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The Russian invasion of Ukraine has accelerated the rise in oil and grain prices. It is important for the government to take effective measures to ease the impact on households and small and midsize businesses.
Prime Minister Fumio Kishida has instructed relevant ministers to formulate a package of emergency economic measures by the end of April in response to soaring prices and other factors. In addition to measures against high oil prices, the main pillars of the package are said to include measures to ensure a stable supply of food and resources as well as support for small and midsize businesses and needy people.
The Ukrainian crisis occurred amid a global inflationary situation due to the economic recovery from the novel coronavirus pandemic. Economic sanctions against Russia, an exporter of crude oil and grains, have spurred soaring prices. Domestically, prices for gasoline, food and other goods are also rising.
Price increases in daily necessities have a negative impact, especially on low-income earners. There is also a fear that they may dampen consumption. It is only natural for the government to start taking measures.
As a measure to deal with higher crude oil prices, the government will extend until the end of April a program providing subsidies of up to ¥25 per liter of gasoline to oil wholesalers. The Liberal Democratic Party, Komeito and the Democratic Party for the People are said to be continuing discussions on the idea of using a “trigger clause” to temporarily lower gasoline taxes in and after May.
However, the trigger clause will not apply to kerosene and heavy oil, and would require legal revision before it could be implemented. Implementation of the trigger clause would cause the central and local governments to lose a total of ¥1.6 trillion in tax revenues. It is also anticipated that people will refrain from purchasing gasoline immediately prior to implementation of the trigger clause. The government and the political parties must carefully consider the trigger clause while also keeping these issues in mind.
As a measure against high prices, an idea has surfaced to provide about ¥5,000 to 26 million people, mainly elderly people whose pension benefits will be reduced from April. However, the government is under pressure to review this proposal after criticism erupted that it was a mere handout favoring the elderly.
Effective measures that place emphasis on needy people must be focused on.
With prices rising, it is also important to steadily expand wage increases.
In the spring labor-management wage negotiations, major manufacturing companies conspicuously made aggressive wage increase offers. To ensure that this trend spreads to small and midsize subcontractors, the government needs to step up its monitoring of such matters as the appropriateness of transaction prices with large companies.
The new measures are said to be financed from a total of ¥5.5 trillion in reserve funds set aside in the fiscal 2022 budget. Of this amount, ¥5 trillion is earmarked for measures against the novel coronavirus. If the funds are to be used for purposes other than those originally intended, a detailed explanation of the decision’s meaning must be made.
As the United States has raised interest rates, the yen has temporarily weakened to the ¥125 to the dollar range, the weakest level in about 6½ years, on the view that the Bank of Japan’s monetary easing will continue. A weak yen is good for exports, but it pushes up import prices.
The government and the central bank need to pay attention to exchange rate movements.
