The government will implement its oil industry subsidy program, which will curb petroleum fuel prices, starting later this week, after a recent surge in oil prices, according to industry minister Koichi Hagiuda.
The average regular gasoline retail price was 170.2 $1.50 per liter as of Monday, reaching its highest level in over 13 years and topping the 170 yen threshold for the subsidy scheme introduced in November, Hagiuda told a news conference.
According to the ministry, a subsidy of 3.4 per liter will be paid to 29 oil distributors and importers for a week beginning Thursday, with the aim of keeping them from raising their prices of gasoline, diesel oil, kerosene and fuel oil.
As for petroleum product prices, regional differences have been seen, but I expect this program to suppress wholesale price rises and prevent price hikes in each region, Hagiuda said.
The size of subsidies will be reviewed by February 3 due to changes in retail gasoline prices. A ministry official told reporters that the subsidy framework will be in place until the end of March.
The ministry official said the recent oil price rises to the U.S. Federal Reserve view that the impact of the omicron coronavirus variant on the economy will be temporary, as well as to supply concerns in oil-producing nations and growing military tensions in Ukraine.
The subsidy program has been criticized as a market-distorting measure and excessive intervention by the government.
The country has high fuel prices due to a series of petroleum-related taxes, according to the Japanese oil industry. Taxes account for over 50% of the retail gasoline price per liter before a 10% consumption tax is levied in the second quarter of 2020, according to the Finance Ministry.
The surge in gasoline prices will not weigh on the economic recovery from the pandemic, so the measure is just a tentative and emergency step to ease the pain from radical changes, the official said.
The government will set aside 80 billion for the subsidy program in its supplementary budget for the current fiscal year through March.