Japanese Corporate Bankruptcies Increase for the First Time in 3 Years... Struggling with High Inflation and Labor Shortages

Estimated 6,400 Locations Last Year
Increased Import Costs Due to High Inflation
Labor Shortage Worsening as Main Cause

[Image source=Yonhap News]

[Asia Economy Reporter Lee Ji-eun] Last year, the number of corporate bankruptcies in Japan reversed to an upward trend for the first time in three years. The high inflation triggered by the Russia-Ukraine war led to corporate bankruptcies. Due to labor shortages and supply chain disruptions, Japan's overall production activities have also stagnated, raising expectations that the number of companies closing, especially small and medium-sized enterprises, will increase this year as well.

According to the Nihon Keizai Shimbun on the 9th, Tokyo Shoko Research (TSR) reported that a total of 5,822 Japanese companies closed by November last year, a 5% increase compared to the same period the previous year. Including December records, it is estimated that the total number of companies that closed during the year will reach about 6,400. This is the first time in three years since 2019, before the spread of COVID-19, that the number of corporate bankruptcies has shown an increase compared to the previous year.

High inflation caused by the Ukraine war has gripped Japanese companies by the collar. While raw material prices surged sharply, the yen's value fell to an all-time low, increasing import costs, and companies unable to bear these costs proceeded with bankruptcy procedures. According to Teikoku Databank, among the companies that closed by November last year, 46 cases were due to rising prices, accounting for 10% of all bankruptcies. In particular, companies in the construction and transportation industries, which were directly hit by high inflation, saw an increase in bankruptcies.

The total debt of Japanese companies reached 2.3 trillion yen (21.869 trillion won), nearly double the previous year's 1.1507 trillion yen. Last year, a series of large and small bankruptcies occurred in Japan, including the large automobile parts manufacturer "Marelli," which had 1 trillion yen in debt and entered rehabilitation procedures.

The wave of bankruptcies is expected to continue into this year. Small and medium-sized enterprises are particularly at risk. Due to the combined effects of high inflation and labor shortages, it is anticipated that many will face a critical juncture this year. According to the Bank of Japan's Short-Term Economic Survey, the employment judgment index, which reflects companies' perception of labor shortages, recorded -31 percentage points. The lower the figure, the more severe the companies' hiring difficulties. However, some view this as a base effect following 2021, when low-interest loans led to the lowest number of bankruptcies in 57 years in Japan.

Nihon Keizai expressed concern, stating, "Last year, due to global supply chain issues, manufacturing companies such as those in the automobile and electronics sectors were unable to smoothly procure semiconductors, leading to reduced production activities," and added, "Japan has high future growth potential but lacks production capacity for parts that are heavily affected by global supply chain disruptions."

This content was produced with the assistance of AI translation services.