Japan bankruptcies at record highs

Bankruptcies in Japan in April were the third-highest for the month in half a century and deepening deflation could send the figure to record annual highs, a research firm said on Thursday.

”The government has upgraded its economic assessment for three consecutive months and stresses that there’s a cyclical bottoming out,” said Teikoku Databank, which compiled the data.

”But the reality is that many firms are suffering from falling sales under deflation and staggering with ongoing losses.”

Economists say rising bankruptcies are an inevitable consequence of a series of makeshift economic policies from the past, and the government should now provide measures to help failed firms transform and become viable rather than trying to reverse the trend by keeping uncompetitive firms afloat.

”The data shows companies which can’t respond to the changing economic environment are being forced out of the market,” said Hisashi Yamada, an economist at the Japan Research Institute.

”Bankruptcy is one form of revitalisation that leads to an efficient use of human and investment resources. Instead of trying to keep bankruptcies down, the government should help reform management style by providing an environment for a ‘soft landing’.”

Total debt held by firms that went bankrupt in April was 1,28-trillion yen. The amount was second highest for April in the post-war period and up 21.8% from a year earlier.

Six listed companies which failed in April, bringing the total so far in 2002, already exceeding the annual record of 14 hit in 2001 and 1997, Teikoku said.

Teikoku said there were 1 641 bankruptcies in April, up 0,6% from a year ago and marking the fourth consecutive month of year-on-year increase.

The number of bankruptcies fell 8.2% from March and total debt of failed firms fell 37.5%, but a Teikoku official said that was due to a seasonal rise in bankruptcies in March, when many Japanese companies close their books for the business year.

Companies in the construction, electronics and machinery sectors were particularly hard hit, including mid-sized supermarket operator Niko Niko Do Co and Dai-Ichi Katei Denki Co, a consumer electronics retailer operating in the Tokyo area, Teikoku said.

Trend Continues

It said the number of bankruptcies for the first four months of 2002 was 6 761, the second-highest for the period since 1984, when there were 6 815 cases.

Bankruptcy debts exceeded one trillion yen for an eighth consecutive month.

With many companies expected to cut earnings estimates for the business year that ended in March, bankruptcy risks are growing for firms saddled with huge debts, Teikoku said.

Economists said the high bankruptcy levels show that the government’s past economic policies — keeping interest rates at near zero or expanding fiscal spending — have only delayed the necessary process of weeding out weak and unviable firms.

With the government putting pressure on banks to clean up their massive bad debts in two to three years, banks are also tightening their grip on lending, trying to charge higher interest rates on loans to riskier companies.

Banks say they are seeking ways to extend necessary financing to struggling companies as far as possible.

But analysts say the resources of banks for loan-loss provisions against risky lending are dwindling rapidly and banks cannot afford to keep on their books loans that could potentially go sour.

”There is lingering risk for super-large bankruptcies as firms with huge debts are just biding their time, eating their savings while unable to improve their conditions,” Teikoku said.

”The pace of bankruptcies is accelerating…and it can be expected to exceed past record levels.” – Reuters

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