* 68 pct don’t plan to raise prices of goods, services in 2015
* 42 pct to lift wages at least as much as 2014, 44 pct undecided
* Two thirds see business conditions unchanged this year
By Tetsushi Kajimoto
TOKYO, Jan 21 (Reuters) - Two thirds of Japanese companies plan to hold back on raising prices of products and services this year, a Reuters poll showed, underscoring the difficulty of defeating deflation despite two years of bold monetary policy and economic stimulus.
But in a sign that Prime Minister Shinzo Abe’s policies have gained some traction, 42 percent of firms said they plan to raise wages as least as much as last year. Still, many are cautious with 44 percent undecided.
Price rises and wage hikes are seen as key to boosting consumer spending under “Abenomics” which, despite initial success with aggressive monetary easing, has seen the economy slide into recession in the wake of a sales tax increase.
Several high-profile firms, including those emblematic of Japan’s deflationary mindset like Fast Retailing Co Ltd , the operator of casual clothing chain Uniqlo, have over the past year moved to lift prices.
But the Reuters Corporate Survey, conducted Jan. 5-15, showed that overall Japan Inc’s pricing power remains weak.
Of the third which do plan to lift prices, the vast majority say they are passing on a surge in the costs of materials that has come with the yen’s 35 percent drop against the dollar since Abe took office in December 2012. Only 8 percent cited steady demand as a reason.
“Considering companies were cutting prices until just a while ago, Japan is making progress towards ending deflation,” said Taro Saito, director of economic research at NLI Research Institute, who reviewed the survey results.
“But we are still far from Abenomics’ ultimate goal of stronger demand driving up prices and wages in a virtuous cycle.”
The survey also showed that roughly two thirds see their business conditions largely unchanged this year. Twenty-one percent see improvement while 13 percent believe things are getting worse.
“We’ve not been able to pass on higher materials costs created by the weak yen,” wrote a manager at a chemicals company. “Crude oil prices slid as we were negotiating price hikes, causing a situation where our demands could not be met.”
Of the firms that do plan to raise prices, more than 60 percent will seek increases of less than 5 percent, while 27 percent aim to raise prices between 5 and 10 percent.
The survey, which is conducted for Reuters by Nikkei Research, polled 483 firms and about 260 answered the questions on prices. Managers respond to the poll anonymously.
Abe is also urging companies to accept higher prices from their subcontractors. Some 79 percent of firms said they will cooperate, suggesting their profits will be crimped as they aren’t raising their own prices.
Japan’s major firms and labour unions agreed to an average hike of 2.19 percent in annual wage negotiations last spring - a 15-year high. But wages in real terms have declined as consumers have had to grapple with a 3 percentage point increase in the national sales tax.
Thirty-six percent of companies polled said they plan wage hikes of about the same size as last year while 6 percent said they plan bigger increases. Another 6 percent saw smaller wage hikes than last year and 8 percent saw no increase at all.
Hidenobu Tokuda, a senior economist at Mizuho Research Institute who reviewed the survey, said companies appeared cautious and the trend would be determined by the 44 percent who are undecided.
“I’m a little concerned about car makers who are wary after being hit hard by the sales tax hike.”
The survey showed 30 percent of firms in the auto sector, which often sets the standard in the nation’s annual wage talks, are looking to raise wages less than last year or not at all - twice the amount of Japan companies in general. (Reporting by Tetsushi Kajimoto; Editing by William Mallard and Edwina Gibbs)