Japan

米国経済見通し 犠牲になるのは財政

Daiwa Institute of Research | Local Language | AcademicThink | Jan. 23, 2026 | UndeterminedBudgets-Budgeting

The U.S. economy is showing signs of recovery from the negative impacts of the recent government shutdown on both corporations and households, maintaining a firm hold. However, widening disparities within households could intensify due to the "K-shaped economy," as higher-income individuals benefit from federal income tax refunds under the 2025 Trump Tax Cut 2.0 beginning February 2026, while low- and middle-income groups face declining purchasing power following the expiration of Obamacare’s enhanced tax credits at the end of 2025, resulting in increased health insurance premiums.

Congressional debates over extending these tax credits have complicated the fiscal 2026 budget process. Democrats have made extending the tax credits a condition for budget approval, whereas Republicans have signaled reluctance for full extension, preferring a continuing resolution to delay decisions. This deadlock caused the longest government shutdown on record in October–November 2025. A continuing resolution passed in mid-November prolonged the debate, which gained momentum in early 2026. The House approved a three-year extension plan in January with Democratic leadership and support from 17 Republicans, particularly those in competitive districts, but the Senate Republicans remain cautious, leaving the bill’s future uncertain.

Criticism of the tax credit extension centers on the belief that the credits serve as subsidies to private insurers and would increase the federal deficit. The House-passed three-year extension would raise the fiscal deficit by about $80 billion over ten years, potentially increasing to $350 billion if made permanent. While extension would relieve financial pressure on low- and middle-income households, concerns persist that deteriorating fiscal conditions amid uncertain tariff revenues could elevate the term premium and push up U.S. 10-year Treasury yields. This rise in yields could negatively impact interest-rate-sensitive sectors such as capital investment, housing, and durable goods consumption.

The Mainichi | English | News | Jan. 23, 2026 | UndeterminedTaxes

Japanese Prime Minister Sanae Takaichi announced on January 19, 2026, that the ruling Liberal Democratic Party will propose eliminating the consumption tax on food and beverages for two years in the upcoming House of Representatives election campaign. This measure aims to ease the financial burden on middle- and low-income earners amid persistently high food inflation.

Takaichi plans to fund the tax cut by reallocating existing subsidies, special tax measures, and non-tax revenue rather than issuing deficit-financing bonds. She emphasized the need to consider impacts on financial markets, including interest rates, exchange rates, and local government finances. The timing of the tax cut was not discussed during the press conference despite prior speculation about a potential reduction around September.

The tax reduction is expected to cause an annual revenue loss of about 5 trillion yen ($31.6 billion), with roughly 2 trillion yen ($12.6 billion) impacting local governments. This has raised concerns about fiscal deterioration, reflected in rising government bond yields and potential yen depreciation, which could further increase inflation through higher import costs.

The opposition Centrist Reform Alliance advocates for a permanent zero consumption tax on food and beverages, making tax reduction a realistic prospect regardless of the election outcome. However, some economic officials warn that continued fiscal loosening by both major parties risks long-term fiscal collapse.

The Mainichi | English | News | Jan. 23, 2026 | UndeterminedTrade Issues and Numbers

In 2025, Japan's trade deficit decreased by 52.9 percent compared to the previous year, reaching 2.65 trillion yen ($16.7 billion), despite a decline in exports to the United States. Total exports set a record at 110.45 trillion yen, up 3.1 percent year-on-year, while imports rose slightly by 0.3 percent to 113.10 trillion yen. The trade deficit persisted for the fifth consecutive year.

Japan maintained a trade surplus with the United States of 7.52 trillion yen in 2025, although this figure dropped 12.6 percent from the year prior. Exports to the U.S. declined 4.1 percent to 20.41 trillion yen, primarily due to an 11.4 percent decrease in vehicle shipments by value. Imports from the U.S. increased by 1.6 percent to 12.89 trillion yen.

With China, Japan recorded a trade deficit of 7.91 trillion yen, marking a 22.7 percent increase. For the month of December 2025 alone, Japan posted a trade surplus of 105.69 billion yen, with exports rising 5.1 percent to 10.41 trillion yen and imports increasing 5.3 percent to 10.31 trillion yen.