Japan Corporate Bankruptcies: Updated Oct. 28, 2023

 Article Source: https://mainichi.jp/english/articles/20230710/p2g/00m/0bu/035000c

Article:

TOKYO (Kyodo) -- The number of corporate bankruptcies in Japan for the first six months of 2023 rose 32.1 percent from a year earlier to a five-year high of 4,042, as businesses took on increased debt to stay afloat amid the coronavirus pandemic, a survey by a credit research company showed Monday.

The rise in failures involving liabilities exceeding 10 million yen ($70,000) comes as many companies have begun repaying interest-free and unsecured loans, which lenders extended under a government program in response to the pandemic, Tokyo Shoko Research Ltd. said.

Ideas:

For a very long time, Japan was mostly focused on market share and not so much on profitability. 

And when a company did have challenges, they could just to their corporate bank and get another loan to take care of things.

But since the 1990's Japan has been more focused on western style corporate governance, which means they focused more on making a profit instead of just increasing market share above profitability. 

So during the pandemic maybe many companies were not so profitable and maybe banks are not as generous and they were in the 70's, 80's and early 90's when loans were easy to get to keep a company going.

Article:

Rising material and labor costs have also affected businesses, the research firm said.

In total, 322 cases involved companies funded by the emergency program, almost doubling from a year before. Business insolvencies resulting from rising prices increased 3.3-fold to 300, according to the firm.

The number of corporate bankruptcies could increase further, especially among firms that have been slow to recover from the pandemic, the firm said.

Ideas:

For the most part, many companies now pass-on their costs, if they can, to whomever is next in the supply chain.

If a company and or won't they try to absorb the cost and cut-back where they can but unfortunately many companies just keep increasing the debt from material costs and energy cost increases. 

The global environment and Japan too has changed since the pandemic has started and some-what stopped. Some companies have been able to recover with no challenges while some companies continue to struggle and haven't been able to move on past the pandemic situation.

At the same time, bankruptcies are noting new in a market economy, as unfortunately, there are those that survive and do well and some that just can't make it ans have to stop doing business.

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The total liabilities left by bankrupt companies fell 45.3 percent to 934 billion yen in the six months after surging last year due to an extraordinarily large debt held by Marelli Holdings Co., a major auto parts maker.

The company filed for protection with a court in June last year under Japan's civil rehabilitation law, with debts totaling 1.13 trillion yen.

Ideas:

Fortunately, like most advanced economies, there are laws and governance in place to help companies that might have challenges and help to avoid bankruptcy. The best example is JAL while filed for bankruptcy at one time but they were able to work a plan with the Japanese government which helped them overcome the bankruptcy challenges and now they are operating with minimal challenges.

But not all companies are as lucky as JAL to overcome their challenges and unfortunately some do go bankrupt over time. 

One indicator or  recession is how many companies are going bankrupt because of challenging business conditions. If a economy starts to see more and more bankruptcies then there is a good indication the economy is headed for a recession or is in a recession.

Another strong indictor might be the number of layoffs in an economy. If lay-offs, while not so common in Japan, except for maybe during the pandemic, were increasing, that is good indication of weak economic conditions and weak demand for products. 

Article:

All 10 industry categories covered by the survey saw an increase for the first time in 25 years, Tokyo Shoko Research said.

The service sector logged the highest number at 1,351 cases, up 36.1 percent, with many restaurants going out of business after the government ended its pandemic-related financial aid.

The construction industry came second at 785, up 36.3 percent, as it was hit by rising material costs.

Ideas:

While the Japanese government pandemic-related financial aid was good and needed, maybe they should have extended for another year to help companies that continued to struggle with recovering from the pandemic.

The services sector was hit the hardest from the pandemic as customers might have been slow to return and it took time to get restaurants and so on back to a normal level of profitability.

But at the same time, again, in market economy, there are going to be, for lack of better words, winners and losers, and some are going to make it and some are going to not make it unfortunately, as we are talking about peoples lives and not just a business. 

The construction industry is a unique industry that is at the heart of an economy, as construction covers many aspects of an economy.

Unfortunately, a construction company has to use only certified types of products for their construction and if they try to use cheaper un-cercertified products they could be liable for law-suits and so on if there are construction concerns. 

Have a nice day and be safe!