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Japan’s Prime Minister Sanae Takaichi has announced Tokyo will “act first” to release oil from its national reserves, a move aimed at calming fears that high energy prices could put the country at risk of falling into stagflation.
Japan’s heavy reliance on energy imports from the Middle East has been graphically exposed by the war in Iran, posing the first major challenge to Takaichi’s policy agenda since her landslide election victory last month.
The prime minister on Wednesday said in remarks broadcast by state broadcaster NHK that Japan had decided to tap its national oil stockpile as early as March 16, without waiting for the International Energy Agency to make a formal decision on a co-ordinated release.
The IEA told member state officials on Monday that it was preparing the largest release of strategic oil reserves in its history.
“Japan has an exceptionally high level of dependence on the Middle East and will be severely affected, so we plan to use our reserves to ensure there is no disruption to supply,” Takaichi said.
Japan’s total reserves, which amount to 254 days’ worth of its oil demand, are among the largest among IEA members, and according to officials, Tokyo has supported a co-ordinated release.
But Takaichi said that rather than wait for formal IEA approval of an international response, Japan would “act first to ease global energy market supply and demand”.
Japan would draw down crude stocks equivalent to 15 days of demand from private sector reserves, and a month’s worth from the state-maintained stockpile, she said.
The decision, which Takaichi said had been taken in co-ordination with the IEA and G7, highlights Japan’s dependence on oil from the Middle East and its vulnerability to price shocks.
Takaichi won a historic general election victory last month on pledges to alleviate the pain of rising food prices. But Japan’s reliance on imports for almost all of its energy and much of its food means turmoil in energy markets — combined with a currency trading near two-year lows — could quickly translate into higher inflation.
Economists have warned that continued high oil prices could put Japan at risk of stagflation.
Japan’s state reserves hold 146 days’ worth of demand, while private sector stockpiles and joint reserves held with producing countries amount to 108 days’ worth. About 95 per cent of Japan’s crude comes from the Middle East. Japan last tapped its private sector reserves to offset market volatility after Russia’s full-scale invasion of Ukraine in 2022.
Takaichi warned that Japan’s crude oil imports were expected to decrease significantly from the end of the month. Since the conflict in Iran erupted, Japanese refineries have cut production and petrol prices have begun to rise sharply.
The prime minister said that even if petrol prices continued to surge, the government would aim to keep the national average price at about ¥170 ($1.07) per litre.
