Cheap Burgers Are Giving the Bank of Japan a Headache

  • Japanese fast food chains cut prices, offer low-cost options
  • Deflationary mindset pose risk for Kuroda and the central bank

Cheap Burgers Causing BOJ Indigestion

Fast-food lunches in Japan are starting to get cheaper as consumers look to trim their dining expenses, a worrying sign for the central bank as it tries to bring about inflation.

Japan’s fast-food chains have lowered menu prices over the last 6 months, with McDonald’s Japan unit, Burger King Japan, and Yoshinoya Holdings Co. offering cheaper deals and lunchtime specials.

McDonald’s rolled out a new weekday lunchtime combo set earlier this month, offering a burger and a small-sized drink for 400 yen ($3.90). The new menu follows an all-day, 200 yen burger promotion that the company introduced last October, said company spokeswoman Kokoro Toyama.

“This was very popular with our customers. We’ve expanded options for weekday lunchtime to offer more cost-friendly, convenient menu options,” she said.

It’s hard to predict whether prices will continue to fall, but signs that a deflationary mindset is taking hold among consumers are likely to be considered by Bank of Japan Governor Haruhiko Kuroda and other policy board members when they meet next week to decide on monetary policy, said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities Co.

“Gasoline and other energy-related prices are falling, which makes it easier for the restaurant sector to lower their prices as well,” Miyazaki said. “I suspect the BOJ, going into the September meeting, would be thinking about how it can bring back consumers who are starting to develop a deflationary mindset.”

Consumer prices excluding fresh food, a closely followed measurement of price moves, fell 0.5 percent in July from a year earlier, its biggest decline since Kuroda took office in 2013. Kuroda is aiming to achieve 2 percent inflation by end-March 2018, a goal widely seen as unachievable despite the raft of easing measures he has taken.

“I think people would find these 400 yen lunchtime sets pretty helpful,” said Kazuomi Nishiki, a 42-year-old employee at a real estate company who ate at McDonald’s on Monday. “Stock prices may double but since individual income isn’t rising, people are attracted to cheaper options.”

Cutting Prices

Burger King in May introduced a 490 yen meal set complete with a burger, small fries and a drink. Beef bowl chain Yoshinoya in April brought back its pork bowl, priced 50 yen cheaper than its beef counterpart. Sushi restaurant chain Kappa Create Co. began a campaign in March to cut the price on its 108 yen sushi dishes to 97 yen on weekdays, according to Kyodo News.

Yoshinoya revived the cheaper pork bowls, originally served as a substitute during the mad cow scare in the early 2000s, based on customer demand, according to a company spokesperson who declined to be identified, citing company policy.

The price trimming extends to clothes, with Uniqlo-owner Fast Retailing Co. pledging in May to offer “lowest possible price,” reversing an earlier attempt to hike prices that resulted in slumping sales.

McDonald’s Japan, whose sales bounced back in the April-June quarter after a series of food scandals, made headlines in the mid 1990’s when it rolled out a series of discount campaigns that triggered price cuts at other restaurant chains. Those price cuts came as Japan headed into deflation following the bursting of an economic bubble, something it has yet to fully recover from.

Deflationary pressures in the fast food industry will likely persist in the foreseeable future, said Mitsushige Akino, an executive officer at Ichiyoshi Asset Management. Restaurants will thus face a period of cut throat competition.

“In the 1990’s when McDonald’s cut prices on their menus, it was a strategic move,” Akino said. “This time it’s for survival. These chains can’t survive unless they go along with the deflationary model.”