Most of the economics commentary in the last few weeks about Japan has been about the need for higher interest rates or, relatedly, the ‘desperate’ foreign exchange intervention where the US allegedly bailed out Japan to prevent currency failure. All side issues really. The forex intervention said more about US paranoia than anything about Japan’s challenges. The US clearly doesn’t want Japan to sell off its stock of US Treasury bonds and cause yields to rise (not that that would matter anyway) and it also knows that Japanese manufacturers have become very competitive (and are booming) in the US market. That is what that is all about. But the real news, in my view, is the decision by the Japanese Cabinet to cut the sales tax on food from 8 per cent to 1 per cent, even if the cash registers in the big retail stores would have needed massive upgrades to accommodate the planned zero sales tax. A 1 per cent compromise solved that piece of archaic infrastructure. But the sales tax proposal, which will see the first cut since the tax was introduced in April 1989 is a significant plank in the current government’s desire to shock the economy out of its damaging deflationary mindset. While I support the move, it would have been better for the government to scrap the sales tax completely. But the current proposal is a small but significant step in the context of Japanese politics and the surrounding economic commentariat. So we should be thankful for small mercies.