Industry Minister Koichi Hagiuda said on Tuesday that the government will for the first time carry out its oil industry subsidy program, which aims to rein in oil-derived fuel prices, starting this week after a recent increase in oil prices.
The country’s average regular gasoline retail price was JPY 170.2 ($1.50) per liter as of Monday, hitting its highest level in more than 13 years and surpassing the 170 yen threshold required to launch the subsidy scheme presented in November, Hagiuda said at a news conference.
Under the program, a subsidy of JPY 3.4 per liter will be paid to 29 oil distributors and importers for a week starting Thursday, with the aim of preventing sharp rises in the prices of gasoline, diesel, kerosene and fuel oil, according to the Ministry.
“As for the prices of petroleum products, regional differences have been seen, but I hope that this program will suppress wholesale price increases and prevent further price increases in each region,” Hagiuda said.
The size of the subsidies will be reviewed on February 3 according to changes in retail gasoline prices. The subsidy framework will be in place until the end of March, a ministry official told reporters.
The ministry official attributed the recent oil price increases to the US Federal Reserve’s view that the impact of the omicron variant of the coronavirus on the economy will be temporary, as well as supply concerns in the US. oil-producing nations and growing military tensions in Ukraine.
The subsidy program has been criticized as a market-distorting measure and excessive government intervention.
The Japanese oil industry has blamed a series of oil-related taxes for high fuel prices in the country. According to the Ministry of Finance, the taxes represent more than 50 percent of the retail price of gasoline per liter before a 10 percent consumption tax is applied from the second quarter of 2020.
“This measure is only a tentative and emergency step to ease the pain of radical changes so that (the increase in gasoline prices) does not weigh on the economic recovery from the pandemic,” the official said.
The government has decided to set aside JPY 80 billion for the subsidy program in its supplementary budget for the current fiscal year through March.