The report says that the government is considering to revive subsidies for electricity and natural gas in the summer months this year. It is likely that said subsidies will cover usage from July through to September, with a budget that could reach around ¥500 billion.
For now, the source says that the government is planning to use reserve funds. That as opposed to compiling a supplementary budget, with prime minister Takaichi already looking into the proposal.
Well, that’s a heavy cost but at least they’re choosing to tap into reserve funds here. With the Japanese yen currency already under immense pressure and the economic outlook being hampered significantly by the Middle East conflict, more fiscal pressures will not be welcome at this time.
The idea of the subsidies here is to help cover retail electricity and gas prices for the most part. That as the bigger impact of higher prices for LNG is expected to hit later around June.
As a reminder, Japan has already extended subsidies for gasoline prices amid the Middle East conflict. That already saw the government draw ¥2 trillion in reserves over the years.
But as energy prices – especially oil – continue to stay elevated, the worry here is that the funds for these subsidies will quickly dig the bottom of the barrel. It’s all on how long the Strait of Hormuz will remain closed at this stage. And the longer it stays closed, the more it will push the government into needing to consider a supplementary budget to fund the subsidies down the road.
In turn, that will be another big headwind for the yen currency as the Takaichi trade deepens.