Japan may expand a subsidy program for gasoline and other fuels among measures under consideration to ease soaring energy costs, the industry minister said on Sunday.
The measure will be part of a fresh relief package which Japanese Prime Minister Fumio Kishida ordered his Cabinet last Tuesday to put together by the end of April to cushion the economic blow from rising fuel and raw material prices.
"We are concerned that the weak yen, on top of escalated prices of oil and natural gas amid the Ukraine crisis, is having a negative impact on business activities and people's daily life," Economy, Trade and Industry Minister Koichi Hagiuda told a talk show by public broadcaster NHK.
To cushion the blow from higher fuel prices, the ministry may expand the subsidy scheme by lowering the base price and raising the payment ceiling, or combine the subsidy scheme with lifting a freeze on tax trigger clauses, Hagiuda said.
Japan implemented a temporary subsidy program in January to mitigate a sharp rise in gasoline and other fuel prices after tight global supplies increased oil prices, with the Russian invasion of Ukraine causing a further spike in oil prices.
The ceiling on the subsidy was raised fivefold to 25 yen (20 cents) a liter in March and the program was recently extended till April-end from an earlier plan of March-end.
Hagiuda said the existing subsidy could be combined with the reintroduction of a "trigger clause" designed to trim taxes on gasoline and diesel when gasoline prices stay above 160 yen a liter for three months in a row.
The clause was frozen to free up rebuilding funds after a 2011 earthquake and tsunami that caused nuclear meltdowns in Fukushima.
"We are analyzing carefully what kind of synergies can be achieved by combining the two schemes," Hagiuda said.
"Freeing up the trigger clause will reduce tax revenues for local governments and cause various administrative tasks such as budget rearrangement. We will have to consider how to cover such negative effects," he added.
Hagiuda also reiterated Japan will not exit the Sakhalin-I and Sakhalin-II oil and gas projects in Russia, but the resource-poor country will aim to lower its reliance on Russian energy to be in line with its G-7 allies.
Even as Japan targets Russian banks and oligarchs with sanctions, Japan has less leeway than some of its allies to cut ties to Russian gas, on which it has become more reliant since shutting down nuclear reactors after the 2011 Fukushima disaster.
LNG dependence
For more than a decade, energy-poor Japan has tapped Russian gas to cut its Middle East oil reliance and to make up for lost nuclear capacity.
Although it accounts for a small portion of Japan's LNG, the Russian gas costs a fraction of spot market rates and, along with gas from Australia and Southeast Asia, has boosted the amount of energy consumption under Japan's control to more than a third from less than a quarter a decade ago.
Oil remains Japan's biggest energy source at around two-fifths of consumption, and nearly all is transported from the Middle East along sea lanes that pass through waters patrolled by the Chinese navy.