The number of Japanese companies that went out of business in the first half of this year exceeded 5,000 for the first time in 12 years, as rising prices and labor shortages took their toll.
Corporate bankruptcies across Japan (involving debts of 10 million yen or more) totaled 5,346 cases in the first half of the year (January through June), according to data released July 9 by corporate credit research firm Tokyo Shoko Research, the Nikkei reported the same day. The figure represents a 7.1% increase from a year earlier.
This marks the first time since 2014 that Japan's first-half corporate bankruptcies have topped 5,000. Bankruptcies have now risen for five consecutive years.
"Small and medium-sized companies unable to withstand wage pressures driven by rising prices and labor shortages are being weeded out," the Nikkei noted. Indeed, most of the failed companies were small businesses. Companies with fewer than 10 employees accounted for 4,844 cases, or 90% of all bankruptcies.
By cause, 439 companies went bankrupt due to rising prices, up about 28% from a year earlier. Bankruptcies attributable to labor shortages rose about 38% to 237 cases. Notably, labor shortage-driven bankruptcies exceeded 200 cases in a first half for the first time since the statistics began in 2013, setting a record high for the third consecutive year.
The impact varied sharply by industry. Service sector bankruptcies rose 7% year-on-year to 1,819 cases, the highest in 30 years. Construction bankruptcies, hit simultaneously by rising building material costs and labor shortages, reached 1,026 cases, topping 1,000 for the first time in 12 years.
The restaurant industry also took a direct hit. Restaurant bankruptcies reached 509 cases, entering the 500 range for the first time in 30 years. Among them, bankruptcies of izakaya, or Japanese-style pubs, totaled 118 cases, exceeding 100 for the first time on record.
The rise in bankruptcies is attributed to the weak yen and higher material and fuel costs stemming from instability in the Middle East, which compounded the difficulties of already struggling companies. On June 30, the yen fell to the 162 range against the dollar in Tokyo foreign exchange trading, its lowest level in about 39 and a half years, since December 1986.
Interest rate burdens are also squeezing companies. The Bank of Japan raised its policy rate further to 0.75% last December, ushering the Japanese economy into what is being called a "world with interest rates." As a result, underperforming companies have been saddled with heavier interest burdens when repaying or refinancing their borrowings.
Debt levels have also grown. The total debt of companies that went bankrupt in the first half of this year reached 734 billion yen, or about 7 trillion won, up 6.3% from a year earlier. This is the first increase in total debt in four years.
Large-scale bankruptcies also increased. Major bankruptcies involving debts of 1 billion yen, or about 9.5 billion won, or more totaled 114 cases. This is the first time in six years that large bankruptcies have exceeded 100 in a first half.
The monthly trend also showed a clear upswing. Japan's corporate bankruptcies in June totaled 1,021 cases, surpassing 1,000 for the first time in two years and one month. Bankruptcies driven by surging labor costs, in particular, increased 2.3-fold from a year earlier.
The Japanese government is taking action in response. Prime Minister Sanae Takaichi drew up a comprehensive economic package last November centered on "livelihood security and responses to high prices." Through the package, the government is supporting wage increases at small and micro businesses and promoting the entrenchment of price pass-through, allowing cost increases to be reflected in supplier prices.
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