Japan Oil Distrubutor Subsidies: Update Feb. 12

        Article Source:    https://mainichi.jp/english/articles/20220125/p2g/00m/0bu/047000c

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TOKYO (Kyodo) -- 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.

Ideas:

The subisidy program, in itself, might be a good strategy to keep importers and oil distrubutors from increasing prices, which might be becoming too high for companies and consumers. 

As global prices continue to increase oil distributors and importers, to manage their profit margins they have no choice but to pass on their increased costs to the next in the supply chain.

While this might be considered normal economic or business activity, if it becomes too much then other parts of the economy begin to feel the stress from continual increased costs.

Company profit margins begin to become stressed, households begin to feel the stress of less disposable income, especially the lower middle class and the middle class. 

But of course there is always those who might say, too much government interference or influence in a market economy is not good and its too disruptive and or they say let the market be as it is and let it fix itself overtime.

That might sound like logical idea to let the market be and let it work out its kinks, so to say, but the problem is that there might be some real challenges for some groups in the economy and society if the government doesn't step in every now and then to correct any market inperfactions. 

But the challenge is when to step in and when to step back from any help a government gives the market. Too little and those groups might not see any benefit, and too much and it might have too much of an affect and affect the market unaturually causing more harm than good.

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"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.

Ideas:

The Bank of Japan needs to be careful and decide its own strategy for Japan and not base it on what the U.S. Fed. does as each country has its own unique circumstances what works i the US or the EU might not fit the Japanese economy. 

While the EU and the US might be exerpiencing record inflation levels Japan hasn't even reached te 2.0 level that the BOJ has been trying to get to for many years.

Last report was the Japan CPI was at maybe 1.1 which is still far below the 2.0 level. But even though its at 1.1 it might be more than what Japanese consumers want as maybe they are feeling the affects of increased energy prices, increased supermarket/food prices, and maybe increased prices at some restuarants.

At the present time Tokyo and Japan is feeing the affects of the omicron situation. While some seem to think it might peak soon, there is no way to tell exactly. 

Of course there might be the concern how is the omicron situation going to affect consumer spending, when for example, there were 18,000+ cases alone in Tokyo yesterday.

But now it seems there is the idea that the omicron variant might not be much more than a severe flu at most.

But that might not be a good argument when the news on Thursday reported 149 lost their lives to the virus.

So the omicron variant is here, and it is spreading but what affect exactly is it having on the services industry which for the past two years as seen the worst of the virus situation.

At any one time, in the global economy, there are always different situations taking place. Whether wars or rumors of wars. Whether natural and environmental disastors, or serious economic situations, there are always many actions taking place which can affect many economies around the world, as every country is now closely interconnected.

All a country can do is asses each situation and come up with the best strategies to prevent any situation from affecting it as much as possible.

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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.

Ideas:

Yes, again, as mentioned above, there those who might think a government should not interfere in normal market economy activities. That seems logical as many times there has been too much intervention. 

But the problem again is some groups in society might need help in overcoming the increase in prices. 

Of course taxes can be both a positive and a negatives. Taxes that are too high tend to reduce some economic activity. Taxes that are too low might not have the affect of providing the government with needed funds.

With regard to the idea of market distortion, which is affecting the market in a way that affect the normal acitivities of a market or the idea of affecting competition in the market. 

But if all oil distributors and importers are getting the same subsidy maybe it shouldn't considered a distortion or affecting market competion.

However, if taxes do account for 50 percen to the retail gasoline price, that intself might not be a distortion, but it certainly can have the affect on cosumers who might feel gasoline prices are now getting too high and they might seek out alternatives if they can such as trains/subways instead of driving their cars.

At some point taxes can begin to have a negative affect on society and the economy, and maybe gasoline prices related to the taxes placed on them is not getting not providing the benefit to society or the economy as intended.

Have a nice day and be safe!