The number of Japanese corporate bankruptcies linked to the yen’s slide has risen to a record high, highlighting strains on small and medium-sized companies as Japanese Prime Minister Shinzo Abe campaigns for re-election on his economic strategy.
Forty-two of the companies that failed last month cited the weaker currency as a contributor, bringing the total number of bankruptcies associated with the yen this year to 301, almost triple that of the same period last year, according to a survey by Teikoku Databank Ltd.
It said surging costs of imported food, metals and construction materials squeezed small companies.
The yen broke through 120 per US dollar on Thursday for the first time since 2007, as Abe’s handpicked central bank head pumps a record amount of funds into the economy to stoke inflation.
While some small firms struggle to pass on higher costs of imported materials to customers, large exporters are reporting higher profits and the total number of corporate failures is in decline.
“Business conditions for small and medium-sized companies are severe,” Mizuho Securities Co economist Norio Miyagawa said. “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.”
The yen traded at 120.08 against the US dollar at 1:32pm in Tokyo yesterday, after touching 120.25 on Thursday, a level unseen since July 2007.
Bankruptcies linked to the weak yen, especially of small companies and businesses outside large cities, are likely to continue to increase as the currency’s decline following the central bank’s latest monetary easing begins to take a toll early next year, Teikoku Databank said.
The research company began surveying the link between the yen and bankruptcies in January last year.
The broader trend in corporate failures is down. The total number of bankruptcies declined 14 percent from a year earlier in October, to 794 cases, a 15th straight monthly drop, Teikoku Databank said. Further data for last month’s bankruptcies is to be released next week.
Bank of Japan Governor Haruhiko Kuroda on Nov. 25 said that the weak yen tends to boost exports and spur profits for global Japanese companies, while also weighing on small companies and households.
Japanese Finance Minister Taro Aso showed concern about the pace of the yen’s drop, saying on Nov. 21 that the currency was falling too fast, as it raced to its biggest monthly decline since the start of last year.
The government is to take measures to combat the effects of the yen’s decline and to continue to pay close attention to moves in the currency, Japanese Deputy Chief Cabinet Secretary Hiroshige Seko said yesterday.
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