Big trouble with the new Japanese yen coming into circulation

The vending machine at Hiroshi Nishitani’s Goumen Maruko ramen restaurant has been working reliably for a decade. Customers insert money into the machine and it prints out their orders while the owner makes fresh noodles in the kitchen. The dishes are served within minutes of customers placing their orders at the counter.

But the machine’s days are numbered. Japan is set to introduce a new set of banknotes this summer, something it does about every 20 years to prevent counterfeiting. Nishitani said the machine is too old to accept recent coin designs and will not accept new bills.

“There was nothing wrong with the machine,” Nishitani said, expressing frustration at having to buy expensive new equipment compatible with the new notes.

Across Japan, restaurants, cafeterias, bathhouses and other businesses are facing a similar prospect. According to Nikkei Compass, a database of industry reports, the country has 4.1 million vending machines, many of which will be obsolete when new 1,000, 5,000 and 10,000 yen bills with hologram technology are introduced in July.

In Japan, where the workforce is shrinking, machines have helped reduce the need for cashiers and other servers. The sector most reliant on machines is ramen shops, which serve one of the most popular and affordable meals among Japanese workers.

Ramen, a noodle dish with a rich, flavorful broth, has become an integral part of Japanese cuisine since it was popularized in the 1980s when the country's economy took off. Ramen restaurants proliferated as people sought quick, filling meals, and chefs experimented with new ingredients. Many chefs have dedicated their lives to perfecting the dish. Nishitani, 42, started making ramen at 17.

Ramen is a staple food for construction and factory workers, salarymen and students in need of cheap meals. Many ramen shops are clustered around train stations, catering to commuters.

On a recent afternoon, students from a nearby university came for a late lunch at Nishitani’s nine-seat Goumen Maruko. He and his three employees sell about 100 meals a day, each costing less than 1,000 yen, or $6.

Some municipalities offer subsidies to help cover the cost of upgrading or replacing vending machines, but the bulk of the cost falls on store owners. A new machine can cost as much as 2 million yen ($13,000).

Yoshihiro Serizawa, the owner of a soba noodle shop in Tokyo, said he spent about $19,000 on his new vending machine, which also accepts cashless payments. It was a “huge financial burden,” Serizawa said. The cost was equivalent to more than 6,000 servings of his most popular dish: soba with mixed vegetables and seafood tempura, which costs just over $3.

“You have to constantly think about how to make money back,” Mr. Serizawa lamented.

The new notes are also putting pressure on Japan's small businesses, as inflation has accelerated after years of low levels and the country has fallen into recession.

Rising flour and electricity prices have added to the costs for ramen shops in particular. Analysts at Tokyo Shoko Research say 45 ramen restaurants nationwide filed for bankruptcy last year, the highest number since 2009. With customers unaccustomed to rising prices, businesses have struggled to raise prices without losing customers. The widely accepted limit for a bowl of ramen is known as the “1,000 yen wall.”

“I really don't want to raise prices any further,” Mr. Nishitani said.

When Japan last issued its banknotes in 2004, it cost hundreds of millions of dollars to modify vending machines and issue 10 billion new bills. Demand for the replacement machines was so high that one manufacturer near Osaka, Glory, saw its net sales triple, according to an annual report.

The transition to the new machines could take years. According to the Japanese newspaper Sankei Shimbun, by the summer of 2023, only about 30% of vending machines will be able to accept the 500 yen coin that was introduced in 2021.

Mr. Nishitani’s vending machine won’t work with that kind of money either. A city official said his Tokyo district is subsidizing up to $1,900 for a new machine. But Mr. Nishitani disagrees that that’s nearly enough.

With two months to go before the new currency is issued, he has yet to order new vending machines. He recently began accepting payments via credit card readers for the first time. But that comes with more administrative fees and more labor. “I can’t get used to it,” the ramen shop owner said.