Japan firms face rising bankruptcy risk

Corporate bankruptcies in Japan surged 6.9% year-over-year in July to reach 1,028, marking the second consecutive month with more than 1,000 cases, according to Tokyo Shoko Research. The total liabilities increased by a substantial 41.4% to 236.3 billion yen, largely driven by the bankruptcy of Osaka-based credit-card transaction system provider Zentoshin, which filed for bankruptcy with 115.16 billion yen in liabilities, potentially the largest such filing this year.

The surge in bankruptcies can be attributed to several factors, including labor shortages and rising prices. Bankruptcies linked to labor shortages hit a record 63 cases, with 36 caused by rising personnel costs, double the number from a year ago. The official from the research firm explained that "pay raises are unavoidable to secure workers, but companies are worsening their cash flow by raising wages beyond their means when they are unable to generate sufficient earnings."

Rising prices were also a significant contributor to bankruptcies, with 93 cases reported, the highest since 2022. The weaker yen led to increased costs for materials and raw materials, exacerbating the financial strain on businesses. Across various industries, bankruptcies rose compared to the previous year, with seven out of the 10 sectors affected, including construction, retail, and transportation.