Japan weighs supplementary budget as oil prices surge

Japan is considering compiling a supplementary budget for fiscal 2026 to mitigate the impact of rising crude oil prices driven by the ongoing Middle East conflict, government sources said, as pressure mounts from both ruling and opposition parties.

According to officials, the government has already set aside more than 1 trillion yen (about $6.3 billion), including reserve funds in the fiscal 2025 budget, to finance measures aimed at easing the burden of rising living costs, such as subsidies to curb surging gasoline prices. However, concerns are growing that these funds could be exhausted amid continued uncertainty surrounding the Iran-related tensions, Japan Today reports.

Prime Minister Sanae Takaichi told a parliamentary committee as recently as May 11 that she does not see an immediate need for a supplementary budget, while stressing that the government will closely monitor price movements and respond flexibly.

“We will closely monitor price developments and respond flexibly,” she said in essence, according to parliamentary proceedings.

Officials caution that a supplementary budget could further raise concerns over Japan’s fiscal health, which remains the weakest among Group of Seven economies, especially as Takaichi’s administration continues to promote expansionary fiscal policies to support economic growth.

The funds allocated for gasoline subsidies had already fallen to around 980 billion yen by the end of April following the resumption of the program in mid-March, with hundreds of billions of yen expected to be disbursed monthly.

The government is also considering reintroducing subsidies for electricity and gas bills this summer, continuing a pattern of support measures introduced repeatedly since Russia’s full-scale invasion of Ukraine, which contributed to a global spike in energy prices.

Officials noted that the subsidy programs are highly costly, with 529.6 billion yen spent from January to March using the fiscal 2025 supplementary budget.

While the government could also draw on reserve funds totaling 1 trillion yen in the fiscal 2026 budget, critics argue that such funds should be preserved for emergencies such as natural disasters.

By Vafa Guliyeva