Japan Corporate Bankruptcies Hit 10-yr-high Amid Labor Shortage

The number of corporate bankruptcies in Japan hit a 10-year-high in the first half of 2024, marking the 3rd consecutive year of increase for the period, as labor shortages and inflation took their toll, a credit research company said Friday.

The failures, involving debts of at least 10 million yen ($62,200), rose 22.0 percent year-on-year to 4,931 cases in the six months, according to Tokyo Shoko Research.

"There will be more companies unable to keep up with price rises from the ongoing weak yen, even if they pass on higher costs" to customers, a Tokyo Shoko Research official said, noting the possibility of surpassing more than 10,000 cases over a year.

Those caused by labor shortages increased by 2.2 times to 145 cases, hitting the highest for the period since the survey began in 2013. Bankruptcies triggered by rising prices increased by 23.4 percent to 374 cases, while an additional 327 bankruptcies involved companies struggling to repay government-provided interest-free loans issued during the COVID-19 pandemic.

By industry, the construction sector recorded the second-largest number of bankruptcy cases at 947, an increase of 20.6 percent, due to stricter overtime work regulations implemented on April 1 and rising prices for construction materials.

The total liabilities left by bankrupt companies in the January to June period amounted to 721.04 billion yen, a decrease of 22.8 percent, with the research company attributing the figure to fewer large-scale bankruptcies.

The Nikkei and Topix stock indexes briefly hit all-time highs on Friday, driven by expectations that the continued depreciation of the yen would boost profits for major manufacturing industries. However, bankruptcies revealed that small companies with fewer than 10 employees accounted for 88.4 percent of the total cases.

Bankruptcies surged to 8,169 in the January-June period of 2009 in the aftermath of the global financial crisis but had been declining since then, even during the coronavirus pandemic, thanks to sufficient public financial aid.

In June alone, bankruptcies increased 6.49 percent from a year earlier to 820 cases, with liabilities falling 27.20 percent to 109.88 billion yen, marking the 4th consecutive month of decrease.