Bankruptcies caused by weakening yen set new record in November

Bloomberg, Kyodo

Corporate bankruptcies linked to the yen’s slide hit a new record in November, highlighting the strains on small and midsize companies as Prime Minister Shinzo Abe campaigns for re-election on his deflation-busting economic strategy.

Forty-two of the companies that failed in November cited the weakened currency as a contributing cause, bringing total bankruptcies associated with the yen so far this year to 301, almost triple that of the same period in 2013, according to a survey by Teikoku Databank Ltd.

It said surging costs of imported food, metals and construction materials are squeezing small companies.

The yen broke through 120 per dollar on Thursday in New York for the first time since 2007, as Abe’s handpicked Bank of Japan governor pumps a record amount of funds into the economy to stoke inflation.

While some small firms are struggling to pass on higher costs of imported materials to customers, large exporters are reporting higher profits, and the total number of failures is in decline.

“The business conditions for small and medium-size companies are severe,” said Norio Miyagawa, an economist at Mizuho Securities Co. “The more the yen weakens, the more the drawbacks will become evident, unless the benefits big companies are seeing spill over to consumption through an increase in wages.”

By region, the Kanto area including Tokyo accounted for 11 of the 42 bankruptcies, followed by eight each in the Chubu region around Nagoya and the Kinki region covering Osaka, and five in Hokkaido.

In the first 11 months of this year, the number of bankruptcies induced by the weak yen soared 2.7-fold from a year before to 301, including 75 in Tokyo, 39 in Osaka, 36 in Hokkaido and 35 in Aichi.

“While imported food and construction material prices have soared on the weakening yen, most small companies have failed to pass these hikes on to their product prices,” a Teikoku Databank official said.

As the yen continues to drop, the agency expects such bankruptcies to rise further. Since the Bank of Japan expanded its radical monetary easing program on Oct. 31, the dollar has strengthened by about ¥10.