Inflation: Japan fuel subsidies may be extend beyond April, $41bn spent so far

TOKYO (Reuters): Japan’s government and ruling party officials are considering extending fuel subsidies beyond April, sources told Reuters on Friday, as a feeble economy and political pressure drive more fiscal spending.

The economy unexpectedly slipped into a recession at the end of last year and lost its title as the world’s third-biggest to Germany, data showed on Thursday, underscoring the weakness of domestic consumption amid steady inflation.

The government began subsidising energy wholesalers to curb domestic prices of gasoline, kerosene and other fuels in January 2022 and has extended them multiple times as part of its fiscal packages to address rising living costs.

Lawmakers at the ruling Liberal Democratic Party (LDP) and its coalition partner Komeito are calling for the subsidies to be extended further amid a political backlash against Prime Minister Fumio Kishida’s administration over a funding scandal, multiple party and government sources familiar with the matter said.

In October, Kishida announced the extension of the programme to the end of April, along with another measure to support electricity and gas bills. The effect of these subsidies would push down overall consumer inflation by about 1.0 percentage point in the four months from January, a government estimate has shown.

More than 6.2 trillion yen ($41 billion) has been spent on the fuel subsidy programme so far, Japan’s Board of Audit has said.

Some in the LDP point out that subsidising fossil fuels is not aligned with the government’s climate transition goals and want clarity on when the program will be ended, party sources said.

The subsidies “could be extended to at least until this summer”, a government source said, adding that autumn would be the best time to end the programme when power demands fall.

“Nothing has been decided about the exit” of the subsidies, Finance Minister Shunichi Suzuki told a Friday parliamentary session, adding the government would make a decision about the policy beyond April, taking energy prices into consideration.