TOKYO : Japan may see corporate bankruptcy cases hit an 11-year high in the fiscal year to March as some firms go under due to a lack of workers, a think tank survey showed, a sign of the strain intensifying job shortages are inflicting on the economy.
The survey highlights the cost felt by some firms from the Bank of Japan’s past efforts to reflate growth with easy monetary policy enough to tighten the job market and lift wages.
Major Japanese firms are likely to continue offering bumper wage hikes this year to compensate workers for rising inflation and attract talent amid intensifying labour shortages.
While higher pay is a boon for households, it is squeezing margins of smaller firms. The number of firms that went under in February stood at 768, marking the 34th straight month of year-on-year gains, a survey by Teikoku Databank showed on Monday.
As a result, total bankruptcy cases so far in fiscal 2024 hit 9,195 and could exceed 10,000 by March end of the business year, the survey showed, which would be the first time to break the threshold since 2013.
While most of the bankruptcies were due to rising costs and weak sales, 308 went under due to labour shortages so far this fiscal year, higher than 264 in the same period of the previous year, the survey showed.
For BOJ Deputy Governor Shinichi Uchida, a tight job market highlights the central bank’s success in boosting growth and removing slack in the labour market, which he described as the “root cause” of deflation in a speech last week.
“The essence of a deflationary economy is work-sharing in a society saddled with excess staff,” which kept wages low as workers prioritised job security over higher pay, Uchida said.
“The Bank felt the only way to resolve this entrenched situation was to provide strong stimulus to the economy and bring the labour market into a state of labour shortage,” he said in defending a decade-long stimulus that ended last year.
The BOJ deployed a massive asset-buying programme in 2013 to break Japan out of a 25-year-long period of deflation and economic stagnation.
Japanese wages were largely unchanged for decades until 2022, when rising raw material costs pushed up inflation and piled pressure on firms to compensate employees with higher pay.
After exiting the radical stimulus last year, the BOJ raised short-term interest rates to 0.5 per cent in January on the view Japan was on the cusp of durably achieving its 2 per cent inflation target.
Japan’s largest labour union umbrella group is seeing its members demand the biggest salary increase in over 30 years, offering policymakers hope they could continue to wean the economy off stimulus.
While big firms are already signalling readiness to keep hiking pay to attract talent, there is uncertainty on whether smaller firms can follow suit as many lack the global reach and competitive advantage their larger rivals enjoy.
