To cushion the impact of soaring oil prices due to the war in Ukraine, the central government said Friday that it will beef up countermeasures including bolstering a subsidy program for oil wholesalers.
The surge in crude prices is expected to drive inflation in Japan higher, which is increasingly becoming a headache for an economy that has already been battered by the coronavirus pandemic.
Before Russia’s invasion of Ukraine, prices for global benchmarks Brent crude and U.S. West Texas Intermediate (WTI) were hovering just above $90 per barrel, but both have shot up in the past several days. On Thursday, Brent rose to $119.84, its highest level since May 2012, while WTI climbed to $116.57, its highest mark since September 2008, according to Reuters.
In an effort to curtail the increase in gasoline prices, the government started offering subsidies to oil wholesalers in late January to keep the average price of regular gasoline around ¥170 per liter. The subsidy limit is currently set at ¥5 per liter, but the government will bump up the figure to ¥25.
The ¥5 subsidy can barely keep up with the spike in oil prices, as the average gasoline price nationwide has risen for eight straight weeks. According to the Agency for Natural Resources and Energy, the average price stood at ¥172.8 as of Monday, a ¥0.8 increase from the previous week and the highest level in more than 13 years.
While gasoline prices are expected to rise further, the government aims to keep the average pump price around ¥172 by expanding the limit to ¥25.
Chief Cabinet Secretary Hirokazu Matsuno said during a news conference on Friday that the subsidy limit will be raised from next Thursday. The subsidy program is scheduled to run until the end of this month.
Some major opposition parties have been urging the government to enact a temporary gasoline tax cut of ¥25 per liter.
A tax cut can be implemented if the average price of regular gasoline remains above ¥160 for three consecutive months. But enacting a cut would require a legal amendment, as the policy has been frozen since 2011 in an effort to secure tax revenue for the reconstruction of the Tohoku region following the Great East Japan Earthquake.
Matsuno said the government did not choose that option this time, saying the tax cut does not cover heavy oil and kerosene, while the subsidy program does.
The top government spokesperson, however, would not rule out implementing the tax cut policy in the future.
“If oil prices keeps climbing in the next fiscal year (which begins next month), we will look into every possible option including the tax cut while examining how much longer the price rise will persist, the effectiveness of the beefed-up subsidy program this time and the impact on people’s lives and business activities,” he said.
Using ¥360.6 billion from the reserves of this fiscal year’s budget, the government will also introduce measures for other industries.
Taxi operators will receive financial support to offset the increased prices of liquefied petroleum gas, which is commonly used by taxis.
For the fishery industry, the government will ratchet up the fund to help fishery operators when fuel prices surge. Also, operators will be able to receive subsidies if they purchase high energy-efficient equipment.
To brace for the further hike of energy costs, Prime Minister Fumio Kishida asked everyone to make efforts to save energy during a news conference on Thursday.
For its part, Matsuno said the government will procure more renewable energy and plans to replace more government-owned cars with electric vehicles.
“It’s important to make efforts to reduce the use of petroleum and gas even a little to mitigate the impact of soaring energy prices on our economy,” Matsuno said.
Although the government is shoring up measures against the spike in energy prices, many economists say that a negative impact on businesses and households will be inevitable.
Higher oil prices will push up transportation costs and that could prompt a raft of wholesalers and retailers to raise prices. Some companies may shoulder increased costs by themselves, but that will hurt their profits and employees’ wages.
Information from Kyodo added
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