Japan's industry minister Koichi Hagiuda said Tuesday the government will implement for the first time its oil industry subsidy program, which is aimed at curbing petroleum fuel prices starting later this week following a recent surge in oil prices.
The nation's average regular gasoline retail price was 170.2 yen ($1.5) per liter as of Monday, reaching its highest level in over 13 years and topping the 170-yen threshold required to launch the subsidy scheme introduced in November, Hagiuda told a press conference.
Under the program, a subsidy of 3.4 yen per liter will be paid to 29 oil distributors and importers for a week starting Thursday with the aim of keeping them from sharply raising their prices of gasoline, diesel oil, kerosene and fuel oil, according to the ministry.
"As for petroleum product prices, regional differences have been seen, but I expect this program to suppress wholesale price rises and prevent further sharp price hikes in each region," Hagiuda said.
The size of subsidies will be reviewed by Feb. 3 according to 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 rises to the U.S. Federal Reserve's view that the impact of the Omicron coronavirus variant on the economy will be temporary as well as supply concerns in oil-producing nations and growing military tensions in Ukraine.
The subsidy program has been criticized as a market-distorting measure and an excessive intervention by the government.
The Japanese oil industry has blamed a series of petroleum-related taxes for the country's high fuel prices. According to the Finance Ministry, taxes account for over 50 percent of the retail gasoline price per liter before a 10-percent consumption tax is levied as of the second quarter of 2020.
"This measure is just a tentative and emergency step to ease the pain from radical changes so that (the surge in gasoline prices) would not weigh on the 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 through March.