Can market return to normal in 2025?

The Japanese government announced the general economic measures on Nov 22, 2024 and stated the policy to gradually reduce a subsidy for fuels. The subsidy would be reduced by Yen 5/kl on Dec 19 and Jan 16 each to raise regular gasoline prices from around Yen 175/kl to Yen 185/kl. If the prices surpass a Yen 185/kl mark, the subsidy would cover all of the prices above the mark as is implemented now. The government intends to stop a rise in retail prices at around Yen 185/kl.

Problems would, however, remain. The government does not announce the clear strategy to end the subsidy for Jan 16 onward. The Ministry of Economy, Trade and Industry (METI) mentioned that it would review the situation closely and gradually revise a third of the total subsidy every month to arrange a change in prices by around Yen 5/kl per month, according to a material of "Policy to alleviate a drastic change in fuel prices" published by the METI in November 2024. The METI intends to revise the subsidy for above Yen 185/kl step by step but does not mention clear schedule.

The trigger clause was incorporated into a revision of the automobile-related taxation policy and was included in the taxation policy revision program for FY 2026, which was decided by the Japanese government on Dec 2, 2024. As a result, the implementation of the clause was postponed for one year. In accordance to the government programs, the trigger clause would not be introduced in the new fiscal year starting in April 2025.

Further, secretaries-general of the Liberal Democratic Party, the Komeito and the National Democratic Party agreed to abolish the provisional gasoline tax on Dec 11. They did not mention the clear timing and details and would consider going forward. But the automobile-related tax system definitely reached a significant turning point. The tax system is required to be consistent with taxation on the next generation fuels and vehicles such as EVs, hydrogen automobiles and biodiesel.

Players should pay attention to policies by President-elect Donald Trump in the US. Mr Trump insists a review of the EV policy and a revival of fossil fuels. But we can see details only after the inauguration of the President. The METI seems to factor in the US situation and uncertainty of crude oil prices and to have announced the above-mentioned loose strategy. As a result, the strategy does not contain decisive points. The subsidy might be reduced or abolished in the near future if crude oil prices fall and the dollar depreciates in the foreign exchange market after the inauguration of Donald Trump. But the market often moves against expectations.

The Japan domestic market moved significantly in December 2024 for the first time in a while in line with a reduction in the subsidy. Views about wholesale prices and the market are different between wholesalers and retailers, which was clearly observed in this situation. The market, however, seems to have somewhat returned to normal. In the petroleum industry, an introduction of the subsidy is evaluated positively in recent years as it made retail and wholesale prices and prices to end-users stable. On the other hand, the subsidy diverted the market from the "True market" because of the gap with the crude oil market, sales policy by exploiting a rise and a decline in the subsidy, the inactive futures market and a reduction in price negotiations. In 2025, whether the market could return to the "True market" or not would likely draw attention.