The large number of corporate bankruptcies in 2008 shows how badly the global downturn has slammed the Japanese economy. The government should pay special attention to the fact that many companies in the black went under due to cash-flow problems.
According to Tokyo Shoko Research, 2008 saw 15,646 bankruptcies (each involving at least ¥10 million in debts) — an 11 percent increase over 2007 and above the 15,000 mark for the first time in five years. Among the failed companies were 33 listed companies, the highest number since the end of World War II.
The total amount of debt left by failed companies more than doubled from 2007 to ¥12.29 trillion. The figure was pushed up as the Japanese arm of U.S. investment bank Lehman Brothers Holdings and its affiliates left more than ¥4 trillion in debt.
Construction and real estate industries were especially hit hard. Construction firms accounted for more than a quarter of all firms that went under. Flight of foreign capital-affiliated funds, which had aggressively bought real estate assets in Tokyo and other large cities, caused a rapid cooling of the real estate market. As a result, banks began to strictly assess the creditworthiness of real estate firms. Urban Corp., a listed real estate firm, posted record profits for the business year ended March 31, 2008, yet it filed for bankruptcy in August after hitting a wall trying to raise funds.
Nine of 10 industrial sectors — except for the agriculture, forestry, fisheries and mining sector — saw a rise in bankruptcies; moreover, bankruptcies in all nine of Japan’s regions climbed. A slump in the real estate market caused many regional construction firms to fail. Tokyo Shoko Research predicts that bankruptcies in 2009 will either level off or rise from the 2008 level.
As the economy deteriorates, small and medium-size companies will face increasing difficulty in securing funds to overcome cash-flow problems. The government and the Bank of Japan should carefully study their situation and take additional measures to help them timely.
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