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FY2007 bankruptcies up 18.4%, March bankruptcies up 23.0%

Neither of these figures are huge surprises, given the context of uncertainty in Japan’s markets right now, but they are worrisome. Both figures were released earlier this week by Teikoku Databank. According to their reports, 11,333 firms with liabilities of 10 million yen or more filed for bankruptcy in fiscal 2007, with liabilities totaling 5.53 trillion yen, up 5.2% from FY2006. Transport and telecommunication industries saw a 28.2% rise in bankruptcies, while retail saw a 28.1% increase and services saw a hike of 24.3%.

Amongst reasons cited for bankruptcies were rising oil and gas prices, raw materials costs, tighter building permit approval processes, weak consumer spending, difficulty in securing loans and cuts in public spending. 3,043 firms connected to the construction industry filed for bankruptcy in FY2007, accounting for about 26.9% of the total number of firms going bust last year.

Teikoku reported that seven listed firms filed for bankruptcy in fiscal 2007, while 1,819 self-employed people did the same. The number of self-employed persons filing for bankruptcy increased by 36%.

March numbers not encouraging

In March, the number of bankruptcies were up 23.0% year-on-year, with 1,127 firms filing for protection. However, the aggregate of liabilities decreased by 3.6% to 455.9 billion yen. Again, Teikoku is measuring firms with liabilities of 10 million yen or more at the time of bankruptcy.

The manufacturing and service industries saw their largest numbers of bankruptcies since Teikoku began issuing its report in the current format in April 2005. 169 manufacturing firms and 192 companies in the services sector filed for protection in March.

Out of the total of 1,127 bankruptcies, Teikoku lists 876 as being “recession-induced”. At the same time, the Kanto (374), Kyushu (94) and Chugoku (55) regions all saw all-time high numbers of bankruptcies (again, this is since April 2005).

It bears mentioning that in February, the number of persons employed in Japan declined by 100,000, while the number of persons unemployed declined by 40,000 (both compared to February 2007). The number of people listed as “not in the labor force” increased by 280,000, or 0.6%. The unemployment rate itself increased just barely, by 0.1% to 3.9%.

Naturally, there are plenty of baby boomers leaving the work force at this time. One of the worries with the trend toward a higher number of bankruptcies is that workers losing their jobs will have a more difficult time being re-absorbed into the work force as conditions remain difficult over the coming few quarters. This could have very detrimental effects on consumer spending, which we believe is already starting to take a hit in the durable and semi-durable goods categories.

Nonetheless, there is some good news to report. Over the weekend we’ll go into further detail on the March Economy Watchers Index, which showed sentiment at merchants climb to its highest level in four months, while the Index of Business Conditions for February finally saw the leading index climb to the 50 point level for the first time in eight months. But more on those later…

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