Bloomberg News

Asahi to Ajinomoto CEOs Betting Abenomics Won’t Spur Inflation

June 13, 2013

Asahi to Ajinomoto CEOs Betting Deflation Will Defeat Abenomics

A woman browses shoes at a store in the shopping district of Harajuku in Tokyo. Consumer prices will probably rise 0.1 percent this year and 2 percent in 2014, according to the median estimates of economists in a Bloomberg News survey. Photographer: Yuriko Nakao/Bloomberg

Japan’s consumer goods makers and retailers aren’t buying Abenomics.

Six months into an economic program that sparked faster growth and the world’s biggest stocks rally this year, consumer goods companies are still planning for deflation.

“We aren’t thinking about raising prices,” said Akiyoshi Koji, president of Asahi Breweries Ltd. (2502), which makes the country’s best-selling Super Dry beer.

Koji’s closest rival, Kirin Holdings Co. President Senji Miyake, said the signs of an improving economy aren’t enough to prompt a shift from a strategy to expand outside Japan. Their outlook is another hurdle for Prime Minister Shinzo Abe’s campaign to reflate the world’s third-largest economy and end 15 years of deflation.

“Household consumption hasn’t recovered yet,” Miyake said yesterday on the sidelines of a consumer goods executives forum in Tokyo. “Overseas business, rather than domestic, will definitely be our growth trigger.”

Kirin, Japan’s largest beverage company, has spent at least $12 billion over the past five years on acquisitions abroad, versus more than 460 million yen at home, to help offset declining domestic demand, according to data on announced deals compiled by Bloomberg. The company expects operating profit to grow 1.3 percent this year, compared with the 10-year average of 5.9 percent, according to data compiled by Bloomberg.

Pricing Powerlessness

Even consumer goods makers paying more for imported materials because of the yen’s 15 percent drop since mid-November don’t expect to pass that along to customers.

“We are not thinking of raising prices at current foreign exchange levels,” Michitaka Sawada, chief executive officer of Kao Corp. (4452), Japan’s biggest maker of toiletries.

Consumer goods executives including Sawada and Koji of Asahi speak of Abenomics in terms of hopes, not plans.

“If families have more disposable income because of Abenomics, shipments this year will surpass last year’s,” Asahi Breweries’ Koji said. Beer shipments have declined for 8 straight years and Asahi hasn’t changed its forecast for 0.5 percent increase this year. Kirin predicts a 1 percent drop.

“If the Abe growth strategy becomes more concrete, there will be more benefits for the household goods industry in Japan,” said Sawada.

Looking Abroad

“We hope Abenomics works,” Kagome Co. (2811) President Hidenori Nishi said June 12 in an interview at the Global Summit of the Consumer Goods Forum in Tokyo. “But we have longer-term problems in Japan. The population will decrease and the aging society is also a problem, so the food business in general is facing a very tough situation.”

Kagome, an Aichi, Japan-based tomato producer and processor, is focused on overseas growth while adjusting its Japan business to cope with a birth rate that’s below replacement level and a population that’s the world’s oldest, on average, Nishi said.

Makeup and skin-care products maker Shiseido Co. (4911), which got about 45 percent of revenue outside Japan last fiscal year, has said it intends to trim production costs, including closing its factory near Tokyo, as a shrinking population depresses demand in Japan.

Investors have been more sanguine about prospects for corporate profits, including those of exporters.

Monetary Surge

Japan’s broader Topix (TPX) index has surged 21 percent this year amid optimism the yen’s decline will boost exporters’ profit, leading to greater investment, consumer confidence and growth. The surge began in November when the yen plunged on then-candidate Abe’s vow to do whatever it takes to end deflation.

Stocks trimmed earlier gains, including yesterday’s 6.4 percent drop in the benchmark Nikkei 225 Stock Average (NKY), as the yen has rebounded from a four-year low and investors have said Abe’s plans for structural reforms lacked specifics.

Japan’s central bank has doubled monthly debt purchases to more than 7 trillion yen, pumping cash into the economy to help Bank of Japan Governor Haruhiko Kuroda achieve 2 percent inflation target in two years.

Consumer prices will probably rise 0.1 percent this year and 2 percent in 2014, according to the median estimates of economists in a Bloomberg News survey.

Japanese wages including overtime and bonuses rose 0.3 percent from a year earlier last month to 273,427 yen ($2,900), Labor Ministry data released June 4 show. The gain was the biggest in a year.

Japan’s economy expanded the most in a year last quarter as consumers responded to the campaign mounted by Abe and Kuroda.

Overseas Optimism

Major Japanese companies may boost summer bonuses by 7.4 percent, the most since 1990, according to a survey published by Keidanren, the country’s biggest business lobby.

Still, consumer goods executives are optimistic about their outlook for sales, just not in Japan.

“Our growth center from now on is Asia and the Pan-Pacific region,” Fast Retailing Co. (9983) Chief Executive Officer Tadashi Yanai said yesterday at the consumer forum in Tokyo. “We want to achieve growth from that region.”

Seven & I Holdings Co. (3382), owner of the 7-Eleven convenience store brand, is also looking outside Japan for growth. The retailer plans more acquisitions in the U.S. and may more than double North America outlets as consumer spending improves in the world’s largest economy.

In North America, 7-Eleven “could increase our store number to 20,000 or even 30,000,” Seven & I Chairman Toshifumi Suzuki said in a May 30 interview at the company’s Tokyo headquarters. It currently has more than 8,000 outlets in the region and Suzuki didn’t provide a time frame for the planned expansion. The company has more than 50,000 convenience stores worldwide, according to its website.

Ajinomoto, Unicharm

“We are doing really well in Southeast Asia and we’re concentrating our resources there,” said Masatoshi Ito, president of Tokyo-based Ajinomoto Co., which in May forecast a 13 percent drop in sales this year. “In Southeast Asia, we are eying sales growth of more than 10 percent at the least and would like to aim at 15 percent over the next five years.”

Even Unicharm Corp. (8113), the Tokyo-based diaper maker that had adapted to an aging population by selling more to adults than for children by revenue, is looking to Asia for growth.

“Our growth expectations are overseas,” Takahisa Takahara, Unicharm chief executive officer, said at the consumer forum in Tokyo. “It has the opposite of a declining birthrate.”

To contact the reporters on this story: Yuki Yamaguchi in Tokyo at yyamaguchi10@bloomberg.net; Masahiro Watanabe in Tokyo at mwatanabe47@bloomberg.net; Aika Nanao in Tokyo at ananao@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net; Teo Chian Wei at cwteo@bloomberg.net


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