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Japan bankruptcies up 6.4% in 2007

According to data released Thursday by Tokyo Shoko Research, the number of bankruptcies in Japan in 2007 rose 6.4% from the year before to hit 14,091, the highest figure registered since 2003. The combined debt of those bankruptcies grew 4.1% to reach 5.72 trillion yen, the highest level seen in seven years.

122,430 people lost their jobs as a result of bankruptcies in 2007.

The construction industry was hit hardest, with 4,018 firms going bust in 2007. Out of the ten sectors surveyed, only real estate saw a decrease in the number of bankruptcies filed last year. The manufacturing sector saw its first increase in six years, as the bite of high oil prices grew bigger fangs.

The Kanto region (which includes Tokyo and Yokohama) saw an increase for the second consecutive year, as did the Chubu regions (which includes Nagoya). The Kinki region (Osaka, Kobe, Kyoto) saw an increase in bankruptcies for the third consecutive year. Only the Tohoku and Chugoku regions saw a decrease in the number of bankruptcies. Interestingly, aside from Hiroshima in the Chugoku region, both Tohoku and Chugoku tend to be very much on the rural side.

Teikoku’s data includes all bankruptcies in which corporate liabilities reached ten million yen or greater.

If there is a bright side to this month’s data, it would be that in December, the number of bankruptcies stood at 891, which was a 0.6% decrease - the first decrease seen in 15 months.

In a separate report also issued Thursday, Teikoku Databank announced that in 2007 the number of bankruptcies jumped 17.2% to 10,959 and that liabilities left behind grew 4.2% to 5.49 trillion yen. Teikoku’s data, however, only takes into account those firms at which bankruptcies enter legal proceedings.

Japan Inc’s Terrie Lloyd has predicted that bankruptcies will see a further increase in the first quarter of 2008, and it’s looking awfully hard for anyone to make a case against his stance right now. As he puts it:

In Q1, wealth-intensive sectors such as real estate, stocks, autos, etc., will continue to weaken. Although there is plenty of cash under the mattresses of local investors, the widening gap in incomes between the haves and have nots means that there is a thinning of the ranks on the consumer side of those investments. This macro environment coupled with tightening regulations on loans and credit to smaller companies, will remove a lot of the business flow that small and medium-sized businesses have had in the past. As a result, we think the level of bankruptcies of SMEs will peak mid-year, and we wouldn’t be surprised to see the government have to unwind its legislation that requires the Hosho Kyokai (Guarantee Corporations) to spread 20% of their risk on SME loans, to the banks. Given that the banks are so conservative in
Japan, this was a ridiculous rule to impose in the first place.

The question now is whether or not real estate firms will join the other nine sectors and see an increase in the number of bankruptcies in the first quarter of 2008. Trouble in the construction sector certainly does not provide one with hope for their short-to-medium term health.

One thing is for sure: As the Abe administration let its eye off the ball, the government was able to bungle the implementation of new construction regulations, and that is hurting the economy. Will they bounce back? Eventually, sure. But don’t get ready to give any credit to the Fukuda administration, or place too much of the blame for Japan’s economic woes on the construction crisis. As Heizo Takenaka said in a recent interview:

Investors are wondering whether the Japanese government is handling the economy responsibly. Their concerns are increasing. It cannot be explained only by the introduction of stricter housing regulations.

No it can’t, as Mr Lloyd has helped us to see.

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