Business

More Japanese firms hiking prices due to higher costs, not growth in demand, survey finds

Reuters

A growing number of Japanese firms are raising prices as they grapple with a jump in materials, transportation and labor costs, although a slim majority remains skittish about doing so, a survey conducted on behalf of Reuters showed.

The results highlight apparent progress, albeit slow and uneven, in Prime Minister Shinzo Abe’s fight to rid the country of deflation — seen as the root of decades of economic malaise.

But analysts say that because higher costs, and not growth in demand, are behind the price rises, the danger is that consumers are more likely to keep a lid on spending over the longer-term, complicating the country’s path to sustainable growth.

Some 45 percent of firms in the May 9-21 survey say they have raised or plan to lift prices this fiscal year. Around half plan to keep prices steady and 4 percent are looking at lowering prices.

“Raw materials, personnel costs, the cost of transport — they’ve all risen as a matter of course and we don’t have the ability to absorb that any more,” wrote one manager at a metals firm.

By comparison, in January, 37 percent of companies said they had raised or were planning to lift prices this year, while the rest were thinking of keeping them flat or reducing them.

Prices for raw materials have shot up on higher oil and commodity prices and due to a weaker yen, which has declined nearly 5 percent against the dollar since March. At the same time, Japan’s aging population has meant that many sectors, particularly service industries, are grappling with a labor shortage that is pushing up wages.

“If we can’t pass on price rises, we won’t be able to continue in business,” wrote a steel company manager.

In one high-profile example, parcel delivery firm Yamato Holdings Co. hiked home delivery prices by around 15 percent last October, the first such rise in almost three decades, and followed up with bigger hikes for corporate customers.

Some 540 large and medium-sized businesses were polled in the survey, conducted by Nikkei Research on behalf of Reuters. Around 230 firms responded to questions about pricing with their answers kept anonymous so they could express opinions more freely.

Policymakers contend the world’s third-largest economy is no longer in deflation — a state of broad and sustained declines in prices as consumers hold out for even better deals — but they worry about the risk of a relapse.

Progress has come only after more than five years of aggressive monetary stimulus, but even so inflation remains below 1 percent. That slow pace has forced the Bank of Japan to drop a time frame for meeting its elusive 2 percent inflation target.

Half of firms are also still reluctant to pass on prices, even if that means higher costs eat into profit margins.

“Once prices are hiked, things stop selling,” an official at a machinery-maker wrote.

Mass-merchandise retailers have it particularly hard due to fierce competition from e-commerce and discount stores. Supermarket operator Aeon Co. has continued to cut prices, most recently on 100 of its own brand everyday goods in January by an average of 10 percent.

“It’s a tug of war between raw materials costs and weak demand in determining prices,” said Masaki Kuwahara, senior economist at Nomura Securities. “Companies have not shaken off the deflationary mindset as their pricing power remains weak.”