Japan's cheap gasoline takes its toll on the state

TokyoAt some gas stations on the outskirts of Tokyo, today a liter of regular gasoline is sold for 159 yen, about 90 euro cents. The price varies depending on the establishment, but subsidies from the Japanese government help to contain it in a time of rising oil prices. Since March, Sanae Takaichi's executive has been applying aid to operators in the sector with the goal of keeping the national average price around 170 yen per liter, the lowest price of all G-7 countries.

The aid is channeled through refineries, importers, and wholesalers to partially compensate for the rising cost of fuels and prevent it from being fully passed on to consumers. According to data published in September by the Japanese Ministry of Economy, the accumulated expenditure already exceeded one trillion yen, nearly 6 billion euros. If the program continues until the end of the year, the bill could reach 10 billion, although this forecast depends on the evolution of crude oil prices and government decisions.

The subsidies also seek to contain business costs. Goods transport and product distribution depend on fuel prices, and a sustained rise can end up affecting the prices paid by consumers. Keeping gasoline at a lower level helps to dampen this pressure, although it does not prevent the rising cost of other business expenses.

The intervention is not limited to gasoline; the program also includes diesel, kerosene, and heavy fuel oil, while aviation fuel receives aid equivalent to 40% of the subsidy applied to gasoline. The goal is to dampen the impact of rising energy costs on activities that go beyond private transport, from logistics to sectors that depend on heat or fuels to carry out their activity. The government has thus opted for a broad response that protects different parts of the economy, but also extends public spending to various types of fuel.

The financing of the measures has also become a budgetary issue. In June, the government approved a supplementary budget of 3.1 trillion yen, about 18 billion euros, to respond to the impact of the energy crisis on households. The package is financed with public bonds and includes resources to replenish reserves used for gasoline and energy supply subsidies. This item, therefore, does not correspond exclusively to fuel subsidies, but shows the scale of the fiscal response that Tokyo has deployed in the face of the prolongation of the crisis.

The system, however, applies the same discount per liter regardless of the economic situation of each driver. Whoever needs the car to work receives the same benefit as someone who uses it occasionally, and the subsidies do not take into account family income. Furthermore, making fuel cheaper reduces the incentive to moderate its consumption. The measure alleviates the immediate impact of the price increase, but it does not necessarily favor more efficient energy use.

The difficulty of withdrawing the subsidies is related to Japan's energy dependence. In 2025, 94% of imported crude came from the Middle East, and a very significant part of this supply passed through the Strait of Hormuz. Tensions in the region can increase transport costs and put supply routes at risk. The government has sought logistical alternatives and measures to facilitate the arrival of oil, but these actions do not eliminate the dependence on imports.

High public debt

The cost of the aid is particularly relevant in a country with a gross public debt that exceeds 200% of GDP, according to International Monetary Fund estimates for 2026. The government must balance measures to contain fuel prices with other initiatives aimed at alleviating the rising cost of living, in a context where state financing has also become more expensive. The increase in the profitability of sovereign bonds puts more pressure on the cost of debt, although this movement cannot be attributed to fuel subsidies. The continuity of the program also depends on a factor that Tokyo does not control: the evolution of oil in international markets. If prices remain high, the government will have to decide whether to continue assuming part of the price increase or to reduce the aid and pass a larger portion on to consumers.

Takaichi has not yet set a date to withdraw the subsidies and argues that they are necessary as long as uncertainty persists in energy markets. Eliminating them at once could cause a new rise in fuel prices, while maintaining them would prolong an expense linked to the evolution of crude oil. Gasoline is, moreover, a daily expense and easily perceptible to citizens, so any increase can have a political cost for the government. Takaichi's challenge is to decide how long she can maintain the aid and how to withdraw it without increasing the cost of living.