Prime Minister Sanae Takaichi said the government will raise the benchmark price for gasoline by ¥5 a month from December toward spring, scaling back the subsidies that have kept regular gasoline near ¥170 a liter nationwide. She announced the plan at a press conference at the Prime Minister's Office on October 29, Hiroyuki Tanaka, a political reporter for the Mainichi Shimbun, said in a video published by the election site Senkyo Dotcom on October 30.
The subsidy, which began on March 19 after the situation in the Middle East worsened, pays oil wholesalers the amount by which the price exceeds roughly ¥170 a liter. The government is currently paying about ¥52.4 per liter, and Takaichi said it is spending more than ¥10 billion a day on the program.
Without the subsidy, regular gasoline would average around ¥220 a liter. Both governing and opposition parties had called for an exit strategy, arguing the subsidy cannot be sustained by the budget.
Why the government is pulling back
Tension in the Middle East has not eased, and there is no sign of when it will end. Critics of the subsidy have argued since March that it encourages consumption at a time of crude oil shortage, and that it works against energy conservation.
Within the Liberal Democratic Party, Secretary-General Shunichi Suzuki said at a press conference in May that the level of support would need reviewing. Takaichi had held off, worried that higher gasoline prices would push up prices across the economy, including trucking costs.
Fiscal concerns have now forced the issue. Continuing the subsidy as it stands would require ¥1 trillion to ¥1.5 trillion in the budget through the end of March next year, Tanaka said.
Japanese gasoline is also the cheapest among major economies because of the subsidy, at about ¥170 a liter against roughly ¥350 in France and elsewhere in Europe, he said.
The ¥190 line in March
Takaichi did not say which month the increases would stop, but she said "toward spring," which by the usual reading means March. At ¥5 a month, the benchmark would reach ¥175 in December, ¥180 in January, ¥185 in February and ¥190 in March.
That ¥190 matches the highest price on record, ¥190 on March 16 this year, just before the subsidy started. Tanaka said the timing is set with the consumption tax cut in mind.
The tax cut takes effect in April. If the benchmark rose again that month, the increase would be passed through to prices, canceling out the relief the cut is meant to deliver.
"If you raise it by ¥5 again after April, it offsets the cut," Tanaka said. "You would get opposition parties saying the tax cut isn't showing up on store shelves." He added that Takaichi has not ruled out further increases and retains some flexibility, but that "toward spring" points to March.
“This spring likely means March, so there is a schedule that clearly looks ahead to the consumption tax cut.”Hiroyuki Tanaka, Mainichi Shimbun political reporter