Japan is becoming the world’s largest blood bag.

Moreover, as consumer purchasing power declines, many companies—fearing that overt price hikes would hurt sales—have resorted to stealth price increases: keeping the listed price unchanged while secretly reducing product quantities. According to data from Japan’s Ministry of Internal Affairs and Communications, the country’s household Engel coefficient reached 28.8% in fiscal year 2025—the highest level in 45 years. In other words, nearly 30% of ordinary Japanese households’ income now goes toward food—a proportion almost unimaginable among developed nations. Thus, the yen’s depreciation is, in essence, a shrinkage of Japanese citizens’ real purchasing power. At this point, you might ask: Why hasn’t the Bank of Japan raised interest rates earlier? Wouldn’t raising rates narrow the interest-rate differential with the U.S., attract capital back, and halt the yen’s decline? This question strikes at Japan’s most painful dilemma: Japan isn’t unwilling to raise rates—it simply cannot afford to. Japan is the most heavily indebted major economy in the world—without exception. Its government debt stands at over 260% of GDP. What does 260% mean? U.S. debt is around 120%; the highest among European countries is roughly 150%. This means Japan’s government owes an astronomical sum. So what is the relationship between interest rates and debt? The higher the interest rate, the greater the cost of servicing debt. For example, if you borrow ¥1 million at 1% interest, your annual interest payment is ¥10,000; at 3%, it jumps to ¥30,000. Given Japan’s colossal debt burden, even a tiny increase in interest rates would translate into a massive nationwide surge in debt-servicing costs. By the end of fiscal year 2025, Japan’s government debt had reached ¥1,343 trillion—equivalent to nearly half of China’s GDP in 2025. Furthermore, according to Japan’s Ministry of Finance, the budget for fiscal year 2026 allocates ¥31.3 trillion solely for repaying principal and interest on government bonds—accounting for roughly one-quarter of total national expenditures. That is, for every four yen the Japanese government spends, one yen goes directly toward debt repayment. Now you understand Japan’s bind: If it holds rates steady, the interest-rate differential with the U.S. widens further, the yen keeps falling, and household living costs keep rising—a slow, chronic hemorrhage. If it raises rates, debt-servicing costs explode, fiscal pressure surges, and an already fragile economy risks acute collapse. One path brings slow bleeding; the other, sudden, massive hemorrhage—either choice is excruciating. Even more troubling is that Japan’s government is undermining its own efforts from within. Current Prime Minister Shigeru Ishiba is a staunch proponent of monetary easing and has consistently opposed aggressive rate hikes by the central bank. According to a Bloomberg survey of 52 economists, 59% believe the Ishiba administration is hindering the Bank of Japan’s efforts to normalize monetary policy. Externally, Japan faces the tightening noose of the U.S.–Japan interest-rate differential; internally, it contends with governmental resistance. The Bank of Japan is thus caught squarely in the middle—paralyzed. That is why, after years of struggle, Japan has only just raised its policy rate to 1% this year. On the surface, the U.S. Treasury’s report—which states that the yen is too cheap and urges Japan to hike rates to curb inflation—sounds perfectly reasonable. But consider: When, exactly, has the U.S. ever cared about Japan’s domestic inflation? There is only one answer: Japan’s crisis has begun threatening America’s own financial interests.

Soaring electricity prices and surging import expenditures: Japan’s energy predicament and reflections amid the U.S.–Israel–Iran conflict.

We must strengthen alternative energy supply routes bypassing the Middle East. Our strategic reserves system is functioning well—but still has room for improvement. Liquefied natural gas (LNG) has not yet become a problem, but we must prepare for future emergencies. Asia’s vulnerability has become evident, urgently requiring regional-level cooperation and collective action. 1. Energy security policies have helped Japan cope relatively well with the Iran crisis. Although Japan remains highly dependent on Middle Eastern energy, the impact of the Iran crisis has so far been effectively contained. Decades of energy security measures—implemented since the first oil crisis in 1973—have played a crucial role. At the time of the attacks, Japan held 254 days’ worth of petroleum reserves, buying critical time to diversify LNG and LPG imports away from the Middle East and thereby mitigating the shock of a potential closure of the Strait of Hormuz. Simultaneously, sustained domestic refining capacity ensured stable supplies of gasoline, diesel, and other petroleum products. 2. Several security vulnerabilities have nonetheless emerged—and must be addressed. Although energy security policies have advanced, numerous latent risks have surfaced. Prime Minister Shigeru Ishiba has directed the government to formulate a comprehensive policy package by the end of August to enhance the resilience of Japan’s energy system against these vulnerabilities. While the specific contents of this package remain unclear, I would like to share the measures expected to be included—and also highlight certain unresolved issues that may not yet be part of the official plan. 3. Naphtha has become the greatest concern—and decisive action is urgently needed. Prior to the Iran crisis, naphtha—a key bridge between crude oil and petrochemical products—was known only to a small circle of industry insiders and remained largely unknown to the general public. Today, however, naphtha has entered everyday vocabulary. Concerns over its supply stability have already disrupted supply chains for numerous manufactured goods. Early in the crisis, Japan sourced 40% of its naphtha consumption from the Middle East—and had no dedicated reserve system in place. Japan’s leading bathroom-system supplier, for instance, temporarily suspended new orders due to shortages of naphtha-derived chemicals—delaying construction on numerous homes. Multiple manufacturers and contractors complained of solvent shortages, essential for producing countless goods and applying architectural paints. Most strikingly, packaging for Japan’s best-selling potato chips shifted from colorful designs to black-and-white—officially explained as a precaution against potential paint-supply disruptions. Through intensive government and industry efforts to secure naphtha imports and downstream chemical products, such disruptions were eventually alleviated. Yet awareness of naphtha’s vulnerability has become so acute that naphtha-related measures are certain to form a core component of the upcoming policy package. A naphtha reserve system existed until 1993—but was abolished under pressure from the chemical industry, which viewed it as a drag on international competitiveness and excluded naphtha from the scope of energy security. It must now be reintegrated into Japan’s energy security framework—and a naphtha reserve system is highly likely to be reinstated. 4. Diversifying crude oil imports is necessary—but requires concrete policy interventions. Japan’s dependence on Middle Eastern crude oil stands at a staggering 94%—an unacceptably high level. While this figure had improved slightly in recent years, Russia’s invasion of Ukraine caused Japan’s reliance on Middle Eastern crude to rise once again.

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