This article discusses the vigorous policy action undertaken by the Japanese government after the 1973 oil price shock in an attempt to reduce Japan's energy consumption, and in particular, its dependence on imported oil. The study attempts to determine how flexibly the Japanese economy has responded to the dramatic changes in relative and absolute fuel prices that have occurred since 1973 and to what extent government energy policies might have reinforced (or undermined) market signals and facilitated fuel switching and conservation. To analyze the price and income elasticities of energy component demand, a dynamic approach to energy demand modelling is employed. The study reveals that Japanese energy users have responded quite flexibly to the two major oil price rises in the 1970s. The probable impact of energy policies on this response is, however, somewhat problematic.

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