Prime Minister Sanae Takaichi has emphasized her commitment to avoiding a significant issuance of deficit-covering government bonds for a supplementary budget designed to counter the economic repercussions of the ongoing Middle East conflict. During a series of Diet debates on May 20, Takaichi expressed her resolve to prevent any worst-case scenarios that could endanger people’s livelihoods and economic activities. Despite the discussions, she noted that the precise scale and details of the planned extra budget for fiscal 2026 have yet to be determined. Takaichi mentioned that available funding sources might include surplus funds from fiscal settlements, expected to be available in the coming months.
In her remarks, Takaichi reiterated her intention to protect livelihoods and business activities while minimizing the issuance of special deficit-financing government bonds as much as possible. Initially, she had denied the necessity for an extra budget during Diet deliberations. However, on May 18, she instructed Finance Minister Satsuki Katayama to consider compiling a supplementary budget among other measures. Opposition leader Junya Ogawa criticized the timing of her directives, suggesting they were overdue, but Takaichi dismissed these concerns, asserting that her instructions were timely.
During a debate with Yuichiro Tamaki of the Democratic Party for the People, Takaichi revealed that she had already instructed officials to explore an extra budget before the Golden Week holidays in late April. This revelation came despite her earlier statement on May 11 at the Upper House Committee on Audit that the situation did not yet necessitate an immediate supplementary budget. Ogawa challenged this inconsistency, arguing that if instructions were given prior to the holidays, there should have been no reason to rule out a supplementary budget on May 11.
To mitigate the impact of high crude oil prices, the government is maintaining substantial subsidies to keep gasoline prices at around 170 yen ($1.06) per liter. Tamaki proposed extending these subsidies within the supplementary budget, coupled with an “exit strategy” to gradually raise the activation threshold. Takaichi expressed openness to this suggestion, indicating a willingness to adjust subsidy levels, stating, “We take your proposal from a broad, strategic perspective very seriously. We will respond appropriately.”
As the prolonged closure of the Strait of Hormuz continues, companies are taking measures to address potential shortages in naphtha supply, a critical component for petrochemical products. For instance, Calbee Inc. announced on May 12 a switch to black and white packaging for 14 products, including its flagship potato chips, due to unstable ink supplies derived from naphtha. The Takaichi administration maintains that naphtha supply is sufficient overall, attributing issues to supply-chain bottlenecks rather than shortages. The government, led by Industry Minister Ryosei Akazawa, is committed to addressing these constraints. Additionally, Takaichi reiterated her eagerness to eliminate the consumption tax on food items, anticipating the submission of related legislation following an interim report from the national council on social security before summer.