Voter frustration over soaring living expenses led to major setbacks for Prime Minister Sanae Takaichi’s ruling Liberal Democratic Party in the last two national elections. -- PHOTO: AFP
TOKYO (Bloomberg): A key issue on the minds of voters heading into Japan’s national election on Sunday will be their stomachs - that is, the rising cost of filling them.
Voter frustration over soaring living expenses led to major setbacks for Prime Minister Sanae Takaichi’s ruling Liberal Democratic Party in the last two national elections before she took the helm last October. While successive governments rolled out subsidies to reduce utility fees during that timespan, out-sized gains for food prices limited the overall impact of the aid on household budgets.
Keiko Sato, 81, who lives in rural Akita, northern Japan, said she has started reducing purchases of non-crucial items, including clothes, because "there’s no real breathing room” in her budget anymore. "When I shop at regular supermarkets, things are so expensive that I just pull my hand back and don’t buy anything.”
It’s a big issue for Takaichi ahead of a national election on Feb. 8 that will make or break her government. Increases in food prices played a large role in keeping consumer inflation above the Bank of Japan’s 2% target for the last four years, sharpening the focus on this area of spending.
As she risks her job to pursue a fresh mandate, the premier has sought to get ahead of this issue by promising to accelerate discussions on suspending the 8% tax on purchases of food and non-alcoholic beverages for two years if she prevails.
Spending by households, adjusted for inflation, fell 2.6% in December compared with a year earlier, the Ministry of Internal Affairs and Communications reported Friday. Economists had expected a 0.3% decline. Outlays for transportation and communication declined by an adjusted 7.1%, while shoes and clothing dropped 8.9% and food outlays slipped by 2.4%.
Even as overall spending dipped, Japanese households continued to devote an increasing portion of their spending to food. In December, the proportion of outlays allocated for food, known as the Engel coefficient, came to 30.7% of the total, setting a new record for that month. That’s up from 28.9% in November, and it lifted the quarterly and annual figures to new records as well.
People in Japan allocate more of their spending to food than their peers in other developed economies. Families in the US allocated only 15% of total spending to food in 2023, according to the OECD. Cultural norms related to food can influence the coefficient, while countries with lower average incomes tend to have higher readings.
Surveys show inflation is among the most important issues for voters ahead of Sunday’s polls. Some 54% cited it as their biggest concern, according to a Nikkei survey released last week.
Kazue Iwata, 74, who lives on a fixed pension, said she’s had to cut back on leisure spending. "I really feel prices rising in everyday life - groceries, clothes, and especially rice,” she said. "I’m living on a pension, so even if I want to travel, I just can’t.”
Opposition parties have taken notice and hammered out their own plans for lowering living costs. The newly formed Centrist Reform Alliance, the largest opposition camp, aims to go a step further than the LDP by ending the sales tax on food permanently. The Democratic Party for the People proposes cutting the overall consumption tax to 5%, and Sanseito has pledged to flat out abolish the consumption tax.
"Almost all parties are now calling for consumption tax cuts, and that has been cited as one factor behind the weaker yen,” said Hikaru Sato, senior economist at Daiwa Institute of Research Ltd. "If a tax cut lasts only one year, it may have an impact in the data, but over the medium to long term, such measures are unlikely to have much effect” on lowering the Engel coefficient.
The proposal to cut tax on food sales has broad support from consumers and food retailers. The Japan Chain Stores Association is urging Takaichi to stretch the suspension to five years, the Nikkei reported last month. The restaurant industry, on the other hand, has voiced concerns that consumers would choose to eat more meals at home and cut back on dining in restaurants, where spending would still be subject to the 10% consumption tax.
There are indications that food price inflation will moderate in coming months partly due to comparisons with the fast pace of growth last year. The latest inflation data showed that gains in food prices slowed to 5.1% in December from 6.1% a month earlier.
Rice price gains decelerated that month to 34.4% from 37.1%. While that’s far below the record doubling of prices in June and July last year, it’s still onerous in a nation where real wage growth was negative every month through November last year, with December data due on Monday.
The number of price increases by Japan’s major food companies reached 20,609 last year, about 60% more than in the previous year, Teikoku Databank reported in December. For the first four months of 2026, the number of price increases was expected to total about 3,600, roughly 40% fewer than a year earlier, Teikoku said.
BOJ Governor Kazuo Ueda has also said he expects inflation to cool in coming months.
That projection is of little help to Yoko Sasaki, 51, a housewife who said the proportion of food costs in her monthly household budget is "frightful” even with her children having left home.
"Although the volume decreases, the price is the same,” said Sasaki, who was attending a rally in Saitama where Takaichi was speaking. "I’m trying to find cheaper options.”
The yen is another factor to watch. Japan imported over 60% of its food needs last fiscal year, according to the agricultural ministry. With Japan’s currency trading around 157 to the dollar as of Thursday afternoon in Tokyo it could keep upward pressure on costs of imports. The yen’s 20-year average is around 111.83.
"Japan’s low food self-sufficiency rate has essentially remained unchanged for several decades,” said Daiwa’s Sato. "While the government is making efforts, those have not been reflected in the actual numbers. As a result, when currencies move sharply, as they have recently, it becomes easier for the Engel coefficient to rise” through import-driven inflation.
--With assistance from Isabel Reynolds, Akemi Terukina, Andy Hung, Eddy Duan, Mari Kiyohara and Maho Nambu.
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