The Japanese government is considering the introduction of a supplementary budget for fiscal 2026 to mitigate the effects of elevated crude oil prices, which have been driven higher by ongoing conflict in the Middle East, according to government sources cited on Thursday [1]. This move comes as both ruling and opposition parties increase pressure for additional fiscal measures to address the situation [1].
Currently, the government has allocated over 1 trillion yen (approximately $6.3 billion), including reserve funds in the fiscal 2025 budget, to finance measures such as subsidies aimed at curbing surging gasoline prices and addressing rising living costs [1]. However, there is growing concern that these funds may be depleted amid ongoing uncertainty related to the Iran conflict [1]. By the end of April, the funds set aside for gasoline subsidies had declined to around 980 billion yen following the program's resumption in mid-March, with hundreds of billions of yen expected to be disbursed each month [1].
Prime Minister Sanae Takaichi recently stated in a Diet committee that there is no immediate need for a supplementary budget, but emphasized that the government will closely monitor price movements and respond flexibly as needed [1]. Despite this, the possibility of a supplementary budget has raised concerns about Japan's fiscal health, which is already the weakest among the Group of Seven economies, especially as Takaichi advocates for expansionary spending to stimulate economic growth [1].
In addition to gasoline subsidies, the government is considering resuming subsidies for electricity and gas bills this summer, a measure that has been implemented repeatedly since Russia's full-scale invasion of Ukraine in 2022, which also contributed to increased crude oil prices [1]. The subsidies are significant in cost, with 529.6 billion yen spent from the extra budget for fiscal 2025 between January and March alone [1]. While the government could utilize up to 1 trillion yen in reserve funds in the fiscal 2026 budget, critics argue these should be reserved for emergencies such as natural disasters [1].
CONCLUSION
Japan is weighing a supplementary budget for FY2026 to address the economic impact of rising oil prices, with significant funds already allocated to subsidies for gasoline, electricity, and gas. While the government signals flexibility, concerns remain about fiscal sustainability and the potential depletion of reserve funds.