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Prices of some cigarette brands may not rise after Japanese tax hike

JIJI

Three major Japanese cigarette makers, including giant Japan Tobacco Inc., are in the final stages of deciding how they will handle the coming consumption tax hike, including the possibility they won’t raise their prices.

Because it would be unrealistic to raise prices by less than ¥10 for products sold in vending machines, each maker will consider three options: keeping prices the same or raising them by ¥10 or ¥20 after the tax is raised from 5 percent to 8 percent in April 2014, industry sources said Tuesday.

In response to a request from the Finance Ministry, each maker plans to limit overall price hikes to 3 percent of combined sales of all products, they said.

By the end of October, each company will submit a draft plan of revised cigarette prices, including a hike for each brand, to the ministry, which has the authority to approve cigarette prices.

The ministry made the 3 percent request by the end of last week to industry leader JT, Philip Morris Japan, the second-largest player in the country’s tobacco market, and British American Tobacco Japan. Following talks with the ministry, the three companies are expected to file formal applications by the end of December at the earliest.

Most of their mainstay products, such as JT’s Mevius, Philip Morris’ Marlboro and British American Tobacco’s Kent, are sold at ¥410 or ¥440 per pack. The tax hike would lead to price hikes of some ¥12 per pack.

The manufacturers are hoping to raise prices to offset both the tax hike and weaker demand stemming from higher prices, according to one industry official.

They plan to make a final decision after examining material costs and the strength of brands, while discussing whether to raise the prices of products with higher market shares or keep prices flat, according to the sources.