Arab News Japan

Japan’s Prime Minister TAKAICHI Sanae is facing her first major economic challenge since her landslide election victory last month, as surging oil prices threaten to derail the country’s fragile recovery, according to a report by the Financial Times.

Economists warn that persistently high energy prices could push Japan toward recession, highlighting the country’s heavy reliance on imported energy, particularly from the Middle East, and its vulnerability to geopolitical shocks.

The Financial Times reported that crude oil prices surged past $100 per barrel this week, raising concerns that the combination of rising energy costs and a weak yen could fuel inflation in an economy that imports nearly all of its energy.

“There is a risk of stagflation in Japan” if oil prices continue to rise, Takahide Kiuchi, economist at the Nomura Research Institute, told the newspaper.

The pressure comes at a politically sensitive moment for Takaichi, who campaigned on easing the burden of rising living costs. She told parliament this week that the government was considering releasing oil from Japan’s strategic petroleum reserves to ensure fuel prices remain affordable for households.

The spike in energy prices is also complicating decisions for the Bank of Japan, which is weighing the timing of its next interest rate increase.

“Japan’s economy isn’t exactly stagnating, but it’s hardly sprinting… it wouldn’t take much to have GDP fall over two consecutive quarters,” Stefan Angrick, head of Japan economics at Moody’s Analytics, told the Financial Times.

Nomura’s Kiuchi estimated that oil prices remaining around $110 per barrel for a year could reduce Japan’s GDP growth by 0.39 percentage points, while prices approaching $140 per barrel could push growth into negative territory.

Other analysts cited by the Financial Times suggested the recession threshold could be higher, noting Japan’s strategic oil reserves cover about 254 days of demand and that the government has previously used fuel subsidies to cushion energy shocks.

The crisis also comes ahead of a planned meeting between Takaichi and US President Donald Trump next week, where Japan could face pressure to increase support for US efforts in the Middle East, political analyst Tobias Harris of Japan Foresight told the newspaper.

Meanwhile, the Bank of Japan faces growing pressure as the yen weakens to around ¥158 per dollar, close to the ¥160 level where authorities have previously intervened in currency markets.

“It’s a choice between the growth outlook versus the need to defend the currency,” Hiroshi Shiraishi, Japan economist at BNP Paribas, told the Financial Times.