Japan’s Business Failure Rate Hits 9-Year High, Survey Says

Japanese businesses are failing faster than at any time in the past nine years, according to a survey by Dun & Bradstreet.

A weakened economy, slow sales and problems collecting receivables helped force 7,293 firms into bankruptcy in the first six months of the year, compared to 7,026 in the same period a year ago.

Not since the first six months of 1986, when 8,750 businesses failed, have so many businesses folded in Japan. The failed companies leave behind them about $45 billion in liabilities, the highest indebtedness since the survey was started in 1965 by Tokyo Shoko Research, which provided the data to Dun & Bradstreet.

“No matter how you look at it, it’s a bad situation,” said Carl Weinberg, chief economist at High Frequency Economics in New York. “It’s the tip of an iceberg, and like an iceberg, most of the Japanese economy is underwater.”

Weinberg traced the origin of Japan’s economic woes to an effort by the Bank of Japan to stem rampant speculation in national real estate and stock markets that backfired. Japanese banks cut back on lending, and that “started a spiral of business cycle contraction that they’re still suffering from,” he said.

The Bank of Japan “started out trying to do a good thing and accidentally wiped out the collateral base of the banking system,” Weinberg said.

Japan’s businesses also suffered from the effects of the earthquake that struck the port city of Kobe in January, Dun & Bradstreet said. Since then, 88 businesses are reported to have failed because of the quake.

The construction industry had the most failures, with 1,879. The next-hardest-hit were manufacturing, with 1,474 failures, and wholesaling, with 1,434.

The biggest losses were posted by the 40 finance or insurance companies that went bust in the first six months, which collectively left liabilities of about $13.7 billion.