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(Bloomberg) — Japan and other economies should limit fuel subsidies to those most in need, the Asian Development Bank’s chief economist said, as prolonged Middle East tensions strain public finances.
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“Our advice to all countries is, if possible, to target subsidies to vulnerable groups rather than apply across the board,” Albert Park, the bank’s chief economist said in an interview on the sidelines of the ADB’s annual meeting in Samarkand, Uzbekistan. Governments should adjust their approach “as soon as they can” to preserve resources, he said.
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Park’s remarks come as Japan faces mounting fiscal pressure, with bond yields rising amid concerns over increased spending under Prime Minister Sanae Takaichi.
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The government has capped gasoline prices at around ¥170 per liter through subsidies after they surged to about ¥190 following the Middle East conflict. Japan is also mulling reviving subsidies for electricity and gas over July to September, according to a Reuters report.
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Japan’s 10-year yield climbed to over 2.5% on Thursday, its highest level in nearly three decades. The market moves reflects broader fiscal anxieties.
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“Given the high budget deficit and the rising interest rates, there certainly is more concern in the market about the sustainability which may be contributing to the higher bond yield,” Park said. Japan’s debt-to-GDP ratio is projected at 204% this year, according to the International Monetary Fund.
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Clear communication of a credible fiscal strategy will be key to maintaining market confidence, Park added, noting the government has signaled a commitment to discipline.
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On monetary policy, the ADB has urged central banks to avoid premature tightening that could stifle growth and has recommended action only if price pressures spread beyond energy costs. Park said there is no clear evidence yet of such second-round effects in Japan, while noting that they could emerge over time.
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