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Japan is facing an energy crisis that can severely hurt the world's third-largest economy as it is forced to tackle a combination of a weak local currency, the fallout from the Ukraine war, and a heatwave.
Japan already had a significant energy import bill as it depends on foreign oil and gas for 90 percent of its needs. But as the yen fell to the lowest in 20 years, Japan's bill became even bigger, with the price rise in crude oil, which has been some 40 percent in dollar terms since the start of 2022, reaching a whopping 70 percent in yen terms.
"A confluence of factors, including the higher fuel prices since the war and the tumbling currency, is putting a significant pressure on Japan's energy security, making this one of the most serious energy crises Japan has had," said Jane Nakano, a senior fellow at Washington-based think tank the Center for Strategic & International Studies.
Because of its extreme dependence on imported energy, Japan has had to continue importing Russian oil and gas despite its verbal commitment to sanctions against Moscow.
Recently, the head of one of the biggest shipping companies in Asia, Mitsui OSK Lines, said that Japan has no choice but to continue importing Russian LNG, citing the country's nuclear plants that are still offline after the Fukushima tragedy and soaring energy prices.
"We cannot use many nuclear power stations therefore the supply and demand balance of the power industry is quite tight," Takeshi Hashimoto told the Financial Times earlier this month. "Nowadays, the spot market of both LNG and coal is quite expensive. That is one of the reasons why Japan is so reluctant to stop the LNG imports from Russia."
It could be because of its heavy energy import bill that Japan proposed to the G7 to cap Russian oil export prices at half the current rate.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com