Originally created 07/09/98

Bankruptcy menaces Japan businesses

TOKYO -- Crumbling under massive debts, suffocating from tight bank lending policies and squeezed by cautious consumers, Japanese companies are going belly up in near record numbers.

And, analysts say, the worst may be yet to come.

In the first five months of this year, there were 8,426 bankruptcies in Japan, the second highest ever for such a period, and a 27.7 percent year-on-year increase, according to the Teikoku Databank, a private think tank. Liabilities at failed companies are well on track to be the highest ever, Teikoku said in a report last month.

"There's going to be a lot more bad news and probably a number of high-profile failures in the banking sector," said Russel Jones, an analyst at Lehman Brothers.

Fears that such failures would generate a whole new wave of more bankruptcies have prompted the government to announce plans for a "bridge bank" that will absorb the assets of bankrupt financial institutions and extend loans to healthy borrowers.

Critics of the plan argue that while easing some of the symptoms, the bank will not address the cocktail of economic factors behind the dramatic surge in company collapses.

Even as companies cut production, slack consumer spending has led to record high inventories at manufacturers. That contributes to deflationary pressures that batter company earnings.

The mountain of bad debt in the financial sector not only imperils Japan's banks, but makes them reluctant to lend, squeezing companies of capital. Small-to-midsize firms, which employ about 70 percent of Japan's work force, have been particularly hurt.

And the Asian economic crisis has taken its toll on companies that rely heavily on exporting to the region.

The surge in bankruptcies has also been a heavy psychological shock for Japan, where employees have grown to expect lifetime employment and often consider the company an extension of the family.


Trending this week:


© 2018. All Rights Reserved.    | Contact Us