Natto Makers to Public Baths Suffer in Abenomics Divide

Almost everything Mikio Matsushita’s factory near Tokyo needs to produce natto is imported, from the soybeans used in the fermented Japanese snack to the polystyrene trays in which they’re packaged.

The reliance on imports, combined with the domestic market focus for the quintessentially Japanese product, puts Matsushita on the losing end of government policies that aid heavy exporters by weakening the country’s currency.

Expenses have surged for Matsushita’s company as the yen’s slide boosts its costs for beans grown in China and North America. The fuel it uses to steam the beans and for the natto’s polystyrene packaging, both petroleum products derived from imported crude, have also gotten more expensive.

“The cost of the raw materials and ingredients are rising but we can’t raise the price of our products,” Matsushita, 62, said in his Kawasaki City factory as workers packed cellophane-sealed trays of the slimy fermented soybeans into cardboard boxes. “It’s really hurting our profits.”

From Japan’s natto makers and operators of neighborhood baths to its largest refiner and utilities, the weaker yen offers domestically focused industries nothing to offset higher import prices. That’s in contrast to bigger exporting companies, such as Toyota Motor Corp., for which the yen has boosted competitiveness, helping lift the Nikkei 225 Stock Average by 22 percent since Jan. 1.

Overall Impact

“For any kind of policy, there are people who benefit and people who do not get benefits,” said Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo. “Policy makers need to think about the overall impact.”

The yen has plummeted in value against the U.S. dollar since Prime Minister Shinzo Abe came to power in December pledging aggressive monetary stimulus measures. The Japanese currency, though it has rebounded about 8 percent since May 22, has weakened the most among Group of 10 currencies since Jan. 1, according to data compiled by Bloomberg.

Some signs show the yen’s drop is helping to snap the country out of its 15 years of deflation. Bread companies including Yamazaki Baking Co. and Nisshin Flour Milling Inc. announced price increases due to more expensive wheat. Hagoromo Foods Corp. has raised canned tuna prices.

Yet the government policies, nicknamed Abenomics after the prime minister, have yet to produce the across-the-board wage gains that would let domestically focused businesses raise prices to a level where they see much benefit, said Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong.

‘Break Even’

“Some of the costs are being passed through,” she said. “But at the end of the day, this is just so that these firms can break even and not make huge losses.”

For JX Nippon Oil & Energy Corp., Japan’s biggest refiner, the weaker currency means higher crude import prices that it hasn’t been able to pass completely to the mostly domestic customers for its oil products, Akitsugu Takahashi, JX’s executive director for retail fuel sales, said on May 31.

Japanese importers paid an average of 65,505 yen per kiloliter of crude from January to April, 9.5 percent more than the same period in 2012, according to the most recent month for which finance ministry data is available. That compares with an 8.9 percent drop in Dubai crude, the benchmark for Asian oil refiners, according to data compiled by Bloomberg.

“Our profit margin is deteriorating,” Takahashi said.

Fuel Prices

Some of the costs refiners have been able to pass to consumers are showing up in the price of diesel, which has increased 2.8 percent during the year’s first four months to 133.3 yen a liter over the year-ago period, according to data compiled by Bloomberg. The increase is being felt acutely by the nation’s truckers, said Japan Trucking Association spokesman Takashi Kaneko, who estimated the industry uses about 17 billion liters of diesel a year.

“So if the diesel price goes up even one yen, that’s a 17 billion yen increase for us to bear,” said Kaneko, whose group staged a rally with 800 participants on May 23 at the headquarters of Japan’s ruling Liberal Democratic Party to plead for government assistance. “For long-haul truckers, fuel costs can account for as much as 40 percent of their costs, so their businesses are really on the brink.”

Higher fuel import prices are also crimping Japan’s approximately 5,200 remaining public bathhouses, remnants of when many Japanese homes were built without baths. Some 300 typically go out of business annually, said Norihide Watanabe, secretary of the National Federation of Public Bath Industry Trade Unions, adding that rising prices for the industrial diesel known in Japan as “A” fuel oil used by operators to heat bathwater is adding more pressure.

Domestic prices for the fuel rose 3.8 percent to 83.7 yen a liter in the first four months of the year, according to data compiled by Bloomberg.

Divide Created

Natto producers use the same fuel to steam their soybeans. Japan’s average import price for those beans rose 34 percent to an average 64,881 yen a metric ton in the first four months of the year, according to the finance ministry. Soybeans’ futures price on the Chicago Board of Trade gained 8.1 percent to $14.22 a bushel in the same period.

Polystyrene, which natto companies use for their packaging, increased 37 percent in Japan from January to April to an average of 131 yen a kilogram, according to the finance ministry. That’s more than twice the 18 percent increase in the period for the Far East spot price for general purpose polystyrene, according to data from

Confidence Shaken

“It’s impossible to raise the price,” said Matsushita, whose family has made natto for cafeterias and other food-service customers under the Matsushita Shoten and Sendai Natto brands since 1930. “If we do, our customers will just buy from someplace cheaper. The only solution is to save on personnel costs.”

That notion troubles HSBC’s Devalier, who said Abe’s economic recovery plan could be endangered if employees of Japan’s small- and medium-sized domestically focused businesses don’t start getting the same benefits as bigger exporting companies.

“It creates a divide between the winners and losers,” she said. “Because small and medium enterprises represent such a big part of Japanese companies, rumblings in that space are going to shake the foundation of confidence in the longterm benefits of Abenomics.”

Before it's here, it's on the Bloomberg Terminal.