campaign platform for the February 8 general election.**
She framed the measure as essential to relieving consumer burdens amid prolonged high prices and made the announcement alongside the dissolution of the House of Representatives.
**Across the political spectrum, parties have taken varied positions on the proposal.**
The Centrist Reform Union, comprising the Constitutional Democratic Party of Japan and Komeito, calls for a permanent exemption of food from consumption tax. Nippon Ishin, the LDP’s coalition partner, endorses the same two-year zero-tax measure, while Komeito supports a permanent exemption backed by identified funding. These parties claim they can absorb the estimated 5 trillion yen annual revenue loss without increasing government debt or raising alternative taxes, although they have yet to outline specific financing methods.
**Eliminating the 8 percent levy on food items would slash government revenues by roughly 5 trillion yen each year.**
Financial markets reacted immediately: Japan’s 10-year government bond yield climbed to 2.24 percent—its highest level in 27 years—and the yen came under downward pressure. Policymakers note that the consumption tax has historically supplied a steady revenue stream, even during major economic shocks such as the Lehman Brothers collapse and the burst of the IT bubble.
**Despite elevated prices for staples such as rice and wheat flour, food price inflation has begun to stabilize.**
Economists caution that implementing a tax cut once prices have leveled off may diminish its ability to spur additional consumer spending. Moreover, reinstating the levy after a temporary exemption risks triggering strong public backlash, given the politically sensitive nature of consumption tax increases.
**Because the consumption tax applies broadly—to elderly low-income earners and inbound visitors alike—its removal could shift the fiscal burden onto working-age households and businesses, which could face higher income and corporate taxes.**
This scenario raises concerns about equity and the long-term sustainability of public finances.
**Takaichi previously backed targeted tax-credit measures for low- and middle-income households.**
Her abrupt switch to a blanket two-year exemption appears driven by election timing and an effort to pre-empt rival parties’ proposals.
**Within the LDP, reactions to Takaichi’s policy reversal have ranged from approval to unease, with some members labeling the move opportunistic in an election year.**
Observers draw parallels to the 1998 House of Councillors defeat, when inconsistent positions on the consumption tax forced Prime Minister Ryutaro Hashimoto to resign. The dissolution of the lower house has further delayed formal discussions on comprehensive tax and social security reform.
**Takaichi plans to fund the two-year exemption by conducting a thorough review of government expenditures, subsidies and tax breaks, explicitly ruling out the issuance of special government bonds.**
After the election, she intends to convene a supra-partisan national council to align tax reform with social security financing and establish implementation schedules. Simultaneously, she is promoting a refundable tax credit program designed to increase take-home pay for middle- and low-income households and cushion the regressive effects of social insurance premiums.
### IMPACT ANALYSIS
**From this Development, various impacts could cascade through the system, to a lesser or greater extent, depending on the severity and criticality of the shocks.**
| Domain | Causal Chain | Possible Outcome |
|---|---|---|
| Macroeconomics & Growth | (Fiscal-stance deterioration ↑ → Government-bond term-premium ↑ → Recession probability (12-month ahead) ↑) | Higher term premiums and borrowing costs raise recession risk within the next year by amplifying financing headwinds. |
| Macroeconomics & Growth | (Fiscal-rule credibility index ↓ → Sovereign-credit-rating moves ↓ → Sovereign spread over risk-free rate ↑ → Private fixed-investment growth deviation ↓) | Widened sovereign spreads increase corporate borrowing costs, causing fixed-investment growth to undershoot projections. |
| Financial System | (Sovereign-debt maturity profile risk ↑ → Government-bond term-premium ↑ → Credit-impulse (% GDP) ↓ → Real-economy credit availability ↓) | Elevated term premiums and a negative credit impulse curb bank lending, constraining credit availability to the real economy. |
| Competitiveness | (Exchange-rate regime pressure (yen depreciation) ↑ → Real-effective exchange-rate gap ↑ → Energy-input cost share of manufacturing output ↑ → Unit labour cost index ↑) | Rising unit labor costs from higher energy import prices erode manufacturing competitiveness in global markets. |
| Competitiveness | (Effective corporate-tax burden ↑ → Average cost of capital (WACC) ↑ → Business-fixed-investment growth deviation ↓ → Potential GDP growth revision ↓) | A higher WACC depresses business investment and prompts downward revisions of medium-term potential GDP growth. |
| Households | (Effective marginal tax-benefit rate ↑ → Consumer-confidence index ↓ → Private consumption growth volatility ↑ → Real GDP growth ↓) | Diminished consumer confidence triggers more volatile spending, slowing real GDP growth once initial price relief fades. |
| Politics | (Political-instability risk score ↑ → Policy-uncertainty index deviation ↑ → Business-confidence diffusion index ↓ → FDI net inflow (% GDP) ↓) | Heightened policy uncertainty dampens business sentiment and deters FDI, reducing foreign investment inflows. |
| Macroeconomics & Growth | (Public-spending composition shift toward current spending ↑ → Public-investment execution ratio ↓ → Potential-output to energy-use ratio ↓ → Potential GDP growth revision ↓) | Cuts to public investment reduce output efficiency and force downward revisions of potential GDP growth forecasts. |
| Social Cohesion | (Tax-structure progressivity ↑ → Gini coefficient (post-tax, post-transfer) ↓ → Social-trust composite swing ↑ → Protest frequency & escalation severity ↓) | Improved tax progressivity boosts social trust and dampens the frequency and severity of protests. |
| Macroeconomics & Growth | (Fiscal-rule credibility index ↓ → Inflation expectations ↑ → Inflation volatility ↑ → Consumer-confidence index ↓) | Weakened fiscal credibility fuels volatile inflation expectations and erodes consumer confidence further. |
### BOTTOM LINE
- The key developments are a two-year suspension of the 8 percent consumption levy on food and beverages, an estimated ¥5 trillion-per-year fiscal shortfall with immediate bond-market and FX volatility, and a likely shift of fiscal burden onto working-age households and businesses if revenues are replaced by tax increases or spending cuts; core drivers are election-timing and political competition, a long-standing reliance on consumption-tax stability for fiscal credibility, and the government pledge not to issue special bonds, and the principal causal edges run from the revenue gap to higher term premiums and sovereign spreads, from market re-pricing to tighter credit conditions, and from financing choices to changes in public-investment execution and corporate tax burdens.
- The most immediate market consequence is higher government borrowing costs and a weaker yen, as evidenced by the 10-year yield spike and FX moves; the causal link is investor repricing of sovereign risk and term premium, which raises refinancing costs for government and private borrowers and increases the near-term probability of an economic slowdown, so monitor 10-year JGB yields, sovereign spreads, and yen exchange-rate moves closely over the next 1–6 months.
- The financing gap of roughly ¥5 trillion per year creates a binary policy path: either the government cuts expenditures (likely reducing public investment and subsidies) or it raises other taxes (likely on income or corporations), and the causal edge from funding choice to growth is clear—cuts to capital spending lower potential GDP and delay productivity gains, while higher corporate taxes raise WACC and depress private fixed investment; therefore prioritize contingency planning that protects critical public-investment projects and assess corporate-sector sensitivity to higher tax burdens.
- Credibility and ratings risk is material because reversing a long-standing consumption-tax stance undermines the fiscal-rule credibility index; the causal chain runs from credibility deterioration to potential rating-action or negative outlooks to wider sovereign spreads and tighter corporate financing, so track rating-agency statements and sovereign spread movements and prepare for tightened bank lending standards that would constrain real-economy credit.
- The distributional trade-off is politically and socially salient: removing the regressive food levy immediately benefits low-income households and could temporarily boost social trust, but if the revenue shortfall is recovered via higher income or corporate taxes or cuts to social programs, working-age households and businesses will bear a disproportionate share of the burden and consumer confidence may fall as future liabilities become likely; policymakers should pair broad exemptions with transparent, durable financing plans or targeted compensatory measures to avoid backloaded pain and reputational damage.
- Political risk is elevated through internal LDP dissent and the precedent of past consumption-tax defeats; the causal edge from electoral opportunism to policy uncertainty will depress business confidence and deter foreign direct investment in the near term, so investors and corporates should factor higher policy-uncertainty premiums into project evaluations and the government should prioritize post-election cross-party consultations to rebuild predictability.
- Exchange-rate and inflation effects are asymmetric: a weaker yen raises imported energy and input costs, increasing unit labour costs in manufacturing even as the tax cut temporarily reduces out-of-pocket food prices; the causal link from FX to production costs can erode competitiveness for import-dependent sectors, so exporters and energy-intensive manufacturers should hedge FX exposure and policymakers should watch real-effective exchange-rate metrics, energy-input cost shares, and unit-labour-cost trends.
- The temporary nature of the two-year measure limits its stimulative potency given that food-price inflation has already stabilized, and the causal path from a temporary price relief to consumer spending is weak if households treat the cut as non-permanent; retail sales, core CPI (excluding volatile items), and household saving-rate trends will indicate whether consumption gains are durable, and fiscal policymakers should consider complementary measures (wage support, targeted transfers) to sustain demand without undermining long-term fiscal health.
- Operational risk around reinstating the levy is high because reversing the exemption after two years would be politically fraught and could provoke strong public backlash, creating a causal path from reversal risk to policy paralysis and longer-term fiscal rigidity; the government should publish credible timelines and phased measures now and build legally or institutionally credible guardrails to avoid abrupt reversals that would exacerbate uncertainty.
- Practical near-term steps for stakeholders are to (1) monitor JGB yields, sovereign spreads, yen FX levels, rating-agency commentary, and retail-consumption and public-investment execution data; (2) stress-test corporate and bank balance sheets for higher funding costs and lower credit impulse scenarios; and (3) for policymakers, adopt a transparent financing roadmap (specific expenditure reviews or identified revenue measures) and protect high-return public investment to limit medium-term growth losses.
Monitored Intelligence for Japan - Jan. 21, 2026
News
Media
331
Government
Releases
91
City/State
Releases
149
Embassy
Releases
0
Foreign
Service
Advisories
0
Service
Advisories
0
Academic/
Think
Tank
22
Think
Tank
22
Podcasts
0
Videos
0
Social
Media
0
Business
Releases
0
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中国の不動産関連統計（25年12月）～不動産開発投資が一段と悪化
China Real Estate-Related Statistics (December 2025) – Further Deterioration in Real Estate Development Investment
NLI Research Institute | Local Language | AcademicThink | Jan. 21, 2026 | UndeterminedReal Estate
In December 2025, China’s real estate sector showed continued signs of deterioration, with significant declines in key metrics. The year-on-year change in real estate sales floor area contracted by 15.6%, slightly less severe than the previous month’s 17.3% drop. Month-on-month sales floor area remained nearly flat, rising by just 0.1%. Housing sales prices across 70 cities fell by 3.0% year-on-year, a slight increase in the rate of decline compared to the previous month’s 2.8%. Monthly housing prices decreased by 0.4%, with first-tier cities experiencing a narrowing decline and second-tier cities seeing a wider drop.
Real estate development investment weakened further, with the year-on-year decline deepening to 35.8%, compared to a 30.3% decrease in the previous month. Month-on-month real estate development investment dropped by 8.8%, a sharper fall from the prior month’s 7.8%. The Real Estate Development Business Climate Index fell to 91.45, down from 91.89, indicating a persistent recessionary environment as the index remains below the 95 threshold.
Additional indicators also reflected the sector’s downturn. Funds allocated for real estate development investment declined 26.7% year-on-year, improving slightly from the 32.5% drop seen previously. The completed inventory floor area stood at 770 million square meters, with year-on-year declines in inventory, housing start floor area, and housing completion floor area all widening. The data indicates sustained weakness in China’s property market at the end of 2025.
金融は新規企業の創出と成長を促進するか―日本の地域データを用いた実証分析―
Does Finance Promote the Creation and Growth of New Firms? An Empirical Analysis Using Regional Data from Japan
Research Institute of Economy, Trade and Industry | Local Language | AcademicThink | Jan. 21, 2026 | UndeterminedEconomic Growth
This paper empirically examines the impact of regional financial development on the creation and growth of new firms in Japan using prefecture-level panel data from 2007 to 2023. Distinguishing between equity finance (measured by the number of investment limited partnerships) and debt finance (measured by the number of bank branches), the study investigates their respective influences on various entrepreneurship-related variables such as the number of new firms, IPOs, sales growth, and employment distribution in young firms.
The findings reveal that regional equity development is positively correlated with the number of new firms and the number of firms going public. However, this positive relationship largely depends on Tokyo, as excluding Tokyo nullifies this significance. No significant link was found between regional equity and sales growth rates of new firms. Regional debt development shows no statistically significant association with entrepreneurship indicators. Equity development is also linked to a higher share of larger young firms by employee count, indicating support for growth-oriented entrepreneurship.
Robustness checks using generalized method of moments (GMM), instrumental variables, and principal component analysis confirm these main conclusions. The study highlights that the effects of financial development differ by financial instrument type and by entrepreneurial outcomes, implying that policies promoting entrepreneurship growth should specify the targeted financial channels and types of firms to be supported.
CEO Fraud Up Sharply in Japan
Nippon | English | News | Jan. 21, 2026 | Corporate Corruption or Fraud
Japanese companies are experiencing a sharp increase in CEO fraud, a type of business executive scam where fraudsters impersonate top executives via email to issue fake directives. Small and medium-sized firms are particularly vulnerable due to closer relationships among executives and employees compared to larger companies.
One company has reportedly lost over 100 million yen to such scams. The National Police Agency (NPA) has urged vigilance through the Japan Chamber of Commerce and Industry and other channels. From mid-December to mid-January, the police received requests for advice in 39 cases, uncovering a total theft of around 540 million yen in 16 confirmed incidents.
Common fraud methods include sending fake emails from supposed presidents or chairpersons to accounting staff, instructing them to create chat groups for discussions with alleged new business partners or projects, ultimately tricking firms into transferring funds to designated bank accounts.
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