Japan expands energy subsidies amid surging fuel prices

Japan is increasing government subsidies to shield consumers from rising energy costs after renewed geopolitical tensions in the Middle East drove up global oil and natural gas prices, according to Reuters.

Prime Minister Sanae Takaichi’s administration has expanded price-control measures aimed at limiting the impact of higher fuel costs on households, including continued caps on gasoline prices and additional fiscal support for energy bills.

Japan, which relies on imports for around 80% of its energy supply, has already spent heavily to stabilize domestic fuel prices. The government has used large-scale releases from national oil reserves and is now spending roughly 300 billion yen ($1.9 billion) per month to keep petrol prices near 170 yen per litre.

To finance the measures, Tokyo is preparing a supplementary budget of about 3 trillion yen to cover rising fuel and electricity subsidies during peak summer demand. Economists cited by Reuters have warned that the spending could add pressure to Japan’s public finances and weigh on the yen, potentially fueling inflationary pressures.

The Bank of Japan has also cautioned that even temporary energy price shocks can lead to persistent inflation, underscoring concerns about the long-term effectiveness of price caps.

Critics argue that the subsidy-heavy approach risks distorting demand by insulating consumers from higher prices rather than encouraging energy conservation or structural change in consumption patterns.

Japan remains heavily dependent on imported fossil fuels following the shutdown of its nuclear fleet after the 2011 Fukushima Daiichi disaster. Of the country’s 54 reactors, only about half of the 33 still operable have been restarted, Reuters has reported, leaving Japan more exposed to global supply shocks.

While Prime Minister Takaichi has previously expressed support for nuclear energy, progress in expanding its use has been limited by safety concerns and public resistance.

Energy analysts say that expanding nuclear generation could help reduce Japan’s reliance on imported hydrocarbons and improve long-term energy stability, but political and social constraints continue to slow the pace of reform.

By Sabina Mammadli