Abolishment and Resumption of Subsidies

Prime Minister Sanae Takaichi announced that her government would reduce subsidy for gasoline starting December, due to shortage of budget for it. Instead, she will also bring back other subsidy for electricity and gas. Unexpected exacerbation of situation in Middle East gives Takaichi no choice but cutting support for households. Her economic policy, based on populism, is facing an obstacle as she promotes consumption tax cut for next April. 

The government of Japan, led by prime minister Fumio Kishida, introduced subsidy to keep gasoline price against oil price hike in January 2022. After Russia invaded Ukraine in the next month, energy price steeply rose, making fundamental support for consumers inevitable. The subsidy was once finished at the end of 2025.

 

However, U.S. President Donald Trump, with Israeli Prime Minister Benjamin Netanyahu, began war against Iran in February 2026. Takaichi resumed the subsidy in March to keep retail price of regular gasoline around 170 yen per liter. Currently, 52.4 yen out of 170 yen of gasoline price is covered by the subsidy. The total governmental spending for gasoline subsidy has amounted to 9.6 trillion yen.

 

Takaichi listed up a bunch of reasons to finish the subsidy. “We have been spending 10 billion yen of valuable taxed money for gasoline every day.” “We have been keeping the gasoline price cheaper than foreign countries.” “We need to make the policy sustainable.” Takaichi tried to justify her policy, hoping her decision not to affect approval ratings for her cabinet.

 

The subsidy for gasoline will be reduced in December and later. The price of regular gasoline will be rising by 5 yen per liter every month. It is not determined when the subsidy will completely be finished after gradual decline of the subsidy. It is unclear how high the gasoline price will go up as situation in the Middle East is getting worse.

 

Although Takaichi plans to introduce consumption tax cut for foods in April 2027, the cut of gasoline subsidy may put negative impact on consumers before the consumption tax cut. To maintain the momentum of supporting households, Takaichi decided to resume subsidy for electricity and gas, which had been finished at the end of September this year.

The government is going to pay 1 yen for use of 1 watt in an hour for December. It will be raised to 4.5 yen for January and February each. This subsidy is expected to last until February 2027. Average family can save 7,000 yen of spending for each month during those three months.

 

The government will spend 6 trillion yen as a whole for the subsidy on electricity and gas. It is predicted that subsidy will lower the value of Japanese yen, because that policy may exacerbate financial balance of the government. A depreciation of Japanese yen against dollar will cause further energy price hike in Japan. Subsidy cannot be a mighty tool for economy.

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