The Japanese government will allow seven of the nation’s major power companies to raise household electricity prices from June, a move that will support corporate earnings while adding to inflationary pressures.
(Bloomberg) — The Japanese government will allow seven of the nation’s major power companies to raise household electricity prices from June, a move that will support corporate earnings while adding to inflationary pressures.
Price hikes by the companies will be between 14% to 42%, Chief Cabinet Secretary Hirokazu Matsuno said at a press conference Tuesday morning. Tokyo Electric Power Co., which supplies electricity to Japan’s biggest city, received approval for the smallest rate increase among the regional utilities.
Power companies in the resource-scant nation have been hammered by last year’s global energy crisis as costs for importing fossil fuels surged. Higher electricity bills would also boost upward momentum in prices as the Bank of Japan keeps a close eye on inflation amid expectations it will adjust policy as early as this summer.
Japanese utility shares jumped on the measure, with Tokyo Electric up as much as 3.9%. Hokuriku Electric Power Co., which will see the biggest jump to its standard household rates among its rivals, surged 5.8% to the highest intraday level in two years.
Electricity rates are rising from the UK to South Korea after Russia’s invasion of Ukraine in 2022 upended fuel markets, sending the price of natural gas and coal to record high levels. Governments are trying to contain the fallout, with utilities struggling to shore up balance sheets.
The power hikes could raise inflation by as much as 0.42 percentage points, according to former BOJ board member Takahide Kiuchi, economist at Nomura Research Institute.
Japan’s key inflation rate was 3.1% in April. While the BOJ expects it to weaken below 2% in the second half of the fiscal year, the longer it remains above that target, the more likely speculation of possible policy change will smolder on.
The latest hikes are likely within the BOJ’s expectations, according to Taro Saito, head of economic research at NLI Research Institute.
Still, for most consumers electricity bills are likely to continue falling from a year ago as lower oil and natural gas prices outweigh the higher rates. Additionally, government subsidies that took effect earlier this year have held down retail costs.
The timing of a significant price hike looks potentially awkward for Prime Minister Fumio Kishida, amid speculation he may call an early election after this week’s Group of Seven summit.
Government subsidies scheduled to expire in September are currently holding down electricity prices for households by around 20% as Kishida tries to relieve the pain of soaring inflation. That could provide a reason for Kishida to extend them, especially if he has an election in mind.
“It doesn’t make sense to me for Kishida to extend the subsidies based only on today’s approval given they have been talking about this for a long while,” NLI’s Saito said. “But this is a political matter and there is certainly a chance the subsidy measures will be extended.”
(Updates with economist comments)
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