Japan saw its highest number of bankruptcies since 2013 in the six months to September as companies were increasingly hit by rising costs.
About 4,990 companies went bankrupt during the period, an increase of 18.6% from the previous year, according to a report from Teikoku Databank on Tuesday. The number of companies going bankrupt in Japan has continued to increase since the second half of the year ending March 2022.
The rise in bankruptcies partly reflects the impact of higher prices, especially for small businesses. A record 472 of 4,990 companies cited inflation as the main reason they went bankrupt, the report found. The country’s main price gauge has remained at or above the Bank of Japan’s 2% target for more than two years as the weak yen has inflated import costs for everything from food to energy.
According to the report, construction, manufacturing and retail were among the sectors with the highest number of cost-related bankruptcies.
In addition to rising prices, a record number of 163 companies cited labor shortages as a reason for their struggles. Japan’s unemployment rate has been below 3% for more than three years – the lowest level among developed economies.
The tightening labor market is putting pressure on companies to increase salaries to retain their employees, putting further pressure on their budgets. While some Japanese companies successfully offered pay increases of more than 5% to their employees during wage negotiations earlier this year, many small and medium-sized businesses have reported difficulty 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 increase interest rates on certain short-term loans.
