Oil price drop will bring Japan huge unearned gains

Subject

The effect of low oil prices on Japan.

Significance

Japan is the world's third-largest user of oil and it imports virtually all the oil it uses. It is therefore among the economies with most to gain from the recent decline in the price of crude oil by around 60 dollars per barrel from the past four years' average of some 110 dollars. The effects on Japan's economy, society and politics are already beginning to be felt.

Impacts

• Although Japan overall will be a net beneficiary, some capital goods manufacturers and exporters to oil-producing countries will suffer.
• CPI will shrink at about 1%, and the Bank of Japan will need to decide how to respond.
• LNG prices, down 20% since April 2014, will reinforce the effects from oil, but may not last as long.