This article first appeared in The Edge Malaysia Weekly on November 10, 2025 - November 16, 2025

TOKYO-listed Japan Tobacco Inc (JT Group) is doubling down on the shift towards reduced-risk products (RRPs) in an industry now convinced that the future of the nicotine market hinges on the success of non-combustibles or smoke-free products.

The global tobacco giant has committed ¥650 billion (RM17.7 billion) to its RRP segment for the 2025 to 2027 period, driven by its flagship heated tobacco line Ploom. The investment is more than double the ¥300 billion it spent on the category in 2022 to 2024.

“We plan to invest mainly in marketing activities, strengthening our product pipeline and driving innovation. We will prioritise investment in the heated tobacco segment under Ploom and target further market share growth for the brand, which is now available in 27 markets worldwide,” says Takayuki Shimomura, vice-president of investor and media relations at JT Group, in a briefing for foreign media in Tokyo.

JT Group launched its fourth-generation heated tobacco device Ploom Aura in Japan in May and has begun rolling it out globally.

The group operates across three major segments: tobacco, processed foods and pharmaceuticals. Tobacco, led by subsidiary Japan Tobacco International (JTI), remains the group’s core business, contributing over 90% of total revenue and profit, while its frozen food business holds a strong domestic position in Japan.

The group recently agreed to sell its pharmaceutical division to Shionogi & Co Ltd for about ¥150 billion.

Globally, JT Group employs more than 53,000 people of more than 100 nationalities, who operate 61 factories across its tobacco and processed food operations.

Shimomura says the group’s annual revenue topped ¥3 trillion, marking three consecutive years of record highs, and that another record is expected in the financial year ending Dec 31, 2025 (FY2025). Revenue is forecast to increase by 3.9% to ¥3.27 trillion this year from ¥3.15 trillion in FY2024.

Last year, JT Group acquired US cigarette maker Vector Group Ltd for US$2.4 billion (RM10 billion), expanding its footprint in one of the world’s largest tobacco markets.

“We will continue to consider mergers and acquisitions (M&A) where they make strategic and economic sense,” says Shimomura.

Through M&A-driven expansion and sustained brand investment, JT Group has become the world’s third-largest tobacco company. Its Winston and Camel brands rank among the top three globally by sales volume, with the former at No 2 and latter No 3.

“Now, we are taking on a new challenge, driving growth in the RRP category. RRPs have the potential to reduce the health risks associated with smoking,” he says.

While global cigarette volumes are projected to decline, industry revenue is expected to rise at an average annual rate of 3% until 2035, according to JT Group.

“Against that backdrop, the RRP segment is expected to see significant growth in both volume and revenue. Heated tobacco sticks (HTS) will likely deliver the most sustainable profit growth. And by 2035, we expect the category to account for about 22% of the global market,” says Shimomura.

“Given this outlook, we will continue investing in our traditional cigarette lines, which are expected to remain the largest category until 2035. At the same time, we will prioritise HTS as a strategic growth area and allocate resources accordingly.”

RRPs include nicotine pouches, vapes, infused tobacco and heated tobacco.

“To meet diverse consumer needs, we will continue to explore the potential of various RRPs. However, based on the market environment, our main focus will remain on HTS,” he says.

Over the next three years, JT Group expects high single-digit growth in adjusted operating profit at constant foreign exchange rates. This will be driven by robust pricing in combustibles, improved RRP profitability and contributions from the Vector acquisition, which will more than offset the higher RRP investment that it had planned, says Shimomura.

The group’s three-year tobacco strategy rests on two pillars: improving returns from combustibles and advancing its 2028 RRP goals through focused investment on HTS.

“For RRP, our priority is to reach a mid-teen share of the HTS market and to achieve break-even in the RRP business by end-2028,” he says.

Japan’s evolving tobacco market

As at November 2023, 15.7% of adults in Japan smoked regularly, according to its health, labour and welfare ministry. Combustible cigarettes still made up about 60% of the market, with RRPs accounting for the rest.

JTI’s share of the combustible segment stood at 61.8% between April and June 2025. In the first half of this year, RRP volumes rose 20.2% year on year, driven by a 29.5% increase in HTS volumes.

Following the launch of Ploom Aura and Evo sticks, Ploom’s share of Japan’s HTS market reached 13.6%, gaining momentum but still trailing Philip Morris International’s IQOS, the early market leader.

“We absolutely have the ambition to become No 1. We believe we have what it takes to compete and eventually overtake,” Ryo Yanagino, marketing and sales director at JTI in Tokyo, tells The Edge.

Yanagino says that in the Japanese market, the demand for combustible cigarettes is falling while RRP use is rising.

“In the near future, the share of combustibles and RRP is expected to reverse as the share of HTS in Japan has been growing significantly,” he adds, noting that the majority of people picking up the HTS category come from combustibles users.

JTI expects its RRP business to turn earnings-accretive by 2027 at the latest.

The Ploom brand was launched in Japan in 2016 with Ploom Tech, an infused tobacco device. The current HTS-type product Ploom X debuted in 2019, followed by Ploom Aura this year, which has now replaced earlier versions in Japan.

JTI launched Ploom X in Malaysia in January.

“We have high hopes that the HTS category will continue to grow in Malaysia. It’s a large, sophisticated market that embraces innovation. We aim to tailor our products to local consumer preferences, as we do in Japan,” says Yanagino.

Ploom’s top markets are currently Japan, Slovakia and the Czech Republic, with Japan and South Korea the leading markets in Asia.

Drivers of HTS adoption

Yanagino explains that HTS products appeal to consumers in Japan for two main reasons: perceived harm reduction and convenience.

“In Japan, smoking areas are limited, so many find heated tobacco more practical. Users also see it as cleaner — no smoke, no ash and less odour.”

Japan recognises heated tobacco as a reduced-risk category, according to him.

“These products don’t combust and they emit fewer harmful chemicals. Several countries such as the UK, the US and those in the European Union recognise the reduced risk potential of tobacco and nicotine products that do not combust or burn, such as HTP, vapes and nicotine pouches. That is because eliminating combustion leads to lower levels of selected harmful chemicals in tobacco products,” he notes.

Asked about the ban on electronic cigarettes (e-cigarettes) in some markets, Yanagino says JTI complies fully with local laws.

“We respect the laws and regulations in all the markets where we operate. And if that’s [the ban] the regulation, we will always comply. In Japan, this is a growing category, so it makes sense to invest. Wherever markets permit, we will continue to expand the RRP category. We have always been pro-choice,” he adds.

Illicit trade, including smuggling and counterfeiting, remains limited in Japan. Yanagino warns that it could rise if tobacco taxes are increased.

He says the reasons illicit trade has not become a major issue in the Japanese market include the fact that tobacco retail sales are limited to stores authorised by its finance ministry. Logistics and distribution routes are also restricted, making the supply chain highly transparent.

Another reason is that consumers are extremely sensitive to differences in packaging and taste.

Under Japan’s Pharmaceuticals and Medical Devices Act (formerly the Pharmaceutical Affairs Act), liquids containing nicotine are classified as pharmaceutical products, while devices used to inhale them are medical devices. Their sale requires approval from its health, labour and welfare ministry.

As a result, e-cigarettes sold in Japan generally do not contain nicotine. JTI does not manufacture or sell disposable e-cigarettes.

As Yanagino emphasises, “In Japan, there are essentially two categories: traditional combustible cigarettes and heated tobacco.”

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