Fast Retailing says Japan price hikes 'unthinkable' as wages stagnate

Chris Gallagher and Sam Nussey

* Q2 operating profit jumps to 42.1 bln yen, beats consensus

* Profit for first half up, but revenue almost flat

* Keeps FY operating profit view unchanged at 175 bln yen

(Recasts, adds CEO's comments on prices)

TOKYO, April 13 (Reuters) - Japan's Fast Retailing Co Ltd

, the owner of cheap-and-cheerful clothing chain Uniqlo,

said raising prices at home was "unthinkable" with weak wages

continuing to sap demand amid the country's long struggle to

overcome deflation.

Prime Minister Shinzo Abe's government is keen for Japan Inc

to hike salaries in a bid to support the economy and overcome

almost two decades of growth-sapping deflation, but real wages

have been largely flat. This has dragged on consumer confidence,

prompting retailers to offer products for less and cut expenses.

"It is unthinkable for us to raise prices at this stage,"

Fast Retailing Chief Executive Tadashi Yanai told reporters at

an earnings briefing on Thursday, after earlier reporting a jump

in profits but virtually flat revenues.

"Wages in Japan unfortunately have not risen enough."

Yanai built his apparel empire during the height of Japan's

deflation days, with its low-cost wear making Uniqlo something

of a poster child for deflation, but raised prices across the

board in 2014 as the value of the yen plummeted.

That backfired as shoppers balked at higher prices, eroding

profits, and the firm had to resort to cuts the following year.

The retailer's operating profit jumped 32 percent to 130.7

billion yen ($1.2 billion) over the six months ended February,

but revenue gained a mere 0.6 percent to 1.02 trillion yen.

It reiterated its operating profit forecast for the year to

August at a record high of 175 billion yen, although this is

below analysts' expectations of about 179 billion yen.

In Japan, Uniqlo operating profit rose 7.3 percent during

the six months, while sales gained just 0.3 percent.

Overseas, Yanai has been leading Fast Retailing on a rapid

expansion with the goal of eventually overtaking Zara-owner

Inditex SA and Hennes & Mauritz AB (H&M) as

the world's top apparel retailer.

Uniqlo, known for its HeatTech fabric technology and rainbow

coloured-basics, opened its 1,000th overseas store this fiscal

year. That is more than triple the number of stores the retailer

had just five years ago.

In the September-February first half, Uniqlo's overseas

operating profit surged 66 percent, led by Greater China and

Southeast Asia, but sales inched up 0.9 percent after accounting

for a stronger yen compared with the same period last year.

Fast Retailing said the yen averaged 108.7 per dollar in the

September-February period, stronger than 120.7 a year ago.

Fast Retailing shares are down about 17 percent year to

date, while the broader Topix index is down more than 3

percent. The stock closed down about a percent ahead of results

on Thursday, versus a 0.8 percent drop in the benchmark.

($1 = 109.0200 yen)

(Reporting by Chris Gallagher and Sam Nussey; Editing by Himani