Nov 11, 2020 (Nikkei) - Japan's tobacco companies have long held on to an unwritten rule: never raise the cost of a pack of cigarettes more than a single coin.
That invisible barrier of 500 yen ($4.79), the denomination of the country's most valuable coin, allowed for easy transactions. A consumer could walk into a shop, slap loose change on the counter and walk away with a pack.
However, the country's next generation of smokers appears to be less connected to that psychological obstacle, especially as they forgo opening their wallets at all.
"I always use cashless payments to buy cigarettes at convenience stores because all I have to do is show my smartphone at the register," said a 27-year-old man living in Tokyo. "I don't have to think about whether or not I'll get change from 500 yen."
As the country takes baby steps toward a more cashless society, tobacco manufacturers have begun to chip away at that 500 yen wall, gradually raising prices as tax hikes begin to kick in.
"The penetration of cashless transactions has eased price sensitivity," said Naohiro Minami, chief financial officer at Japan Tobacco.
That deduction was formed after the company raised the cost of some cigarette products on Oct. 1 by 50 yen in tandem with a planned tobacco excise tax. When JT raised prices 40 yen in 2018, the company encountered 0.4-month worth of rush demand.
"We expected half a month's worth of rush demand with this 50-yen hike, but it was only limited to 0.4 month," said Minami.
The change can be explained in part by the offsetting effect from a rush in demand for no-malt beer alternatives, which also faced a tax increase. There are also people who quit smoking due to rising cigarette prices.
But after taking those factors into account, it appears that Japan's increasingly cashless society has played a large role in blunting reaction to the price hikes.
JT's Mevius cigarettes, which commands 30% of Japan's market, had its price raised to 540 yen last month, crossing the 500-yen threshold for the first time. The price has nearly tripled since 1985, back when the brand was known as "Mild Seven" and each pack sold for 200 yen.
Despite the successive tax increases, the tobacco industry has regarded 500 yen as a barrier that should not be crossed.
