In a Tokyo supermarket, signs of struggle for Japanese business

By Elaine Lies

TOKYO (Reuters) - Japanese supermarket owner Hiromichi Akiba has built his bustling business through close ties with his neighbourhood - the reason, he says, he can't make the price hikes on his wares that would allow him to give his workers a pay rise.

Steep price increases on surging raw materials costs are squeezing Japan's workers, as years of deflation or minimal rises give way to 41-year-high inflation of 4%.

And, while major companies are offering raises amid government pressure, many of the small and midsize firms that employ the vast number of Japanese workers cannot keep up.

But the situation is especially hard for retail businesses like Akiba's because the cost rises are so widespread that virtually nothing is untouched, preventing pay rises.

"The fact is that we are barely making a profit," said the genial 54-year-old, who prides himself on the close ties he's built with the customers in his western Tokyo neighbourhood over the past three decades.

"If we were able to pass our costs on by raising prices, we couldn't look our customers in the eyes."

To a casual observer, Akiba's business, which he began 31 years ago with a single supermarket and has since expanded into several, is doing well.

On a recent weekday afternoon it bustled with customers ranging from young mothers pushing prams to older women using canes. Workers shouted "Come in, come in!" while others rushed around with cartons of sweet potatoes and cabbages.

But costs have risen for everything, from shipping to packaging to electricity, while the weak yen jacked up prices for imported meats, fruits and vegetables. Even domestic items grew pricier, since feed and fertiliser are often imported.

Then there is the general inflationary chill.

"We supermarkets are the leading edge of life," Akiba said. "If the economy is tough everybody cuts back on spending. They're defending their lifestyle by buying cheaply."

He would love to raise wages for the 40 workers in his flagship store the way larger places can. The operator of clothing giant Uniqlo plans raises of up to 40%, and more than half of big firms in a Reuters survey plan wage hikes.

"I think all those places must have much cheaper costs. That gave them enough leeway that they could pass that on to their workers," he said.

Employee Taro Yamada, a 19-year-old university student, said a rise in his 1,200 yen ($9.28) hourly pay would be welcome, enabling him to eat a more balanced and healthy diet.

"But I guess there's no help for the situation, since I'm a part-timer," he added.

Yoko Yamada, a 52-year-old composer with a shopping basket on her arm, said she now buys things like meat in bulk and freezes it to save money. No raise is in sight for her partner, the main breadwinner.

"The government needs to enact policies to keep things in balance," she said. "Otherwise, poverty will really increase in Japan."

($1 = 129.3100 yen)

(Reporting by Elaine Lies; Editing by Kim Coghill)