Japan hikes fuel subsidies and offers support for buying EVs

Japan’s Prime Minister said on Friday he plans to expand measures to control gasoline and other fuel prices, including a hike in the cap on its subsidies paid to oil wholesalers to 25 yen per litre (US $0.22) from the current 5 yen.

The decision comes as a further spike is anticipated in global oil prices following Russia’s invasion of Ukraine.

The government will also provide fresh support for fishers, farmers and taxi operators, who face surging fuel costs, Japanese Prime Minister Fumio Kishida said. “For the time being, I plan to respond to sharp [price] fluctuations by expanding the current measures,” he told parliament.

The changes in subsidy support will take effect from March 10, and the government will tap 350 billion yen ($3.03 billion) from the current fiscal’s emergency budget to fund the subsidy, Chief Cabinet Secretary Hirokazu Matsuno said.

Following Russia’s invasion of Ukraine, concerns about Russian oil supplies – which are second only to Saudi Arabia in volume - have driven oil prices to levels not seen in a decade. On Thursday, Brent futures closed at $110.46 a barrel, while US West Texas Intermediate (WTI) crude was at $107.67. That translates to Japanese gas prices rising above 180 yen per litre, although lifting the subsidy cap would suppress gas prices to about 170 yen.

“Extra measures are necessary in preparation for changes in the Ukraine situation,” Matsuno said, adding that the government is also consider expanding financial aid for the purchases of electric vehicles.