Photo/Illutration A sign at a gas station in Tokyo’s Chuo Ward (Toshio Tada)

The government moved Jan 25 to rein in gas prices after they hit their highest level in about 13 years by announcing a subsidy program for oil distributors.

Average retail prices at the pump hit 170.2 yen ($1.50) per liter the day before. It was the first time since September 2008 for the 170-yen threshold to be breached.

Economy Minister Koichi Hagiuda said at a Jan. 25 news conference the government hopes the policy will “curb the trade price and restrain price increases from further skyrocketing.”

The subsidy covers gasoline, heating oil, light gas oil and heavy fuel oil.

The subsidized unit price is the same for the four oil types.

For a week starting from Jan. 27, a subsidy of 3.4 yen per liter will be paid to oil wholesale companies.

The unit price will be reviewed on a weekly basis to make sure the average retail price of regular gasoline does not exceed 170 yen.

The subsidy payment is expected to continue until the end of March with an upper limit of 5 yen per liter.

If the cost of crude oil continues to rise, it is possible that the average retail price of regular gasoline will exceed 170 yen even with the government providing a maximum 5-yen subsidy per liter.

“We will continue to discuss the matter to minimize the impact on people’s lives,” Hagiuda said when asked about the lifting of the upper limit.

Gasoline prices have steadily risen for three consecutive weeks.

The price of heating oil is now at the inflated price it was 13 years ago.

Oil wholesale companies said the subsidy will be subtracted from the wholesale price.

But it is up to each gas station nationwide to set retail prices.

These decisions take transport costs, profit margin and other factors into account.

For this reason, there is no guarantee the subsidy will act as a brake against future price hikes.

It is unprecedented for the central government to use taxpayers’ money in an attempt to maintain gasoline prices at a certain level.

Some experts, aside from questioning the effectiveness of the policy, said it will skew the market’s mechanism.

Others complained it is unfair to pay a subsidy only for fuel oil when prices of groceries and general merchandise are also increasing.

Related News