BAT Expects 17% Decline in Japan Cigarette Market

British American Tobacco Plc, Europe’s largest cigarette maker, forecasts a 17 percent decline in the Japanese cigarette market next year after a record tax increase in October.

The volume may total 180 billion cigarettes in 2011, compared with an estimated 218 billion this year, according to a presentation by BAT’s Japan unit in Tokyo. The market may shrink to as low as 165 billion cigarettes next year, Naresh Sethi, president of BAT Japan, told reporters.

Japan raised the tobacco tax by 40 percent in October to discourage smoking in the country, where 36.6 percent of men smoke. The price of 20 cigarettes in Japan rose an average of 37 percent to 410 yen ($4.95) on Oct. 1, said BAT, the maker of Kent and Kool brands.

Sales “volume will suffer in a big way in 2011,” Sethi said. The government should apply “a small increase every year,” as it would make the market more predictable, he said.

An illegal cigarette market may emerge in Japan because of rising prices, he said.

Cigarette sales plunged 70 percent in October after an 88 percent surge in September, according to the Tobacco Institute of Japan. Thousands of smokers bought cigarette cartons at convenience stores and other retailers before the tax took effect. BAT increased its market share in Japan to 10.6 percent so far this year, from 9.1 percent in 2005, it said.