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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: It's a busy week for central bankers. In the UK,

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Speaker 2: the Bank of England is poised to cut interest rates

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Speaker 2: after getting inflation under control. In the United States, the

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Speaker 2: Federal Reserve is expected to keep rates the same as

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Speaker 2: it weighs up what's a bigger problem, prices or unemployment.

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Speaker 2: And in Japan they're eyeing raising rates again after increasing

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Speaker 2: them in March for the first time in seventeen years. Well,

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Speaker 2: around the world, it's a Goldilocks situation. How to keep

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Speaker 2: prices high but not too high. I'm David Gurra, and

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Speaker 2: today on the Big Take, Bloomberg's Rebecca Chung Wilkins takes

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Speaker 2: us inside efforts to help small businesses figure out how

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Speaker 2: to get their prices just right. It starts with a lesson.

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Speaker 3: On a sunny day in April in Montsuet, a small

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Speaker 3: city on the western coast of Japan. A speaker stands

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Speaker 3: at the front of a classroom, hands on the podium,

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Speaker 3: encouraging the people in the room to stand up for themselves.

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Speaker 1: I scol you so at the core of Google last week.

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Speaker 1: You have to make your voices hard. You know what

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Speaker 1: I'm talking about. Right. I want you to raise your

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Speaker 1: voice more and more.

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Speaker 3: The roughly twenty or so people in the classroom pay

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Speaker 3: close attention, taking notes diligently from their seats, whilest some

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Speaker 3: nod their heads as echo Kanonji, a veteran negotiator, continues on.

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Speaker 1: The goal of any negotiation is to find the best

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Speaker 1: outcome for boss parties. Know your style, Understand whether you're

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Speaker 1: coolly anriged goal or engaging Greek friendly.

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Speaker 3: It sounds like the kind of negotiating seminar or business

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Speaker 3: class you might expect to find at a high school

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Speaker 3: or college. But the people here today are not students.

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Speaker 3: Many of them are managers and salespeople in their mid

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Speaker 3: thirties and upwards. They work for small and medium sized

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Speaker 3: businesses in Japan, and they've come here because they desperately

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Speaker 3: need to learn a skill they haven't needed to use

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Speaker 3: in ages, how to raise prices.

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Speaker 1: The tide is finally turning after thirty years, The power

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Speaker 1: brands is changing. Now is your chance.

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Speaker 3: So why are people who have already been in business

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Speaker 3: for years taking a class on how to raise prices now?

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Speaker 3: Well after decades of prices pretty much standing still or

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Speaker 3: falling in Japan. Things are starting to change. Costs are

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Speaker 3: rising in Japan, and that's put small roller and medium

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Speaker 3: sized companies in the country in a tricky spot.

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Speaker 4: So the smaller companies in Japan are getting squeezed because

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Speaker 4: what's happening for them is that they're paying more for electricity,

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Speaker 4: they're paying more for raw materials, parts and components.

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Speaker 3: Reed Stevenson is a senior editor at Bloomberg News based

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Speaker 3: in Tokyo.

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Speaker 4: And then their employees are coming to them and saying, look,

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Speaker 4: we have to spend more just to put food on

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Speaker 4: the table every month. You know, can you raise our.

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Speaker 1: Wages to survive?

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Speaker 3: These businesses will need to raise their prices, and whether

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Speaker 3: or not they are successful has huge implications for Japan's

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Speaker 3: economy overall, because smaller medium sized businesses like these are

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Speaker 3: a critical part of the Japanese economy.

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Speaker 4: They actually make up ninety percent of the companies in

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Speaker 4: Japan and employ the vast majority of people.

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Speaker 3: And Japan's central Bank is really paying attention to what

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Speaker 3: happens at these companies because after years of conventional monetary policy,

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Speaker 3: the Bank of Japan believes the economy may finally be

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Speaker 3: moving away from decades of deflation and towards some healthy

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Speaker 3: price increases. They've already raised borrowing costs earlier this year,

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Speaker 3: and this week they'll decide on whether they will raise

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Speaker 3: rates again. Welcome to The Big Take Asia from Bloomberg News.

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Speaker 3: I'm Rebecca Chung Wilkins. Every week we take you inside

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Speaker 3: some of the world's biggest and most powerful economies and

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Speaker 3: the markets, tycoons and businesses that drive this ever shifting region.

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Speaker 3: Today on the show, can small and medium sized businesses

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Speaker 3: in Japan learn to raise their prices? And what could

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Speaker 3: happen to Japan's economy if they don't. To help us

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Speaker 3: understand how Japan got to this place where people literally

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Speaker 3: need to take a class to learn how to raise prices,

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Speaker 3: I asked Reed to take us back to what's known

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Speaker 3: as Japan's Lost Decades, which started in the nineties after

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Speaker 3: a massive asset bubble burst.

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Speaker 4: Once that bubble burst, essentially the Japanese government engineered what

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Speaker 4: you can call an ultrasoft landing, So it took really

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Speaker 4: more than a decade for all of that to be resolved,

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Speaker 4: for bad loans to be written off, and by the

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Speaker 4: end of that decade or at least a decade, plus,

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Speaker 4: Japan found itself in a deflationary environment, and so prices

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Speaker 4: were going down, and the central bank essentially stepped in

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Speaker 4: and cut rates to zero and then to blow zero

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Speaker 4: to try and prop up the economy. But for some reason,

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Speaker 4: when you get into a deflationary cycle, it kind of

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Speaker 4: builds on itself. People spend life us and it keeps

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Speaker 4: going and going, and people got used to not paying more.

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Speaker 4: And so if you think about it, people in their

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Speaker 4: sort of late thirties, forties and even fifties in Japan

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Speaker 4: had never really had to step into a situation where

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Speaker 4: they had to negotiate and push for the person on

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Speaker 4: the other side of the table to pay more.

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Speaker 3: But with rising raw material prices after the pandemic, a

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Speaker 3: steadily weakening yen, and a mild economic recovery, prices are

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Speaker 3: picking up again in Japan.

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Speaker 4: If you're a consumer, you're seeing this happen at the

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Speaker 4: grocery store. So you're paying anywhere from maybe fifteen to

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Speaker 4: twenty percent more for a carton of milk. You're paying

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Speaker 4: more for vegetables, and consumers are feeling the pinch.

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Speaker 3: All of this has prompted the Bank of Japan or

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Speaker 3: the boj to finally switch gears and move away from

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Speaker 3: this notion of keeping interest rates below zero. In March,

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Speaker 3: for the first time in seventeen years, the BOJ raised

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Speaker 3: borrowing costs to zero, well between zero and zero point

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Speaker 3: one percent, and Read says, what the BOJ is hoping

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Speaker 3: to see here is this sort.

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Speaker 4: Of healthy cycle where higher wages feed into more spending,

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Speaker 4: into a sort of robust but manageable level of inflation.

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Speaker 3: The idea is that if people make more money, they

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Speaker 3: can afford to spend more, and so prices can go up.

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Speaker 4: So that you really get the economy essentially working like

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Speaker 4: it used to many decades ago.

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Speaker 3: So I guess the big question is is the boj's

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Speaker 3: plan of raising borrowing costs actually working so far?

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Speaker 4: This policy is working for the larger companies, especially if

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Speaker 4: the export, because obviously they can command higher prices abroad

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Speaker 4: where there are in fact quite significantly inflationary environments.

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Speaker 3: Essentially, what Reed is saying here is that big brands

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Speaker 3: like Toyota or Uniclo or seventy eleven have an advantage

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Speaker 3: because they can sell outside of Japan in places where

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Speaker 3: prices are just generally higher right now because of inflation.

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Speaker 3: So they can charge more for their products in those

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Speaker 3: places and raise prices, and with higher prices, bigger companies

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Speaker 3: have been able to pay their employees more.

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Speaker 4: For example, this spring, workers at the biggest companies in

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Speaker 4: Japan won their biggest annual wage hike in like thirty

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Speaker 4: four years, about five point one percent.

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Speaker 3: But for small and medium sized businesses, Reid says, it's

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Speaker 3: a different story.

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Speaker 4: The smaller medium sized companies that really make up the

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Speaker 4: bulk of the Japanese economy, this cycle doesn't appear to

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Speaker 4: have kicked in just quite yet.

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Speaker 3: Why is it that smaller businesses, like the ones that

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Speaker 3: are going to the class that you attended, why aren't

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Speaker 3: they seeing the same kinds of benefit.

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Speaker 4: What you have to understand is that the small and

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Speaker 4: medium sized businesses in Japan are very often at the

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Speaker 4: mercy of their customers, which are very often larger companies,

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Speaker 4: and the larger companies, for decades now, were able to

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Speaker 4: dictate the terms of the business relationship. And it reminds

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Speaker 4: me of an interesting phrase that you hear in Japan,

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Speaker 4: which is ekosazu korrosazu, which roughly translates as don't let

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Speaker 4: them live, but don't let them die. And this was

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Speaker 4: actually a term that was used by feudal lords hundreds

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Speaker 4: of years ago about how peasant farmers should be treated,

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Speaker 4: but it actually came up over the modern era, the

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Speaker 4: post war economic era, as a way to treat suppliers,

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Speaker 4: to treat the smaller companies that serve the larger companies

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Speaker 4: basically keep the them alive enough to provide parts and

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Speaker 4: goods and services, but never let them die.

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Speaker 3: And on top of this rigid power dynamic that's been

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Speaker 3: entrenched for years, there's a cultural element here at play too.

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Speaker 4: There's a certain element of being seen as greedy. So

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Speaker 4: rather than laying out a rational argument and using data

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Speaker 4: and evidence to pressure case, there's a fear by these

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Speaker 4: smaller companies that they might be seen as greedy or

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Speaker 4: taking advantage of a situation where really all they're trying

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Speaker 4: to do is just keep their business afloat.

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Speaker 3: But now more than ever, these small companies need to

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Speaker 3: figure out how to raise their prices and fast after

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Speaker 3: the break, how the Japanese government is stepping in to

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Speaker 3: support small businesses, and what a failure to raise prices

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Speaker 3: could mean for Japan's economy. To the outside world, Japan

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Speaker 3: is enjoying a resurgence. Famous investors like Warren Buffett are

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Speaker 3: talking up the market. Stocks have finally surpassed their nineteen

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Speaker 3: eighty nine peak, and everyone is traveling to Japan right now.

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Speaker 3: But it's another picture for smaller corporations. Many are facing

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Speaker 3: higher prices for raw materials and components, and their workers

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Speaker 3: want wage increases to cover these things. These companies will

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Speaker 3: need to figure out how to raise prices, and Bloomberg

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Speaker 3: editor Reads Stephenson says, there's real stakes here if they

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Speaker 3: can't read what happens to these businesses. If they can't

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Speaker 3: figure it out and don't raise their prices, well they.

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Speaker 4: Will go under. And then on a macroscale, essentially you

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Speaker 4: will not get the kind of economic activity that the

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Speaker 4: central bank and the government is looking for.

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Speaker 3: Given how important small and medium businesses are to the

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Speaker 3: economy of Japan and the ruling party, what is the

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Speaker 3: government doing.

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Speaker 4: Several years ago, the Japanese government actually identified this choke point,

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Speaker 4: and the Japan Fair Trade Commission was actually tasked with

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Speaker 4: going out and really pushing for the fair treatment of suppliers.

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Speaker 4: And so what the Japan FTC did was employed this

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Speaker 4: sort of interesting tactic of naming large companies that were

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Speaker 4: abusing their dominant bargaining position, and so, in fact, the

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Speaker 4: Japan FTC actually took the step of publicly reprimanding Nissan

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Speaker 4: Motor Company for cutting, you know, a significant amount of

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Speaker 4: money in payments to suppliers, and so Nissan paid in

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Speaker 4: full some of these payments, and then the president and

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Speaker 4: chief executive officer ended up apologizing and taking a thirty

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Speaker 4: percent pay cup.

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Speaker 3: The government is clearly trying to help pair, but when

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Speaker 3: it comes time to ask for more money, it will

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Speaker 3: be the people from these smaller medium companies who actually

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Speaker 3: need to do that, to say to the bigger companies,

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Speaker 3: I am raising my prices.

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Speaker 2: Read.

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Speaker 3: Did the people who you met in that negotiating class

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Speaker 3: in Matsue seem confident that they could do it? Did

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Speaker 3: they say the class was helpful?

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Speaker 4: Yes? In the class, after it was over, I met

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Speaker 4: Korgi Shidatski. He's what you might call a COO or

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Speaker 4: close to a CEO at a small manufacturer in the

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Speaker 4: city of mats and he is in his mid forties.

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Speaker 4: And when I was talking to him, he told me

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Speaker 4: he never really did have to ask for more money

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Speaker 4: from his customers. So he came to the class and

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Speaker 4: was really kind of relieved to learn that there were

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Speaker 4: techniques that he could use to sort of build a

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Speaker 4: convincing argument to raise his own prices. For example, without

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Speaker 4: having to reveal your own coss structure. You can point

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Speaker 4: to publicly available information such as, you know, the rising

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Speaker 4: market price for copper, or rising costs for electricity and

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Speaker 4: gas and et cetera.

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Speaker 3: How will we know if classes like this are working

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Speaker 3: and if smaller companies are able to raise their prices.

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Speaker 4: The first sign that this is starting to work should

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Speaker 4: start to appear in wage gains among small and mid

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Speaker 4: sized businesses in Japan.

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Speaker 3: So basically we'll see these businesses starting to pay their

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Speaker 3: workers more.

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Speaker 4: Yes, and then you're probably going to start to hear

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Speaker 4: language from the Bank of Japan saying that they're seeing

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Speaker 4: signs of healthy inflation, that inflation and price gains are

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Speaker 4: being driven by legitimate or normal economic activity, as opposed

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Speaker 4: to being driven by factors that are largely out of

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Speaker 4: the control of policymakers, such as the higher yen, or

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Speaker 4: important inflation, or higher energy prices.

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Speaker 3: Reid says it will take time to see if the

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Speaker 3: government's efforts to support small businesses and classes like the

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Speaker 3: one he went to in Matsue actually work. But Reed

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Speaker 3: did have one last burning question for the expert negotiator,

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Speaker 3: Iko Kanunji.

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Speaker 4: So that's when I sort of asked him, in fact,

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Speaker 4: you know, had he raised prices during his two decades

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Speaker 4: or so of doing price negotiations or even in the

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Speaker 4: more recent months couple of years when his services were

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Speaker 4: really in demand. And you get that sort of answer

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Speaker 4: that you're surprised and not surprised to hear, which is

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Speaker 4: that he himself has never raised his own prices.

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Speaker 3: Thanks for listening to The Big Take Asia podcast from

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Speaker 3: Bloomberg News. I'm Rebecca Cheung Wilkins. This episode was produced

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Speaker 3: by Naomi Young Young, Jessica Beck, and Adrianna Tapia, who

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Speaker 3: also fact checked it. It was mixed by Blake Maples.

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Speaker 3: It was edited by Caitlin Kenny, Rachel Chang, and Tom Redman.

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Speaker 3: Special thanks to Yasufu Mi Sito. Our senior producers are

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Speaker 3: Naomi Shavin and Kim Gettelson, and our senior editor is

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Speaker 3: Elizabeth Ponson. Nicole beamsterbor is our executive producer, and Sage

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Speaker 3: Bauman is Bloomberg's head of podcast. Please follow and review

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Speaker 3: The Big Take Asia. Wherever you listen to podcasts, it

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