MNI INSIGHT: BOJ Price Hike PR Campaign Hopes to Shift Mindset

By Hiroshi Inoue

     TOKYO (MNI) - Amid slow progress toward its 2% inflation target, the Bank

of Japan plans a public relations offensive that will argue that consumers and

investors are accepting retail price rises and that people are slowly moving out

of their deflationary mindset, MNI understands.

     BOJ officials are aware that it will take more time before increasing signs

of upward price pressures -- particularly recent price hikes by some firms --

actually push up the year-on-year consumer inflation rate, given that these

increases are being offset in part by discounts on household goods that some

retail chains are offering to lure customers.

     But they also believe that the influence a public relations campaign might

have on inflation expectations among households and businesses would help raise

actual prices.

     Companies have been slow in raising retail prices for fear of losing market

share and are reluctant to give large pay hikes amid uncertainty over the

economic growth outlook.

     The pace of price and wage hikes has been slower than BOJ officials

expected. But some companies are beginning to reach the limits of their

flexibility on absorbing higher labor and material costs by investing in

equipment and streamlining operations, prompting them to raise prices.

     In a change, the share prices of the companies that announced price hikes

either rose or didn't fall much amid recent gains in the Nikkei 225 stock index,

which suggests their moves are being accepted by investors and consumers, BOJ

officials believe. In the past, price hikes were expected to hurt sales, leading

to lower share prices of those firms.

     This development should help firms raise retail prices further and cause

mindsets to shift from expectations of continued deflation to ones expecting

higher prices ahead, the BOJ believes.

     On Oct. 3, Asahi Breweries announced it was raising beer prices by about

10%, effective with shipments on March 1, 2018, its first price hike in 10

years. The company's share price closed at Y5,115 Wednesday, up from Y4,570 at

the time of the announcement.

     The remaining two major beer companies, Sapporo Breweries and Kirin Co.,

haven't said they have similar plans. On Wednesday, Kirin's share price ended at

Y2,690.0, up from Y2,650.0 on Oct. 3, while Sapporo's share price closed at

Y3,515, up from Y3,095 on Oct. 3.

     In March, Yamato Transport, a leading home delivery firm, said it was

raising prices for the first time in 27 years due to higher costs and labor

shortages. Its share price rose to Y2,555.5 on May 1 from Y2,243.5 in mid-March.

It stood lower at Y2,239.5 on Wednesday.

     On Aug. 28, Torikizoku, a restaurant chain known for its low-priced grilled

chicken skewers, announced it was raising the pre-tax price from a flat Y280 per

dish to Y298, the first hike in 28 years, citing higher costs. The company's

share price rose to Y3,185 on Sept. 29 from Y2,815 on Aug. 28. It closed at

Y2,998 Wednesday.

     BOJ officials want to highlight that despite retail price rises, consumer

sentiment hasn't worsened (it has been basically flat), a sign that private

consumption is resilient, backed by rising job offers and income gains.

     In the labor market, the number of companies that have shifted low-wage

non-regular workers to regular employees who receive better pay and benefits is

increasing as companies are competing to secure enough workers to maintain their

operations.

     Higher wages for more workers will help support consumer spending, which

will make it easier for firms to raise prices.

     Government data showed that the ratio of non-regular workers to all workers

has stayed at around 30% since January.

     BOJ economists think that if the number of companies that shift non-regular

workers to regular positions continues to increase, the ratio will gradually

fall, which would cause a rise in wages on a broader base.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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