March 10, 2016

Japan Tobacco Boosting Prices on its Key Cigarettes

Japan Tobacco projects to increase prices on its key cigarette group to pass increasing costs on to customers despite the calls from the government to back inflation. The company on Monday explained it has applied for authorization to price its Mevius products at around 440 yen ($3.70) per box, 10 yen on top of the present level, beginning April 1. Authorization could come just after February. The transformation is directed at financing "ongoing investment to strengthen product quality and service," stated Mutsuo Iwai, head of JT's tobacco action.

Japan's Ministry of Finance demands tobacco companies to get authorization before modifying prices, however has been reluctant to offer that admission in the past. Cigarette prices in Japan are as a result less than half those in numerous countries, where they can rise above 1,000 yen. That approach is to some extent a concession to lawmakers in Japan's ruling Liberal Democratic Party who worry that larger prices would reduce cigarette use and thus knock earnings to leaf tobacco farmers, an significant support base.

The ministry kept immune to a rise even when JT rebranded its major Mild Seven range to Mevius in February 2013, driving the company to absorb major costs related to redesigning packaging and completing the lineup. However, the ministry's position seems to have modified despite calls by Prime Minister Shinzo Abe's government for companies to back the price increase by adopting costs linked to the weakening yen and other aspects on to consumers. The ministry has little choice but to accept JT's requirement to do exactly that.

Other companies could make identical actions. "If the Mevius price rise is authorized, we'll definitely follow in JT's actions," a representative at a foreign tobacco company mentioned. However, opinion on increasing prices continues to be combined. Taxes are the reason of about 60% of the price of cigarettes. Boosting those taxes is outlined occasionally within the ruling party. However the idea goes on to attract resistance from lawmakers. A convincing justification will be required for JT's application to earn approval, a tax specialist within the LDP stated on Monday.