Japan Bankruptcies: Updated Oct. 15, 2025.

Japan bankruptcies hit 12-yr-high in 1st half of FY2025 amid labor scarcity

Article source: https://mainichi.jp/english/articles/20251008/p2g/00m/0bu/026000c

Ideas

While bankruptcies are common in a market economy its very unfortunate that most if not all bankruptcies in Japan are small businesses which is usually a family type business.

For a very long time, its quite possible that many of these businesses might have been considered zombie type companies or just barely surviving, as the the Japanese government and or the Bank of Japan with its low interest rates or near zero interest rates kept some or many of these companies from going out of business.

But over time, as interest rates have been inching up, material costs kept increasing, and then add in the labor shortages, many of the small businesses could no longer hold on and finally had to file for bankruptcy.

The article doesn't really explain much about the companies that went bankrupt but most likely many of them might have been family type businesses, which couldn't afford to increase wages for their workers, and or had very thin profits margins that material costs just eroded over time. And then add in the increase in interest rates as the Bank of Japan has increased the key rate several times over the past several years.

Some in business, or academia, or economist might see bankruptcies as a necessary part of the market economy as those that can innovate and keep customers happy survive and move on while those that don't eventually die out and then newer or better companies move into the marketplace and take the place of those that just could't make it.

Some might call it creative destruction as companies that can't make it leave and newer companies come in and create new synergies in the marketplace.

Yes, its not always the smaller companies that go bankrupt as even mid-size companies can die out and even the large name brand companies which might be characterized as too big to fail companies can die out too sometimes.

While very few large Japanese companies have gone bankrupt recently it was not uncommon back during the late 80's or 90's where many companies were on the brink of bankruptcy but the government and the banks propped up many companies from going under.

Japan is in a so-called labor shortage now, which is good for workers wanting to change jobs, if they can find a new job that pays them more or better working conditions.

But its not so good for many small and mid-size companies that have very thin profit margins and can't afford to increase wages to keep workers and or entice new workers to join their company as they can't pay the wages needed that new workers need or want.

Again, some might say this is just a normal mechanism of a market economy and an economy adjusting for maybe too many companies in the marketplace. 

That might be true but it doesn't discount the human suffering involved of a company having to close and people losing their jobs and having to look for a new job if they can find one.

The financial strength of many small companies might have been very weak as again, increased material costs ever since the pandemic have kept increasing, increased energy costs too since the pandemic and then, the past two years many companies have been increasing wages which has put a significant stress on many companies which haven't been able to increase wages which means they might have actually lost workers who then moved to companies that offered increased wages and maybe even better working conditions.

Some might say, right or wrong, that the Japanese economy is actually going through a period of the marketplace getting rid of companies that can't keep up and keeping companies that are financially strong which might actually make the Japanese economy better off in the future.

The weak Japanese yen is another reason for some of the bankruptcies and especially with domestic companies as import prices related to the weak Japanese yen have kept increasing material costs and energy costs which many small domestic companies haven't been able to overcome.

And yes, service type companies and especially restaurants have been hit especially hard as they have been hit hard as they have to pass-on their costs to their customers, or try too, but its become extremely challenging for the to keep increasing prices and losing customers.

The service sector normal has very thin profits margins as they are always challenged to keep prices low but its been impossible for many of them to do it and as they just can't keep absorbing their energy and material costs and have to pass-on their cost to their customers which means customers are going to think twice about buying from them  as customers or consumers have less and less disposable income to spend in the economy.

Once again, it's very unfortunate that any company has to go bankrupt as it's about people and not just a company on a piece of paper and it might involve families too which is very unfortunate.

But again, and finally some would say the Japanese economy is just going through the normal mechanism of a market economy as some companies thrive and go on and some that can't make it die out when gives room for new companies to enter the marketplace.

Have a nice day!