Japan's Diet enacted a 3.11 trillion yen supplementary budget for the current fiscal year to mitigate the impact of rising energy costs, with the bill passing both chambers in just two days after submission [1]. This extra budget was compiled earlier than usual, following calls from both ruling and opposition parties to address the effects of the ongoing Middle East conflict, which has kept crude oil prices elevated and disrupted petroleum supplies due to the closure of the Strait of Hormuz [1]. The initial fiscal 2026 budget, passed in April, did not include such measures, prompting the need for additional spending [1].
The supplementary budget includes a reserve fund of 2.5 trillion yen primarily for gasoline subsidies, aiming to keep gasoline prices at around 170 yen per liter [1]. It also allocates 513.5 billion yen for electricity and gas subsidies during the July-September period, when demand for air conditioning is expected to rise, and 100 billion yen for municipalities to use at their discretion, such as subsidies for households using liquefied petroleum gas and businesses using extra-high voltage electricity [1].
Prime Minister Sanae Takaichi initially denied the need for an extra budget, citing concerns about additional debt issuance and its potential impact on fiscal health and interest rates [1]. However, she later stated that the extra budget, funded entirely by deficit-covering bonds, can be executed without affecting the bond market [1]. Officials noted that higher-than-expected tax and nontax revenues, along with lower-than-expected expenditures, will allow the government to forgo the issuance of around 3 trillion yen in bonds originally planned for fiscal 2025, which ended in March [1].
Despite these measures, concerns remain about fiscal sustainability, as the government continues to subsidize oil wholesalers to keep gasoline prices stable while crude oil prices remain high [1].
CONCLUSION
Japan's swift enactment of a ¥3.11 trillion supplementary budget underscores the government's commitment to cushioning households and businesses from elevated energy costs driven by the Middle East conflict. While the measures are expected to provide short-term relief, ongoing subsidies and reliance on deficit-covering bonds raise questions about long-term fiscal sustainability. The market impact is medium, with immediate support for energy prices but lingering concerns over fiscal health.