Oil Prices Rise, Japan Prepares Options to Increase Subsidy Budget

Japanese Prime Minister Sanae Takaichi attends a government and ruling coalition meeting in Tokyo, May 18, 2026. Japan is considering additional spending to contain the impact of rising oil prices. (Kyodo)

Japan has started to recalculate the cost of holding down energy prices. Prime Minister Sanae Takaichi opened the door to drawing up an additional budget or the 2026 budget year as crude oil prices remain high due to the conflict in the Middle East.

According to a Kyodo News report quoted on Monday, May 18, the Japanese government has been subsidizing large oil traders to hold back the rise in gasoline prices since mid-March. The funds were taken from the budget reserves of the 2025 fiscal year.

The funds are starting to run out. The government is worried that additional money will be needed if the gasoline subsidy is continued and electricity and gas bill assistance for households is given again in the summer.

Every month, hundreds of billions of yen are estimated to have to be disbursed to keep the price of gasoline at gas stations at around 170 yen per liter. A number of economists estimate that the subsidy fund could be exhausted by the end of June.

The government previously set aside more than 1 trillion yen for gasoline subsidies, including from the 2025 budget reserve fund. However, the amount fell to around 980 billion yen by the end of April.

Japan is also reconsidering subsidies for electricity and gas bills for households from July to September, when air conditioning use increases.

The utility bill assistance has been provided periodically since Russia's invasion of Ukraine in 2022, which has also pushed up crude oil prices.

But the cost is high. From January to March, the government used 529.6 billion yen from the additional budget of the 2025 fiscal year to cut household bills by about 7,000 yen.

The supplementary budget plan is now a concern because Japan's fiscal condition is still in the spotlight. Japan has the worst fiscal health among G7 countries. On the other hand, Takaichi is pushing for expansionary spending to spur growth.

The government actually has a reserve fund of 1 trillion yen or about 6.3 billion US dollars in the 2026 budget for economic measures. However, the amount is feared to be insufficient. Criticism also emerged because the reserve fund was considered to be kept for emergencies, such as natural disasters.

Usually, the Japanese government prepares additional budgets in the fall of the current fiscal year or afterwards.

Takaichi previously said he had not seen an urgent need to draw up an additional budget. However, he stressed that the government would monitor price movements and respond flexibly.