TOKYO -- Naoyuki Ide is betting that a weaker yen will drive more Japanese people to drink his locally made craft beers.
The president of Yo-Ho Brewing Co. is boosting production capacity at the microbrewery in Nagano, central Japan, by 50 percent this year as he anticipates the currency's decline will force importers to raise prices for foreign brands, giving local craft brewers such as his a competitive edge.
"If the yen weakens more, they'll have to increase import beer prices in the near future," Ide, whose company makes Yona Yona Ale and Tokyo Black beer, said in an interview. "Import beers cater to people's growing taste for beer with character, but if customers are looking for something distinct, they may choose our beer instead, because it'll be cheaper."
The weaker yen and an increase in consumer spending may stoke a Japanese craft-brewing boom that was already bucking a decline in total beer sales before Prime Minister Shinzo Abe began a campaign to stimulate the economy and end deflation. Shipments of domestic craft beer rose 7.7 percent in the first eight months of 2012 from a year earlier, according to Tokyo Shoko Research, while sales at Japan's biggest breweries fell.
Domestic shipments by the nation's five largest beermakers, including Sapporo Holdings Ltd., Kirin Holdings Co. and Asahi Group Holdings Ltd., dropped to a record low for the eight straight year in 2012, according to data compiled by Bloomberg.
A can of Yo-Ho's Yona Yona Ale costs from 220 yen ($2.22) on Rakuten, the biggest Japanese Internet retail site, compared with 187 yen for Asahi's flagship Super Dry brand. Diageo's Guinness Extra Stout costs from 270 yen and a Samuel Adams Boston Lager from the Boston Beer Co. starts at 345 yen.
At Craftheads, a bar in Tokyo's Shibuya district, prices range from 500 yen for a 200-ml (6.8 ounce) glass of Shiga Kogen Africa Pale Ale to 6,000 yen for a limited-edition 650-ml bottle of Dark Lord Russian Imperial Stout, brewed in Munster, Ind.
Japanese consumers are also drinking more American microbrews. The Asian nation's imports of U.S. craft beer soared 57 percent in 2012, according to the Boulder, Colo.-based Brewers Association, a trade group of small U.S. beermakers.
"Demand seems to be expanding all over the place," said Scott Brimmer, the brewmaster at Kawasaki, Japan-based Brimmer Brewing, which opened in 2011. "We're in the right place at the right time."
The yen has dropped about 15 percent against the dollar in the past six months as Abe and Bank of Japan chief Haruhiko Kuroda try to lift the country out of an economic slump by monetary easing.
The nation's gross domestic product rose an annualized 3.5 percent in the first quarter of 2012, the most in a year, with growth in private consumption contributing 2.3 percentage points.
Import beer volume fell to 40.7 million liters in 2012 from 42.4 million liters in 2011, while on a monetary basis imports rose to 5.49 billion yen from 5.41 billion yen, according to government statistics. Prices for imported beer haven't risen yet, suggesting retailers are absorbing the weaker yen through lower margins, Ide said.
Sales at Yo-Ho surged 40 percent in the year ended Nov. 30, and the company plans to double sales this year, Ide said. Set up as a subsidiary of Hoshino Resort Co. in 1996, Yo-Ho is the largest craft brewer in Japan, he said.
"Demand is a lot more than we expected," Ide said, declining to specify the amount of sales or production volume.
While a weaker yen may raise the price of imported ingredients, material costs account for less than 10 percent of retail prices in the industry, Ide said. For Yo-Ho, the percentage is dropping as sales volume rises, he said.
A loosening of regulations in 1994 that lowered the minimum production level for beermakers opened the doors to microbreweries in Japan, according to the Japan Brewers Association. After an initial surge in new breweries, the number fell to about 200 now from a peak of about 300, Ide said.
Many of the early microbreweries lacked sufficient quality to stay in business, Brimmer said. The industry has begun to pick up again in recent years as those who stuck with craft brewing gradually raised the quality of their products, he said.
"This is the second microbrew boom in Japan," said Joji Uehara, a researcher at Tokyo Shoko Research.
Craft beers still make up less than 1 percent of Japan's domestic beer market, estimated Ry Beville, publisher of the Yokohama-based Japan Beer Times, a bilingual publication dedicated to microbrews. By comparison, they accounted for 6.5 percent of the U.S. beer market by volume and 10 percent by sales last year, according to the Brewers Association.
High taxes and the need to import many ingredients make craft brewing expensive in Japan, Beville said. Demand has nonetheless been rising, even amid lackluster economic growth.
"People simply want choice," Beville said. "If they're only going to be able to afford a couple of drinks, they want to make it worth their while."
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The slow economy has prompted some bars and pubs to start offering more microbrews to stand out from their competitors, Tokyo Shoko's Uehara said.
For some patrons, like Junya Yoshida, a 30-year-old office worker at an advertising company, the craft brews are an expensive treat.
"It's a little bit of a luxury," said Yoshida, who ordered an Imperial Red Ale from Niigata, Japan-based Swan Lake Beer recently at Craftheads, a craft brew and bourbon bar that offers about 100 bottled beers and about 20 on tap. "I like beer with rich taste, so I want to drink craft beer even if it's just once a week."
Yoshida paid 600 yen for his 200-ml glass of ale, or about six times the price of Sapporo's Mugi to Hop, his usual drink at home.
In the U.S., the growing popularity of microbrews has led large beermakers to acquire some smaller breweries. Japan's large breweries aren't jumping on the bandwagon quite yet.
"We're not considering it," said Masaya Hayashida, a general manager in the marketing department at Tokyo-based Kirin. "We can offer our customers different options on our own."
Large Japanese brewers may show interest in acquiring microbreweries as they see craft beers continue to gain in popularity, Brimmer said.
"Probably one of the companies would try to test the waters a little bit and see if anyone is willing to sell out," Brimmer said.
Like Yo-Ho, Brimmer's is expanding to meet the growing demand. The company plans to triple the capacity of its tanks this year, he said.
"People from all generations are finally understanding and enjoying the different styles of beer out there," Brimmer said. "It's exciting."