Japanese companies are increasingly confident in raising prices, reflecting a structural shift in consumer behaviour following decades of deflation. The change is supported by the strongest wage growth in over 30 years, allowing firms to pass on higher input costs with less resistance from retailers and households.
The shift marks a potential inflection point in Japan’s economic landscape, as corporate pricing behaviour aligns more closely with international norms. If the trend continues, analysts believe that it could provide the Bank of Japan (BOJ) with more latitude to normalise monetary policy in the medium term.
“Compared to when we raised prices in 2016, I’d say there’s more of a sense now that the public is more accepting of price hikes. The sentiment that price hikes are evil is receding,” said Akagi Nyugyo head of marketing at food manufacturer Hideyuki Okamoto.
For the past three years, Japan’s core consumer inflation remained above the BOJ’s 2% target, primarily driven by rising food and energy costs. In July, nearly 200 major food producers are expected to raise prices on 2,105 items – five times more than the same period last year – with an average increase of 15%, according to a Teikoku Databank survey.
Price-setting behavior has also shifted. Japan’s largest chocolate maker with a 25% market share, Meiji Holdings Co. Ltd. had implemented nine price hikes since 2022, citing escalating cocoa prices. Its general manager of cacao marketing division Akira Yoshida said that recent increases have encountered less pushback from retailers.
“Back in 2022, we met resistance from retailers asking us to hold off a bit longer. Nowadays, they accept our price hikes more smoothly, so we assume their customers are also reluctantly going along,” Yoshida said.
However, price elasticity remains a concern. Meiji’s 20% increase in June – its largest in recent years – resulted in a corresponding drop in sales volume at certain retail outlets, signaling potential limits to consumer tolerance.
Labour Market Tightness Supports Shift
Meanwhile, economists attribute the change in price acceptance primarily to wage growth. Labor shortages – coupled with three consecutive years of nominal wage increases – have strengthened household purchasing power and reduced resistance to price adjustments.
“Japanese consumers have come to realise they are now living in an era of persistent price increases. Their focus is shifting from maintaining low prices to ensuring wages keep pace,” said University of Tokyo emeritus professor of economics Tsutomu Watanabe.
A consumer survey led by Watanabe found that, four years ago, Japanese respondents were the most price-sensitive among five major economies, with most indicating they would switch retailers after a 10% price rise.
In the most recent iteration of the survey, most consumers indicated they would continue purchasing the same items from the same stores, suggesting behavioural convergence with international norms.
Macro Risks and Policy Implications
Despite the recent trend, structural challenges remain as government data showed that Japan’s Engel coefficient – the share of household expenditure allocated to food – reached 28.3% in 2024, which is the highest in 43 years.
Rising food costs are prompting substitution behaviour, with consumers shifting from higher-cost proteins such as beef to more affordable alternatives like chicken.
“With prices rising year after year, consumers are adjusting purchasing habits. For inflation to be sustainable, it must be supported by real income gains, not just nominal wage growth,” said UBS Securities food and consumer sector analyst Rei Ihara.
Real wages have remained negative for much of the year, as inflation outpaces pay increases, which has contributed to voter dissatisfaction and was a factor in the ruling coalition’s loss in recent House of Councillors elections.
Further uncertainty stems from trade policy as Japanese exporters facing new US tariffs have refrained from raising prices in key overseas markets to maintain competitiveness. Due to this, analysts have warned that continued margin compression could impair corporate earnings and limit the capacity for future wage hikes.
Furthermore, the BOJ is expected to leave short-term interest rates unchanged at its upcoming policy meeting, but economists say further normalisation is contingent on sustained wage-driven inflation and that failing to maintain current momentum could delay policy tightening and raise questions about the durability of Japan’s return to inflation.
“We’re at a turning point now. If this wage-driven price momentum fails, we may not see another opportunity like this again,” Watanabe said.
Source: https://sme.asia/rising-wages-empower-japanese-firms-to-push-through-price-increases/