Firms in Japan will have limited flexibility in passing on price increases to consumers in H1 2022. Wherever possible, B2C firms should prioritize premium customer segments where demand will be more robust, and margins will be less affected by cost pressures. Firms with a concentration of value-based products in their portfolio may consider altering their pass-through strategy to avoid increasing prices for consumers. B2B firms with production facilities in Japan may consider targeting customers that cater to the export market, as pricing dynamics within the domestic market will be unfavorable to manufacturers over the coming months.


Since Q2 2021, the difference in inflationary pressures faced by producers and consumers in Japan has been growing rapidly. Data from October shows that producer prices grew 7.9 percentage points greater than consumer prices. Pricing pressures on producers have been growing as a result of rising commodity and shipping costs, while consumer prices have fallen for the majority of 2021 due to weak domestic demand. This gulf in inflationary pressures is particularly stark within the Japanese context, where price and wage growth over the past two decades have been minimal, and the country often grapples with deflationary pressures.

there is a vast discrepancy in inflation dynamics faced by producers and consumers in Japan (pricing)

Our View

Firms in Japan will have to navigate this delicate pricing environment through H1 2022. While we do expect CPI growth to increase in 2022 on the back of an improved outlook for consumer demand and the large stimulus package passed by the Kishida administration, it is unlikely to offset the pricing pressures that Japanese producers face. Further, consumers in Japan will be sensitive to price changes in the short term because: 1) wage growth for Japanese households has been stagnant over the past three years, and 2) households will face high energy costs throughout the winter months.

There is also a downside risk of producer prices rising above their current levels due to persistent increases in energy and commodity prices. Under this scenario, factories in Japan will face a greater squeeze on their margins, and the need for firms to alter their pass-through strategy will intensify.

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