Japanese Economist: "High-Price Fiscal Activism" Will Lead Japan to Hardship

On May 19, former McKinsey (Japan) CEO Kenichi Ohmae published an article questioning the chaotic oil pricing subsidies and economic and financial policies of the Kishida administration.

The article points out that due to oil price surges triggered by instability in the Middle East, gasoline prices are also rising. The government has introduced "gasoline subsidies" as a countermeasure—but are these subsidies truly aimed at consumers? The national average price for regular gasoline is currently around 170 JPY per liter (as of publication). Thanks to government fiscal subsidies, Japan’s gasoline prices remain remarkably low on a global scale.

According to Trading Economics data, the April 2024 gasoline prices were: Japan 1.06 USD per liter, United States 1.08 USD, China 1.10 USD, South Korea and Mexico 1.36 USD, United Kingdom 2.13 USD, France 2.40 USD, Germany 2.51 USD, Singapore 3.39 USD. The only countries with cheaper prices than Japan are a few oil-producing nations—such as Indonesia (0.58 USD), Saudi Arabia (0.62 USD), and Russia (0.81 USD).

The reason Japan’s prices remain low is because the government provides "gasoline subsidies" to petroleum wholesalers, aiming to keep prices stabilized at 170 JPY per liter. However, this subsidy distorts the pricing system in the petroleum and gasoline markets, and the real beneficiaries are the petroleum wholesalers themselves.

For example, ENEOS saw an average wage increase of 7.9% starting in April 2024, and a rise of 8.2% compared to April 2025—both record highs in their history. Similarly, Cosmo Energy Holdings raised salaries by 8% starting from April 2023. All these represent the highest wage growth rates ever recorded. Under Japan’s Petroleum Reserve Law, petroleum wholesalers must maintain reserves equivalent to 70 days of supply (currently at 55 days). Thus, when global crude oil prices surge, they can sell crude oil purchased at lower prices earlier at much higher market prices, significantly boosting profits. Originally, gasoline prices fluctuated according to changes in the crude oil market, but today’s profit structure for Japanese petroleum wholesalers is entirely inverted.

After the Russia-Ukraine conflict erupted, crude oil prices soared, then began to fall. Now, due to ongoing tensions involving Iran leading to the potential blockade of the Strait of Hormuz, crude oil prices have risen again. Yet even as crude oil prices drop, oil companies still earn substantial profits by supplying gasoline to downstream distributors and wholesalers, so actual retail gasoline prices have not fallen significantly.

In short, oil companies profit more when crude oil prices rise—and thanks to government gasoline subsidies during this period, they are reaping double profits. This is precisely why they can afford such large salary increases.

It is clearly paradoxical that while consumers struggle under rising gasoline prices, oil companies profit from gasoline subsidies funded by national taxes. If subsidies are to be provided, they should target actual consumers of fuel—such as transportation units and daily commuters—not wholesalers.

The government also hoards rice, whose prices are primarily determined at the wholesale stage as a “relative transaction price,” negotiated between suppliers like JA (Japan Agricultural Cooperatives) and wholesalers. Retail prices are established by adding distribution costs, store expenses, and profit margins to the wholesale price.

A small number of entrenched interest groups, including JA, control pricing and distribution, all under the management and oversight of the Ministry of Agriculture, Forestry and Fisheries. Unless this mechanism is changed, rice prices will never become cheaper.

In the United States, each state has its own legal and tax systems, and inter-state migration has become common. Japan should start reforming from rice—granting various powers to local governments to foster competition among regions.

Moreover, Japanese farmers should be allowed to grow inexpensive rice in the United States and Australia and freely import it into Japan. Rice grown on a large scale in Australia sells for about 50 JPY per kilogram. Even after processing and transportation to Japan, the cost would not exceed 100 JPY per kilogram. The Japanese JA would never allow such a thing.

On the other hand, both the government and petroleum distributors are stockpiling oil. I believe corporate stockpiling should be prohibited and instead integrated into national reserves. Just like gasoline subsidies, monopolistic companies engaged in oil hoarding are distorting the petroleum and gasoline markets, profiting from national crises.

Subsidizing private oil companies—such as petroleum distributors—is inherently problematic. Needless to say, the source of funding is taxation, which translates into future debt and government bonds.

Furthermore, while countries worldwide are striving to conserve oil usage, Japan alone is releasing strategic reserves and offering subsidies—directly contradicting efforts to reduce consumption.

Kishida claims: "We have secured eight months of inventory," and "We have ensured procurement volumes through the end of the year." But these claims are tied directly to government debt. This is not "responsible proactive fiscal policy"—it is "irresponsible proactive fiscal policy."

If Kishida continues down this reckless and mindless path, Japan will face severe hardship consequences.

About the Author: Kenichi Ohmae / Born in 1943. After serving as President of McKinsey Japan and a Director at headquarters, he left the company in 1994. He founded Business Breakthrough (BBT), where he currently serves as President of Business Breakthrough University.

Original Source: toutiao.com/article/1865572870362123/

Disclaimer: The views expressed in this article are those of the author alone.