The Japanese consumer is about to get whacked

While prices have been inching up slowly through a combination of higher input cost and a weaker yen, October is making out to be the month when Japanese retail stores are collectively raising prices. Because they have not done so in a long, long time, they hope that collective action will mitigate the wrath of the consumers.

For example, Asahi, which has already raised prices in international markets, announced in April that they will raise prices for its Super Dry beer and other beverages for shipments starting October 1, resulting in retail prices expected to be 6–10% higher. The brewer last raised canned beer prices in 2008.

Then there is Akagi Nyugyo, made famous by the apologetic video featuring its staff, on the occasion of a 10 yen rise in the price of their ice cream bar. Their first price increase in 25 years.

Going even further back, Lawson has raised the price of its popular Karaage-Kun chicken nugget snack for the first time in 36 years.

If this now culminates in a concerted effort, like some analysts predict, two comparisons come to mind:

• With the introduction of the Euro, restaurant prices in Germany experienced a significant increase. The industry, unable to raise prices for years, co-ordinated to use the transition in the currency t exert pricing power. Instead of seeing nominal prices cut in half (one Euro translates to 1.95583 Deutsche Mark), a 10 Mark dish suddenly was priced at 8 Euro, for example. That’s a sixty percent price increase, or thereabout. The effects on consumption on the path of price equilibria following this conversion have been well-studied by economists.
• Japan itself has recent experience with the introduction of consumption tax. The raise from 5% to 8% in 2014 was also well-studied, and this researcher found that the expectation that a VAT rate increase will cause consumption to fall proportionally was confirmed.

So if concerted action in October will close the gap between PPI and CPI readings in Japan, and provide the equivalent a consumption tax hike, what will it do to the consumption level of the Japanese consumer? Asking for a friend.

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