Amid inflation worries elsewhere, Japan's competition watchdog takes on unusual role to assist price increases

As the global economy struggles to cope with the worst inflation in a generation, competition enforcers the world over are vigilantly on the lookout for price cartels taking advantage of rapidly rising prices. The Japan Fair Trade Commission, however, is taking on a very different mission — helping smaller companies pass on increased costs to their larger trading partners, and ultimately, to consumers.

In a recent exclusive interview, JFTC Chairman Kazuyuki Furuya told MLex that the Japanese regulator is seeking to help the country’s economy grow by creating a healthy business environment where companies can raise prices when necessary. By ensuring fair competition not just among rivals but also vertically on the supply chain, the antitrust chief emphasized that a proper distribution of wealth was essential for the country’s economic growth.

Along with supply chain disruptions caused by the war in Ukraine, rising labor costs have accelerated inflation in other economies. However, Japan continues to be saddled with stagnant wages, with price hikes triggered in large part by a weakening of the yen, as the Bank of Japan continues its easing policy at a time when other central banks are raising rates. Japan’s inflation — with consumer prices up 3 percent in September from the previous year — remains lower than other developed economies, which are seeing sharp increases.

The JFTC is facing challenges to promote fair and free competition in this economic reality.

“We used to emphasize free competition that would bring down prices, but now we’re striving more to create an environment where companies can set appropriate prices, which might lead to price increases,” Furuya told MLex in the interview this week.

In turn, Furuya said, he sees the JFTC contributing to a cycle where companies can focus not just on cost-cutting, but also on adding value, improving productivity and raising wages.

The increase in Japanese consumer prices has been much lower than the price hikes experienced by companies, which were up 9.7 percent.

According to a survey among small- and medium-size enterprises conducted by credit-research firm Teikoku Databank, nearly one-fifth of respondents said they couldn’t pass on any cost increases in their products or services at all in September. Another one-fifth said they could pass on less than 20 percent of the cost increases to their buyers.

Furuya said the JFTC is also keeping a sharp eye out for cartels.

Japan’s top competition official emphasized that competition policy is important to encourage innovation and economic growth, and stands firmly by his belief in “no competition, no growth.”

However, Furuya agrees with Prime Minister Fumio Kishida that wealth distribution is also important for economic growth. Under Kishida, the government revealed its latest fiscal expansion programs this week involving nearly 29 trillion yen ($200 billion).

“Without proper distribution, there’s no growth in some cases,” Furuya said. “We must seek not only horizontal competition, but also fairness of vertical relations, including supply chains involving smaller businesses.”

This policy direction by Japan’s competition regulator, however, somewhat complicates the task of antitrust legal counsels. Their advice to clients: Try to accommodate when your upstream supplier wants to raise prices, so as not to be charged with exploitative abuse, but don’t talk with rivals on price increase to avoid participating in a cartel.

The JFTC has also been busy conducting market surveys on a wide range of sectors: the relationship between freelancers and their larger business clients; startup companies and their joint venture partners and investors; fintech businesses and their dealings with institutional banks. Many have been part of the larger Japanese government ‘s economic initiatives, and they’ve brought on changes in business practices, while others have led to legislative revisions.

Furuya is determined to have the JFTC play a central role in policy making.

“Aside from being an enforcer, we also want to become a policy agency. The government as a whole is coming to understand the importance of competition policy for the economy,” he said.

The JFTC is requesting a major increase of staff, adding 68 positions, for the next fiscal year from April. This would be in addition to the current staff of roughly 850, while the main government party’s competition unit is calling to beef up the enforcer to a level of 1,000.

The competition watchdog will also likely be involved with new legislation to protect freelance workers. New rules under discussion include requiring written contracts, prohibition of delayed or reduced payments, and other forms of exploitative conduct.

The JFTC currently enforces the subcontract law, together with the Small and Medium Enterprise Agency, under the industry ministry. A new freelance law would add to the demand on their resources, which are already spread thin.

“If the freelance legislation is enacted, we’d like to demand more [staff], because we need to strengthen our regime in order to conduct our activities effectively,” said Furuya.