By Taiga Uranaka and Ritsuko Shimizu

TOKYO (Reuters) - The chief executive of Isetan Mitsukoshi Holdings Ltd said Japan's biggest department store chain by sales would never cut prices, even as consumers return to the deflationary mindset of delaying purchases in the expectation of price falls.

Hiroshi Ohnishi, in an interview on Thursday, also said the end is near for "bakugai" explosive buying, or shopping sprees by Chinese tourists that made up for slow domestic demand.

"Middle-income customers' purchases have been declining," Ohnishi said. "And the number of foreign shoppers is still on the rise but value per purchase is falling."

"But we would never cut our prices. That would hurt the chain's upscale grade," he said.

Deflation-beating government policies initially sparked a stock rally and spurred spending after their introduction from December 2012.

But officials failed to meet inflation targets and market and consumer sentiment have since waned, prompting companies such as Uniqlo owner Fast Retailing Co Ltd to backtrack on plans to raise prices.

At Isetan Mitsukoshi, sales particularly of high-end goods grew markedly after the government began its anti-deflation drive, but have slowed since the start of 2016, Ohnishi said.

Overall sales fell for a third consecutive month in May, by 8.7 percent compared with the same month a year prior.

To counter the decline, Ohnishi said Isetan Mitsukoshi plans to open a store in another Asian market the next three to five years, to complement its stores in China, Malaysia, Singapore, Taiwan and Thailand.

It also plans to launch a cross-border e-commerce platform this year targeting primarily Chinese consumers.

Ohnishi said Chinese shoppers have not been spending as much as they have done over the past two or three years. Many Chinese shoppers bought in bulk for resale back home, but the scale of such purchases has fallen in recent months after the Beijing government raised import duty on luxury goods, he said.

Shopping is also becoming less central to Chinese tourists' visits with the focus shifting toward sightseeing, he said.

That shift comes at a time when tourists are an increasingly central target for the 6 trillion yen ($56.5 billion) department store market. Visitors to Japan rose 15.3 percent on year in May, with those from China rising 31 percent. Numbers are set to double by the time Tokyo hosts the 2020 Summer Olympic Games.

($1 = 106.1500 yen)

(Reporting by Taiga Uranaka and Ritsuko Shimizu; Editing by Christopher Cushing)