[Provisional translation]
[Opening Statement by Prime Minister Takaichi]
Thank you all for attending. First of all, with regard to the situation in the Middle East, my administration will further bolster the Government's efforts to ensure that the situation there does not deal a blow to the lives, livelihoods, or economic activities of the Japanese people. Our work has been grounded in part in the recommendations submitted to us last month -- in April -- by the Liberal Democratic Party (LDP) and the Japan Innovation Party (JIP).
To start, while we see a low likelihood of electricity or natural gas fees immediately rising markedly this month or next month, we do expect the increase in the price of fuel imports to be reflected in electric bills after that. To address this situation, we will implement assistance with electricity and natural gas charges during the period from July to September, when usage increases.
Taking household electric bills as an example, we will provide assistance at the rate of 3.5 yen/kWh in July, 4.5 yen/kWh in August, and 3.5 yen/kWh in September. This will result in electricity charges for the summer of 2026 that are lower than the charges during those same months last year, even though last year's rates for that period were also subsidized. The average household will realize a reduced cost burden of roughly 5,000 yen over those three months.
This will require approximately 500 billion yen to carry out. At tomorrow's cabinet meeting we will approve the use of the general reserve fund.
Also, the situation in the Middle East remains uncertain. Accordingly, we will not limit our efforts to this assistance for electricity and natural gas charges, and instead take necessary measures as the situation demands. With that goal in mind, from the perspective of minimizing risk, we will formulate a supplementary budget and submit it to the Diet next week, in order to make all possible preparations in financial terms. We expect the scale of the supplementary budget to be over three trillion yen.
In concrete terms, with regard to our grants to local regions for prioritized assistance, to which 2 trillion yen was allocated in the fiscal 2025 supplementary budget, we will undertake additional support measures to enable enhanced support tailored to local circumstances, including, for example, support for those using extra high voltage power service or liquefied petroleum gas (LP gas), neither of which is covered by the electric and natural gas bill assistance.
In addition, tomorrow we will replenish the general reserve fund to be allocated for implementing our electric and natural gas bill assistance, restoring the balance to 1 trillion yen.
In combination with this, to ensure we are prepared on all fronts for the future, we will also newly establish a reserve fund for responding to the situation in the Middle East and other matters. This reserve fund will be something that can be used to address the impacts arising from changes in the international situation, such as the rapid climb in the price of energy triggered by the Middle East situation.
We are currently continuing our subsidies for gasoline, diesel oil, heavy oil, kerosene, and so on through the use of fiscal 2025's reserve funds. The price of gasoline has been kept in check at a national average of 170 yen per liter, the lowest level of any G7 country, including the United States. Including the effect of abolishing the provisional tax rate on gasoline, this has pushed consumer prices for April down by about 1.1 percentage points and reduced the direct burden on Japan's household finances by about 2,600 yen per household in April.
The ruling parties have recommended that the Government continue to respond flexibly, taking into consideration the Middle East situation, price trends, and the sustainability of our assistance measures.
We will deal with the situation appropriately, taking these recommendations into account and also, when the situation requires, making use of the newly-established reserve fund for responding to the situation in the Middle East and other matters. As for revenue sources for this supplementary budget, we will issue additional deficit-financing bonds.
Meanwhile, although some 3 trillion yen worth of last year's -- that is to say, fiscal 2025's -- deficit-financing bonds are slated to be issued up until June, in light of our projected tax revenues, non-tax revenues, and unspent appropriations, we are well-positioned for that amount to not actually need to be issued.
For that reason, by making adjustments within our overall projected sovereign bond issuance amount, it will be possible not to increase the total value of bonds issued into the market. In this way, we believe it is possible to execute our plan without impacting the sovereign bond market.
Under the approach of “responsible and proactive public finances,” we will continue to realize the sustainability of our public finances and secure the confidence of the market by reducing Japan's government debt-to-GDP (gross domestic product) ratio in a stable manner while giving due consideration to daily market movements and economic indicators.
Looking at crude oil, our alternative sourcing for June that does not traverse the Strait of Hormuz was forecast to surpass 70 percent as of May 12. The share is expected to increase to roughly 80 percent. Also making use of the release of reserves already decided thus far will enable our crude oil supply to exceed the amount necessary for June.
For discussion's sake, we have also worked out a conservative scenario in which we assume alternative sourcing is sustained at around 60 percent. Even in that instance, we will be able to secure a stable supply of petroleum beyond the end of fiscal 2026 [(March 2027)] until spring 2027.
And, with regard to naphtha, procurement from sources other than the Middle East has restored supply to over 80 percent of our previous level.
Redirecting raw materials to intermediate products running low in inventory and utilizing inventories at various tiers of the supply chain has resulted in the equivalent of 1.8 months of buffer stock and we are able to continue supplying naphtha-derived petroleum products into 2027.
At the same time, inadequate communication about supply projections, orders exceeding what is justified by actual business performance, and other factors have given rise to shortages of supplies in various onsite situations. We will advance in a carefully designed way our measures to prevent bottlenecks, eliminate hoarding and withholding from the market, and make all-out efforts to avoid the kind of market disorder that occurred during the Oil Shock.
At present, the Government has mobilized even local institutions within a system having a scale of several hundred people. Through efforts to dissolve bottlenecks alongside requests to 900 groups and other organizations to engage in supplying and ordering in the usual way, we have resolved bottlenecks for 37 medical items and other goods and resolved 346 situations affecting fuel oil.
Medical gloves have been released from the Government stockpile and are now starting to arrive at medical facilities. We will also work to dissolve bottlenecks proactively, without waiting for formal requests, to assist downstream businesses such as local builders, who are presumed to often be in a weak negotiating position with their suppliers.
We will provide various forms of support to small- and medium-sized enterprises (SMEs) and small-scale businesses impacted by the situation in the Middle East. Among other initiatives, we will expand cash flow assistance provided through the Japan Finance Corporation, request the pass-through of rising costs into product prices, set up special consultation desks, and provide assistance for using employment adjustment subsidies.
Going forward, we will add to the types of industry recognized as experiencing severe business conditions and strengthen the support we provide through credit guarantees. We will also conduct targeted examinations of the impacts of the Middle East situation through a system 1,000 people strong that includes subcontracting transaction investigators and construction transaction compliance investigators -- "transaction G-men" and "construction G-men" -- and redouble our support efforts, including thoroughly enforcing companies' ability to pass higher costs along into final contract prices rather than absorb the losses.
We will also vigorously support Green Transformation (GX) as a means of comprehensively building up resilience in our energy supply and demand structure.
In addition to raising the portion of decarbonized power sources such as nuclear power and renewable energy from the current amount of about 30 percent to aim at a maximum of roughly 70 percent in fiscal year 2040, we will press forward in energy conservation and a shift to non-fossil energy, thereby reducing our dependence on fossil fuels.
Beyond that, we will avoid falling into a contractionary mindset and, through strategic investments that enhance resilience against potential crises in areas where Japan enjoys strengths such as perovskite solar cells, nuclear power, and geothermal power generation, we will not only enhance the resilience of Japan's energy supply and demand structure but also vigorously advance the overseas development of products, technologies, and infrastructure that overcome energy limitations, an issue shared in common with countries worldwide.
Japan's Growth Strategy clearly lays out a winning strategy for Japan. We will tie GX in firmly to the growth of Japan's economy. Alongside that, it is important to conserve energy so that we can continue our business activities while keeping costs in check, even against a backdrop of rapidly increasing oil prices.
We will further accelerate the greatest possible utilization of the budget prepared last year as economic countermeasures at a scale of tens of billions of yen.
As a final point, we will call on the public to conserve energy, something the Government has been doing ever since the Oil Shock as the country heads into summer and winter, when energy demand peaks annually. I will have Minister Akazawa announce the specifics of this tomorrow. I will end my opening statement here.
(Reporter)
I am Yoshino, with TV Asahi Corporation. As questions will only be fielded once from all media outlets today, I will be asking the questions as a representative of a coordinating media outlet.
As long-term interest rates continue to rise, I would like to hear your thoughts on whether the explanation you provided just now on the draft supplementary budget will be able to win over market confidence. I would also like to hear how you view accountability with regard to setting up a large reserve fund. In addition, as gasoline subsidies are also part of this, will you maintain the current goal of gasoline priced at 170 yen per liter, or are you now considering raising that price?
Also, as for naphtha, please tell us, when you said that we have sufficient naphtha, does that mean that the downstream products refined from it, such as various substances or thinner, are also sufficient in terms of quantity, and this is simply a problem of bottlenecks? Or is this a case of some things also beginning to be in genuinely short supply?
Finally, is it all right for the public to maintain its current way of living? I would like to know until roughly when it will be all right for the public to continue living their lives in the usual manner. Or, are you now considering asking people to conserve resources?
(Prime Minister Takaichi)
Thank you for your question. As I explained just now, for the new supplementary budget, from the perspective of minimizing risks, we will spare no effort in our responses. Beyond that, as for the revenue needed to cover this supplementary budget, we will issue additional deficit-financing bonds as a temporary measure that is truly urgent.
At the same time, it appears that 3 trillion yen worth of deficit-financing bonds for the previous fiscal year, fiscal 2025, do not in fact need to be issued. This means that making adjustments within the overall amount of planned sovereign bond issuance will enable us to carry out this plan without increasing the total value of bonds issued to the market.
Accordingly, we believe we can execute this proposal without the sovereign bond market being significantly impacted.
As I stated earlier, we will achieve the sustainability of public finances while ensuring the confidence of the market by reducing the government debt-to-GDP ratio in a stable manner while keeping a constant watchful eye on daily market movements and economic indicators.
Now, as for the reserve fund, that is a system designed to address unforeseen budget shortfalls. At this juncture, as the uncertain situation in the Middle East continues, I consider securing a reserve fund of ample size to enable appropriate and timely responses while also ensuring that people's daily lives and economic activities are not negatively affected to be both a fitting and necessary response within our budgeting regime.
Until now, we have been obtaining approval at the Diet for additional reserve funds based on the particular circumstances each time. As for utilizing the reserve funds, we will use them appropriately, following the stipulations laid out in the Constitution and the Public Finance Act, and demonstrate proper accountability.
Also, regarding our measures to dampen down drastic fluctuations in fuel prices, bearing in mind that during the one year immediately prior to the inauguration of the Takaichi administration the average price of gasoline nationwide was 178 yen per liter, we have been providing subsidies to keep the price in check at the substantially lower price of roughly 170 yen per liter.
Now, we have been presented with recommendations from the ruling parties for how the Government should respond in a flexible manner, taking into consideration the situation in the Middle East, price trends, and the sustainability of our support measures. Some of the opposition parties have also pointed out similar things. Based on these proposals, in the context of the uncertainty of the Middle East situation, the Government will advance necessary considerations of the matter while keeping a close watch on any impacts on price movements or the economy in the future.
Next, with regard to naphtha-derived petroleum products, which is to say, the downstream products you inquired about, as I mentioned earlier, there is enough and we are able to maintain the supply beyond the end of the calendar year.
With regard to procuring naphtha, domestic naphtha refining using our crude oil reserves and naphtha imports from places other than the Middle East have, as of May, reached three times the level before tensions escalated in the Middle East situation.
Despite that, the fact is that if we compare the volume Japan is able to procure overall to the usual amount, it is about 20 percent less than normal. Therefore, in light of the less than usual procurement amount of naphtha, the amount of intermediate inventories will naturally decline over time.
However, we have 1.8 months' worth of buffer stock, an amount equivalent to 15 percent of annual demand, so even making quite conservative estimates, we believe intermediate inventories can be maintained for more than seven months from the present time.
We calculated the amount of intermediate inventories, taking into account all forms of the raw materials existing at multiple layers between naphtha and downstream manufacturers, including pelletized polyethylene, a raw material for plastics; gaseous butadiene, a raw material for tires; and liquid toluene, a raw material for thinners.
With a view to ensuring the stable supply of chemical products throughout the entire supply chain, the Ministry of Economy, Trade and Industry (METI) and industrial circles are working in cooperation to ensure stable continuation of domestic naphtha production from crude oil, coordinate the redirection of raw materials to intermediate products that tend to be in short supply, and utilize inventories that exist at each layer within supply chains.
Moreover, regularly-scheduled maintenance has now been completed on some of the cracking furnaces that refine naphtha from our crude oil reserves, and in addition, naphtha imports have increased. This has resulted in the production of upstream products such as toluene and ethylene increasing again since mid-April. Based on this, our analysis indicates that we have 1.8 months' worth of intermediate inventories overall.
Until now, the Government has repeatedly stated that supply will be possible beyond the end of the calendar year. That refers to the total production volume of naphtha-derived petroleum products. For hoarding, withholding items from sale, and other problems that may occur in the distribution process that follows, we are doing our utmost to combat these issues through our efforts to dissolve bottlenecks.
And then, with regard to conservation requests that you mentioned, as I said in my opening statement, Japan as a whole has already secured the amount of petroleum necessary beyond the end of the fiscal year, and we will also be able to supply enough naphtha and petroleum products beyond the end of the calendar year.
For that reason, our call for energy conservation will be the same that we have done every year. We will call for energy conservation efforts to be made to the extent that they do not interfere with people's daily lives or cause issues for the economy.
However, at present, we believe we are not at a stage where we should ask for extensive conservation efforts that would put the brakes on economic activity against the backdrop of the Middle East situation. That said, we will continue to pay close attention to the situation in the Middle East and respond as circumstances require without taking any options off the table.
