Japan Weighs Bringing Back Gas and Electricity Subsidies in December

TOKYO, Oct 22 (Reuters) - Japan's government will consider re-introducing in December gas and electricity subsidies that expired in September, two government sources said on Thursday.

The move would aim to cushion the blow to households from rising living costs but would also likely strain the country's deteriorating finances.

Prime Minister Sanae Takaichi's government could tap reserves set aside in this year's annual budget to fund the measure and, if that is not enough, consider compiling an extra budget, said the government officials, who declined to be identified.

A spokesperson at the prime minister's official residence was not immediately available for comment. Chief Cabinet Secretary Minoru Kihara told reporters on Wednesday that the government is open to implementing winter gas and electricity subsidies but did not elaborate.

The proposal was first reported by Kyodo news agency.

Japan has spent some 5.6 trillion yen ($35.6 billion) on gas and utility subsidies since their introduction in 2023 after the Ukraine war led to a surge in raw material import costs until they expired in September. They were phased out several times during the period.

Re-introducing the subsidies would run counter to the International Monetary Fund's proposal for countries to avoid blanket fuel subsidies and keep fiscal spending targeted and temporary.

Any such decision could also cast market doubt over Takaichi's pledge to maintain fiscal discipline while pursuing her "proactive" spending plans that include heavy investment in growth areas and a cut to the consumption tax for two years.

Japan has public debt twice the size of its economy, which is the largest among major economies, due to past huge spending packages and increasing social welfare costs for a rapidly ageing population.

($1 = 157.1400 yen)

(Reporting by Yoshifumi Takemoto; Writing by Leika Kihara; Editing by Edwina Gibbs)