Tokyo Smoking Ban Could Shake Up Tobacco, Retail Markets

(Bloomberg) -- Tokyo’s smoke-filled pubs and coffee shops may soon be a thing of the past as the country readies to tighten regulations ahead of the 2020 Olympics.

The Tokyo Metropolitan Assembly passed an ordinance Wednesday that essentially bans smoking inside 84 percent of the city’s bars and restaurants. The rule is seen as stricter than a bill under debate in the Japanese Diet, which would restrict smoking at roughly 45 percent of national bars and restaurants, according to Nomura Securities Co. Both ordinances would come into force in April 2020.

While the regulations may dent overall tobacco demand somewhat, over the medium term they may boost the market for heat-not-burn tobacco products, which would still be permitted in eating and drinking outlets, Nomura analysts Satoshi Fujiwara and Ryozo Minagawa wrote in a note dated June 27. Japan Tobacco Inc. may be poised to benefit as it launches new products to gain share in the smokeless market, says Nomura, which recommends buying the company’s shares.

Tougher rules could dent party demand at Japanese-style pubs, or “izakaya,” Japan’s largest brokerage said, noting that Watami Co. struggled to attract customers after it banned smoking at some locations. Nomura sees a limited impact on cafe operators such as Doutor Nichires Holdings Co., which saw a temporary decline in sales when it went smoke-free, followed by a recovery owing to increased patronage by non-smokers.

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