Japan's retailers turn a deaf ear to Kuroda's inflation pledge

[TOKYO] While Governor Haruhiko Kuroda's vow to overshoot the Bank of Japan's 2 per cent inflation target caused a stir among monetary policy watchers in September, it's yet to have an impact among retailers.

Stores as diverse as supermarket operator Aeon, Mister Donut and Wal-Mart have all announced price cuts since Mr Kuroda's pledge, underscoring the weakness in Japanese consumer spending and the difficulty of overcoming the "deflationary mindset" that the BOJ set out to eradicate.

Data due later Friday is forecast to show consumer prices fell for an eighth straight month in October.

"Companies are just being practical," said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. "No one is buying the BOJ's new commitment. There is strong doubt that the BOJ can even achieve the 2 per cent target and the name 'overshooting commitment' itself is hard to understand for ordinary people."

Falling prices and expectations for more of the same could also drag on annual wage talks, which start soon. Mr Kuroda said last week that he's "paying close attention" to these, as weak growth in pay has been hampering efforts to generate inflation. It's essential for Japanese companies to set salaries based on the premise of 2 per cent inflation, he said.

Base salaries, which exclude bonuses and overtime, will rise this year by less than last year, Dai-ichi Life Research Institute forecast in a report this month. This reinforces frugality among shoppers and encourages retailers to compete by discounting.

Some recent examples: Mister Donut announced prices cuts for 35 types of donuts and other products, with reductions of 10 to 30 yen (S$0.12 to S$0.38).

Supermarket operator Aeon Co. began lowering prices of the main private brand products it sells from this month, according to a company spokesperson.

Wal-mart announced it will cut the prices for 556 items it sells at its Seiyu supermarkets, with the largest reductions being 34 per cent.

Muji stores owner Ryohin Keikaku Co is considering reducing prices as part of an overall pricing rethink, according to the company.

The strategy has been a winner for many retailers.

"We're selling so well that I cannot stop smiling," said Masato Nonaka, president of Shimamura Co in an interview this month. The company is the nation's second-biggest clothing chain.

Market leader Uniqlo lost some budget-minded consumers after it raised prices last year, and subsequently promised to offer cheaper products.

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