Japan Firms Eye Price Rises in Response to Weaker Yen: Survey

Are the Days of a Strong Japanese Yen Numbered?
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The weakening yen is leading some Japanese companies to examine lifting prices, a Reuters poll showed on Friday, a possible sign that bold policy steps recently enacted are working to pull the world's third-largest economy out of deflation.

Further illustrating approval for Prime Minister Shinzo Abe's fiscal and monetary measures, many firms answering the Reuters Corporate Survey said that were the Bank of Japan to meet its goal of 2 percent inflation in two years, it would boost profits.

The yen has lost more than 20 percent of its value versus the dollar since mid-November when Abe, at that time a candidate for the post, proposed a combination of hyper-easy monetary policy and massive spending to end to Japan's two decades of economic malaise.

To deal with the falling value of the Japanese currency, nearly a third of all firms said they are considering raising domestic prices, including more than half of the responding companies in the materials sector and wholesalers/retailers.

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"B2B (business-to-business) industries like material manufacturers have a higher control over prices, while processed manufacturers, which include transportation and electronics, have a weaker control over prices, making it harder to pass on rising costs to customers," said Takuji Okubo, chief economist at Japan Macro Advisors.

Only 15 percent of processed goods manufacturers said they were considering lifting domestic prices, preferring to cut overseas prices, lift domestic production or reduce foreign exchange hedges, as a means of trying to translate the yen's move into a stronger bottom line.

"For retailers, they seem to think business conditions have improved or they couldn't be able to raise prices," said Okubo, formerly Societe Generale's top economist for Japan.

Many retailers are projecting higher profits for this business year on improved sales of luxury goods and clothing, partly as a result of the increased value of equity and real estate holdings, one of the benefits of "Abenomics".

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Still, as wages remain depressed and employment prospects uncertain for many Japanese, fears linger that the weaker yen and a shift in inflation expectations will start pushing up prices before incomes rise, in turn squeezing household budgets and stopping rather than spurring growth.

In the survey conducted between March 29 and April 15, only 8 percent of companies said they were considering lifting wages as a result of the weaker yen, suggesting it may take some time before Abe's goal of lifting personal incomes is attained.

BOJ Inflation Target

As part of the plan to help Japan beat deflation, the Bank of Japan announced earlier this month that it would inject $1.4 trillion into the economy in under two years, nearly doubling the monetary base, to achieve its 2 percent inflation target.

Half of the firms polled for Thomson Reuters by Nikkei Research said they were unsure whether the BOJ would meet its inflation goal.

In a separate question about the likely consequences if the inflation target is reached, of the firms which had a view, more than half said it would be positive for earnings. Over a third of firms that responded said they did not know.

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"In the end, the expectations for prosperity in the domestic economy by meeting the target would lead orders to rise," said a respondent at a steelmaker who saw meeting the inflation goal as positive for results.

The poll was taken alongside the monthly Reuters Tankan survey, which showed on Thursday that the mood of Japanese manufacturers improved in April for a fifth straight month, a trend seen as strengthening as the stimulus measures take hold.

The Reuters Corporate Survey polls upper management at 400 companies each capitalized at more than 1 billion yen ($10.25 million). The firms, which are split evenly between manufacturers and non-manufacturers, are not required to answer every question, and they provide responses on condition of anonymity.