JKM Doubles as Middle East Tensions Tighten Japan's LNG Supply

Japan's liquefied natural gas (LNG) import costs are expected to rise, according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA). The Japan-Korea Marker (JKM), Asia's LNG price benchmark, has doubled since the onset of disruptions linked to Middle East tensions and the closure of the Strait of Hormuz, reflecting tighter global supply and stronger competition between Asia and Europe for available cargoes. These tensions have also inflicted $25 billion in damage on global energy infrastructure, amplifying pressures on LNG markets.

Structural exposure to global benchmarks

Japan generates more than 30% of its electricity from LNG, leaving it directly exposed to international price fluctuations. The government states that only 6% of the country's LNG imports transit through the Strait of Hormuz and that Japan holds approximately three weeks of domestic LNG inventory. Against this backdrop of heightened monitoring, the International Energy Agency (IEA) has launched an energy policy tracker to follow government responses to Middle East tensions. According to IEEFA, this geographic diversification of supply sources does not protect Japan from price shocks: import costs remain indexed to global benchmarks regardless of shipping routes.

Recent history illustrates this vulnerability. Between 2021 and 2022, during the energy crisis triggered by the Russia-Ukraine conflict, Japan's LNG import bill surged 65% in dollar terms, even as import volumes declined 3%. In yen, costs rose 98% due to currency depreciation. Import volumes in 2025 remain below 2021 levels while total spending remains elevated.

Impact on electricity tariffs

Higher LNG costs have fed through Japan's electricity system. On the Japan Electric Power Exchange (JEPX), wholesale power prices rose from $0.074 (JPY13.43) per kilowatt-hour (kWh) in fiscal year (FY) 2021 to $0.112 (JPY20.41) in FY2022, peaking above $0.36 (JPY65) during episodes of volatility. Retail tariffs followed, with household electricity charges rising 20% in 2022.

Modelled monthly bills for Tokyo Electric Power Company (TEPCO) customers rose from $36 (JPY6,546) in April 2021 to $50 (JPY9,126) in late 2022, while Kansai Electric Power Company saw bills increase from $36.6 (JPY6,499) to $41 (JPY7,497). Utilities face renewed pressure as LNG prices rise again. TEPCO and Chubu Electric plan to pass through higher procurement costs to customers from April 2026, raising annual household electricity costs by $95 (JPY15,000).

Macroeconomic impact and fiscal response

Energy price shocks have weighed on Japan's macroeconomic position. Fossil fuel import bills rose from $93 billion (JPY17 trillion) in 2021 to $185 billion (JPY33.7 trillion) in 2022, widening the trade deficit to more than $110 billion (JPY20 trillion). Consumer price inflation reached 2.5% in 2022 and remained above the Bank of Japan's 2% target, at 3.2% in both 2023 and 2025.

The report notes that a $10 increase in crude oil prices raises inflation by 0.3 to 0.4 percentage point. Brent crude rose from $72 per barrel on February 27 to $103 on March 17 in the current cycle, while Iran warned that oil prices could reach as high as $200 per barrel. Japan's government debt stands at 235% of GDP, and energy subsidies totalled $74 billion (JPY13.4 trillion) between 2022 and 2025. In February 2026, the government approved a $32 billion (JPY5 trillion) support package, including measures to stabilise petrol prices at $0.93 (JPY170) per litre. IEEFA concludes that LNG supply diversification does not remove exposure to global price shocks and argues that stronger domestic renewable energy deployment is needed to reduce exposure to market volatility.