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Wheat Costs in Japan to Gain for 3rd Time as Abenomics Bites

Wheat prices in Japan, which imports 60 percent of its food, are poised to increase for the third time in a year, adding to inflation as Prime Minister Shinzo Abe’s economic stimulus weakens the yen and boosts costs.

Foreign wheat sold by the government to flour millers including Nisshin Seifun Group Inc. (2002) will probably rise about 5 percent in October from 54,990 yen ($553) a metric ton on average, according to the U.S. Wheat Associates. The Ministry of Agriculture, Forestry and Fisheries will decide on prices this month, based on purchasing costs in the six months through August, said grain-trade director Sunao Orihara.

The increase will add to expenses for producers from noodle maker Nissin Foods Holdings Co. (2897) to Yamazaki Baking Co. (2212), which raised bread prices as much as 6 percent last month. Higher food costs are helping Abe’s campaign to achieve a goal of 2 percent inflation for sustained growth. Consumer prices gained the most since 2008 in June, signaling the world’s third-biggest economy may be starting to shake off 15 years of deflation. Wheat costs rose 10 percent in April and 3 percent in October.

“We expect another increase in yen-based wheat prices, despite a retreat in the international market, as Japan’s currency remains weak against the dollar,” Charlie Utsunomiya, director at the Tokyo office of U.S. Wheat Associates, said in an interview, based on sales through July.

Price Goal

The yen has declined 15 percent against the dollar this year and slid to 103.74 on May 22, the weakest level in more than four years. Abe pushed the Bank of Japan to expand stimulus and double its inflation target to 2 percent to jolt the economy onto a growth path. In Japan, a weaker yen spurred a 39 percent advance in Japanese stocks this year and boosted earnings for exporters such as Toyota Motor Corp. and Sony Corp.

Masaaki Kadota, executive director at Japan’s Flour Millers Association, expects a 5 percent increase in wheat prices to add about 14 billion yen a year in industry costs.

Japan, Asia’s second-largest wheat buyer after Indonesia last year, depends on imports for almost 90 percent of the grain. The U.S. was the biggest shipper to Japan last fiscal year, representing 58 percent of the total, ministry data show. Canada was the second supplier with 1.2 million tons or 23 percent, followed by Australia with 925,000 tons.

The Agriculture Ministry controls overseas purchases and domestic sales of wheat to stabilize supply, and reviews prices to local millers every six months.

Wheat in Chicago slid 15 percent this year on prospects for abundant global supplies and traded at $6.615 a bushel at 5:45 p.m. in Tokyo. Futures surged 19 percent in 2012, the biggest gain among the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index.

Food Companies

Japanese food makers have started to pass the increases onto consumers. Meiji Holdings Co. will raise milk prices by as much as 4 percent from October, citing higher feed costs and the yen’s decline. Mayonnaise maker Kewpie Corp. and bread producer First Baking Co. (2215) raised prices in July by as much as 9 percent and 7 percent.

Consumer prices in Japan excluding fresh food increased 0.4 percent in June from a year earlier as the Bank of Japan’s unprecedented monetary stimulus weakened the yen and made imports more costly. A growing number of Japanese anticipate inflation to gain traction, with a BOJ report on July 5 showing that 80.2 percent of people surveyed expect prices to rise in the next 12 months, the highest since September 2008.

To contact the reporter on this story: Aya Takada in Tokyo at atakada2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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