01 October 2010

Japan smokers happy to inhale tax

Japan imposed the biggest tax hike on cigarettes in its history, with some brands costing nearly 40% more in a country seen as a smoker's haven.

Japan imposed the biggest tax hike on cigarettes in its history, with some brands costing nearly 40% more in a country seen as a smoker's haven.

But while many Japanese have said they plan to give up, retailers have made the most of a buying frenzy with smokers looking to stock up before the government tax increase sent prices higher.

"Look at me, I won't quit," said 48-year-old businessman Toshiro Nakanishi holding a cigarette in one hand and a coffee in the other during a break from work in Tokyo's upscale Ginza shopping district.

"I used to live in London so I don't feel these prices are so high."

Dominates the cigarette market

The government has authorised Japan Tobacco (JT), in which it holds a 50% stake and which dominates the country's cigarette market, to raise the price of cigarettes by around 100 yen (1.2 dollars) per pack of 20.

The government reportedly hopes to eventually raise prices to around 700 yen a pack, closer to levels in Europe and North America.

The price of popular brand Mild Seven will rise from 300 yen to 410 yen per pack, up 37%. Seven Stars will be sold at 440 yen, up from 300 yen.

The hike is aimed at offsetting an increase in the tobacco tax by a record 3.5 yen per cigarette, or 70 yen per pack, a move proposed by former Prime Minister Yukio Hatoyama last year to discourage smoking.

Buying surge

But the move has nevertheless provoked a buying surge. JT increased cigarette shipments in September by one month's worth, or about 12 billion sticks, in anticipation of greater demand.

Convenience chain FamilyMart reported sales had almost doubled from a year before in the first 25 days of September.

One person was reported to have snapped up 100 cartons worth 300,000 yen at a tobacco shop in Tokyo's working-class district of Ota.

Hideki Matsumura, an analyst at the Japan Research Institute, said the buying surge would likely give a boost to Japan's gross domestic product in the September quarter.

"The last-minute buying is expected to help hike individual spending by 0.2 percentage points from the previous quarter or by an annualised 0.8%," he said.

Faster counterparts

Japan has been slower than its counterparts overseas to introduce indoor smoking bans. In Tokyo, smoking in bars and restaurants is welcomed, but banned on pavements.

"Japan has been slow to impose restrictions on smoking and strengthen warnings on packets partly because the government still owns 50% of Japan Tobacco," said Stephen Barker at MFGlobal FXA Securities.

"There is an inherent conflict of interest within the Japanese government, which should be doing its best to protect the public interest."

The government "may hesitate to implement policies that will damage the value of their stake in JT, which is likely to generate dividend income for them of about 29 billion yen this year," Barker said.

Shares in JT were off 0.89% in Tokyo trade.

But the price increase is also helping smokers kick the habit. A recent opinion poll found that 58% of respondents said they would give up after Friday's rise.

The ratio of smokers to the male population, which peaked at 83.7% in 1966, stood at 38.9% for men last year, compared with 11.9% for women.

"I'm thinking about quitting or at least cutting down the number of cigarettes I smoke," said a Tokyo woman in her 30s who declined to be named because she keeps her smoking habit secret from her parents.

"But I don't think the new prices are so painful."(Sapa / October 2010)          

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