TOKYO – Yusuke Sato says a man walked into his tobacco store in Atsugi, southwest of Tokyo, this month and bought 100 cartons of Mild Seven cigarettes. While they may not be good for his health, he may have saved $1,300.

The man is one of thousands of smokers across Japan stocking up before Oct. 1 to beat a record 40 percent tax increase on tobacco. Their hoarding may add as much as 1.4 percentage points to this quarter’s annualized economic growth rate, according to estimates from the Japan Research Institute.

Additional Photos

A sales clerk shelves cartons of cigarettes at a tobacco store in Tokyo, as many smokers across Japan anticipated a record 40 percent tax increase that takes effect Oct. 1. Japan is the world’s fourth-largest market for cigarettes, behind China, the U.S. and Russia. Bloomberg News photo by Tomohiro Ohsumi

“We were afraid we would run out of stock,” said Sato, who started taking reservations for cartons last month. “Thirty cartons has been the norm.” Next month, customers would pay $1,300 more for the same 20,000-cigarette order after the price of a pack of 20 jumps by a third, he said.

Japan is the fourth-largest market for the world’s tobacco makers, after China, the United States and Russia, according to a report from British market researcher ERC Group. Retailers like Sato and JR East Retail Net and producers including Japan Tobacco have gained from the rush of demand as they increased output and orders.

Japan Tobacco, the world’s third-largest publicly traded cigarette maker, which controls 65 percent of its home market, is raising prices on 103 of its 105 brands in October. A pack of its flagship brand Mild Seven will cost $4.88, up $1.31, as the government will raise the duty by 4 cents per cigarette, with tobacco companies charging an extra 2 cents each. That’s still less than half the $10.80 average price for a pack in New York City.

Japan Tobacco has slid 10 percent this year, compared with a 9.4 percent decline in the Nikkei 225 Stock Average.

Japan Tobacco expects 12 billion cigarettes of additional demand before the tax is introduced, and has increased production accordingly, said spokeswoman Yuka Sugimoto.

“Looking at the numbers, it looks like the frontloading already began in August,” she said. Japan’s cigarette sales by volume climbed 1.9 percent from a year earlier, the first gain since April 2008, according to the Tobacco Institute of Japan.

Former Prime Minister Yukio Hatoyama proposed the tax increase last year to discourage smoking in a country where 36.6 percent of men and 12.1 percent of women smoke, according to Japan Tobacco. The average Japanese smoked 2,028 cigarettes in 2007, according to ERC, almost twice as much as Americans and Germans and almost three times as much as Swedes.

“We’ve increased supply by about five times our regular amount,” said Mitsuko Matsui, 82, owner of a Tokyo tobacco store. “I feel bad for the men who come here. They’re saying their cigarettes are going to be more expensive than their lunches.”

While New York City Mayor Michael Bloomberg is pushing to extend the city’s smoking ban in indoor workplaces to public parks and beaches, few of Japan’s restaurants have non-smoking sections and government buildings still include smoking rooms. The mayor is founder and majority owner of Bloomberg LP, the parent of Bloomberg News.

This isn’t the first time smokers hoarded before the government raised the levy. In June 2006, a month before the last time Japan raised the duty, spending on tobacco soared 49 percent from a year earlier, according to calculations made from statistics bureau data. The month the tax took effect, the figure slumped 40 percent.

Japan’s economy will expand at a 1.7 percent annual pace in the three months ending Thursday, according to 15 economists surveyed by Bloomberg. Growth slowed to 1.5 percent annual pace in the previous period, the slowest pace in three quarters as consumer spending stalled, prompting Prime Minister Naoto Kan to propose a new $10.9 billion stimulus package this month.

Some households this quarter also rushed to buy a new car before a subsidy was withdrawn, prompting the government to cut the program short as allocated funds ran out.

Related Stories