Japanese Industry Minister Koichi Hagiuda said on Tuesday that the government would for the first time implement its oil industry subsidy program, which aims to reduce petroleum fuel prices from the end of the week following a recent spike in oil prices.
The average retail price of regular gasoline in the country was 170.2 yen ($1.5) per liter on Monday, hitting its highest level in more than 13 years and surpassing the 170 yen threshold required to launch the subsidy program introduced in November, Hagiuda told a news conference.
Under the scheme, a subsidy of 3.4 yen per liter will be paid to 29 petroleum distributors and importers for one week starting Thursday in an effort to prevent them from sharply raising their prices for gasoline, diesel, kerosene and fuel oil, according to the ministry.
“As far as petroleum product prices are concerned, regional differences have been observed, but I expect this program to suppress wholesale price increases and prevent further price increases in each region,” Hagiuda said. .
The amount of subsidies will be reviewed by February 3 based on changes in retail gasoline prices. The subsidy framework will be effective until the end of March, a ministry official told reporters.
The ministry official attributed the recent oil price hikes 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 problems in the oil-producing countries and growing military tensions in Ukraine.
The subsidy program has been criticized as a market-distorting measure and excessive government intervention.
Japan’s oil industry has blamed a series of oil-related taxes for the country’s high fuel prices. According to the Ministry of Finance, the taxes represent more than 50% of the retail price of petrol per liter before a consumption tax of 10% is levied from the second quarter of 2020.
“This measure is only an interim and urgent measure to lessen the pain of sweeping changes so that (soaring gasoline prices) do not weigh on economic recovery from the pandemic,” the official said.
The government has decided to set aside 80 billion yen for the subsidy program in its supplementary budget for the current fiscal year until March.
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