Japan keeps lid on gas prices as Middle East conflict threatens supplies

Japanese Prime Minister Sanae Takaichi has announced that the government will continue to subsidize gasoline prices to shield households from the impact of inflation in the face of the ongoing Middle East conflict. The subsidies maintain gasoline prices at approximately 170 yen per liter, despite uncertainty surrounding oil price fluctuations. Takaichi emphasized the government's commitment to protecting citizens and preventing disruptions to economic activity.

Japan, a resource-scarce nation, heavily relies on energy imports from the Middle East. Supply has come under pressure due to the closure of the Strait of Hormuz following the U.S.-led war on Iran, which began in late February. Prime Minister Takaichi directed Industry Minister Ryosei Akazawa to utilize part of the roughly 2.5 trillion yen in reserve funds set aside for the situation, as outlined in a supplementary budget enacted in June.

The subsidy program, which has been funded at a rate of around 20 yen per liter, has consumed approximately 80% of the 1.16 trillion yen allocation as of the end of July. Lawmakers from both ruling and opposition parties have called for a reassessment of the subsidies amid concerns over Japan's fiscal health and the government's expansionary measures, including a plan to reduce the consumption tax on food products from 8% to 1% starting April.

The ministry reported that the nationwide average retail gasoline price was 169.80 yen per liter as of August 17. The government has been subsidizing around 20 yen per liter to keep the price at approximately 170 yen. At its peak in early April, the subsidy rate reached 50 yen per liter. Diesel, heavy oil, and kerosene are also covered by the subsidies.