Economy

Japan will increase the cost of electricity for household needs

May 18, 2023

The government will allow seven of Japan’s major power groups to raise household power costs from June, a move that is likely to increase inflation.

Tariff increases will be between 14% and 42%, Chief Cabinet Secretary Hirokazu Matsuno said at a news conference Tuesday morning. Tokyo Electric Power Company Holdings, which supplies electricity to the capital, won approval for the lowest price among regional utilities.

Energy agencies in the resource-poor country have been hit by the global force crisis as import prices of fossil fuels rise. Higher electric power payments would fuel the upward momentum in costs, as the Bank of Japan continues to monitor the sustainability of inflation.

Japan utility shares rose after the move, with Tepco as much as 3.9%. Hokuriku Electric Power, which will beat rivals’ rates to the max, rose 5.8% to the lowest intraday level in two years.

From the United Kingdom to South Korea, electric power prices have been rising since Russia invaded Ukraine in 2022 and upended gasoline markets, sending gasoline and coal prices to record highs. Governments are trying to contain the fallout, and utilities are scrambling to shore up stability sheets.

Electricity increases should raise inflation by as much as 0.42 percentage point, according to former BOJ board member Takahide Kiuchi, an economist at the Nomura Research Institute.

Japan’s key inflation rate used to be 3.1% in April. While the BOJ expects it to weaken below 2% in the second half of the fiscal year, which began last month, the longer it stays above that target, the more likely scenario of a viable hedge swap will keep burning. .

The recent increases are likely within the BOJ’s expectations, according to Taro Saito, head of financial research at the NLI Research Institute.

Still, for most consumers, electric power payments are likely to continue to fall from a year ago, as lower costs for oil and herbal fuels outweigh higher rates. In addition, government subsidies that took effect earlier this year have kept retail costs down.

The timing of the election is awkward for Prime Minister Fumio Kishida, given the assumption that he, too, may name an early election after this week’s Group of Seven summit.

Government subsidies scheduled to expire in September are currently cutting household electricity bills by around 20% as Kishida tries to ease the pain of runaway inflation. That should be cause for the high minister to drag them out, particularly if he has an election on his mind.

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