The Japanese government is set to draw up a supplementary budget of more than 3 trillion yen (around 19 billion U.S. dollars) for fiscal 2026 to cushion the impact of rising energy prices stemming from prolonged tensions in the Middle East, Prime Minister Sanae Takaichi said Monday.
The draft budget could be submitted to parliament next week, she told reporters.
Takaichi also said the government will tap 500 billion yen from reserve funds to help households cover utility bills during the peak summer months from July through September, when air conditioning demand spikes.
The extra spending package will be financed by additional deficit-covering bonds. But the prime minister said the government's total size of bond issuance will remain unchanged, as increased tax revenues and other income sources are likely to offset the need for around 3 trillion yen in bonds that had initially been planned for issuance.
The announcement came amid growing calls from both ruling and opposition parties for a supplementary budget to ease the impact of soaring crude oil prices following the escalation of the Middle East conflict in late February and the resulting disruption to shipping through the Strait of Hormuz, a vital waterway for global oil transportation.
Takaichi said the government will set up reserve funds specifically to address the economic fallout from the Middle East conflict.
To mitigate the blow of rising crude oil prices, the Japanese government reinstated gasoline subsidies in mid-March and is expected to spend hundreds of billions of yen each month to keep retail gasoline prices at around 170 yen per liter.
Yet the enormous expenditure has drawn pushback, with some ruling and opposition lawmakers calling for the subsidy program to be gradually scaled back to relieve fiscal pressure on the debt-ridden country.
The envisaged supplementary budget, which comes on top of a record 122.31 trillion yen spending plan for the current fiscal year starting in April, has further fueled worries about Japan's already strained fiscal position.
Fears over Japan's worsening fiscal health and accelerating inflation have pushed up borrowing costs, with the yield on benchmark 10-year government bonds recently hitting levels unseen in about three decades.
Japan to draft 3 trln yen extra budget to offset Middle East conflict fallout
