Japan’s government said it will gradually withdraw its fuel price subsidies starting in December, tapering support through early spring while the regulated retail price of gasoline rises by 5 yen per liter each month.
Scheme built on crude costs
The subsidy program dates to 2022, introduced after the post-pandemic reopening and the war in Ukraine, and was expanded significantly in late February when the Iran conflict broke out. It had held gasoline retail prices near 170 yen per liter. Japan previously sourced more than 90 percent of its crude oil needs from the Middle East before the conflict; it has since opened strategic reserves and refiners have turned to costlier alternative crude, mainly from the United States.
Unlike most countries, which responded to the price shock with temporary tax cuts, Tokyo effectively guaranteed the retail price by covering costs above a reference value. BloombergNEF estimated the gasoline and diesel subsidy cost the state 38 million dollars a day, totaling 7.6 billion dollars from mid-March to September.
Phase-out and its critics
Prime Minister Takaichi Sanae said the state contribution will be phased out gradually from December to early spring, without specifying when the price equalisation mechanism would be fully removed. Electricity and gas bill support, meanwhile, will start a month earlier than planned, also in December; the government estimates average households will save 7,000 yen through February from that support.
A former Bank of Japan board member, now chief economist at Nomura Research Institute, said the program costs several hundred billion yen monthly and is fully financed by government bond issuance. He added that the support is poorly targeted, disproportionately benefits large consumers, and that rising deficits could weaken the yen and fuel inflation.
Separately, CFTC data showed speculators holding a net long position in the yen of 69,878 contracts in the week to 20 October, up from 50,207 contracts a week earlier. By MacroHerald’s own measurement at 08:30 GMT on 30 October, the dollar traded at 157.296 yen.
Source: Japan's government | Data: Swissquote · CFTC
