Five-Day Holiday Puts Japan's Cost-of-Living Pressures in Focus

Japan's first five-day Silver Week holiday in 11 years has drawn attention to household finances, with rising food prices and a weakening yen threatening to diminish the benefits of a planned consumption tax cut on food. Despite typhoon concerns, a barbecue spot was almost full on the holiday's first day, but visitors noted that higher prices were affecting their meals.

Beef, pork, and chicken prices have increased, prompting some shoppers to opt for larger-value packages or vegetables and bean sprouts to make meals stretch. Some have even stopped buying beef. Pork prices hit their highest since the government began relevant surveys, while imported beef prices have risen by nearly 60% over five years as the yen weakened sharply.

Meat prices have been particularly impacted by prolonged inflation, with wholesale prices jumping from 140 yen to 160 yen and then to 180 yen in quick succession. Domestic meat producers face higher costs due to a weaker yen raising the price of imported animal feed and fuel. The government plans to cut food consumption tax from 8% to 1% for two years starting April 2027, but concerns remain over financing the tax cut, which could reduce government revenue by around 10 trillion yen over two years.

Retailers hope the reduction will encourage spending, but even a seven-percentage-point tax cut might not offset price increases if the yen continues to weaken. The Bank of Japan raised its policy interest rate by 0.25 percentage point to 1.25% on September 18, the highest level in about 31 years, but the yen weakened sharply after the announcement.

The U.S. Federal Reserve's recent interest rate hike and uncertainty about future Japanese rate increases have contributed to the yen's weakness. This currency weakness has led to higher imported food prices, with imported beef prices increasing by about 15% in the past two years. The government faces a challenge: lowering food taxes could be offset by continued yen depreciation, pushing import costs higher and canceling out much of the benefit from the lower consumption tax.