Japan records highest number of bankruptcies in a decade as costs rise

Japan saw the highest number of bankruptcies since 2013 in the six months through September, as companies were increasingly hit by rising costs.

Some 4,990 firms went bankrupt in that period, increasing 18.6% from the previous year, according to a report by Teikoku Databank on Tuesday. The number of firms going under in Japan has continued to increase since the second half of the year ending March 2022.

The jump in bankruptcies partly reflects the impact of higher prices, particularly for small companies. A record 472 out of the 4,990 firms cited inflation as the main reason they went bankrupt, the report showed. The country’s key price gauge has stayed at or above the Bank of Japan’s 2% target for over two years, as the weak yen has inflated import costs for everything from food to energy.

Construction, manufacturing and retail were among the sectors that had the highest number of cost-driven bankruptcies, according to the report.

Beyond rising prices, a record 163 firms cited labor shortages as a reason for their struggles. Japan’s unemployment rate has remained below 3% for over three years — the lowest level among developed economies.

The tighter labor market puts pressure on companies to boost salaries to retain their employees, further straining their budgets. While some Japanese companies successfully offered more than a 5% wage increase for their workers in pay negotiations earlier this year, many small and medium sized firms have reported difficulties in following suit.

Looking ahead, another potential risk for companies is higher debt-servicing costs following the Bank of Japan’s interest rate hikes in March and July. Some major and regional banks have already announced that they will raise the lending rates on certain short-term loans.