Japan recorded an increase in corporate insolvencies in January as firms grappled with rising personnel expenses amid a tight labour market, according to a private-sector survey released on Monday. The data coincides with government figures showing a modest improvement in real wages in December, highlighting the tension between higher pay and the resilience of smaller companies.
The Tokyo Shoko Research survey found bankruptcy filings rose 5.6% year-on-year in January to 887 cases, the highest total for that month in 13 years. Among those filings, 19 companies pointed to surging labour costs as a reason for their failure - a three-fold increase from the prior year - while 36 cited labour shortages, marking the first uptick in that category in eight months.
Tokyo Shoko Research commented on the situation in a report: "Many small firms cannot cope with rising costs and labour shortages. With demand for funds likely to increase towards the March fiscal year-end, bankruptcy cases are expected to rise moderately." The think tank highlighted that smaller businesses are particularly exposed to pressure from higher wages and tighter staffing conditions.
Separately, official data showed real wages fell 0.1% in December compared with a year earlier, an improvement from the 1.6% decline recorded in November. The moderation in the annual decline reflected easing inflation and steady bonus payments, which together helped limit the deterioration in household purchasing power.
The juxtaposition of rising nominal pay pressures and the still-fragile real wage backdrop presents a policy challenge. The government has sought to promote higher wages to sustain consumer spending, but lifting pay can squeeze the finances of smaller firms if their revenues or margins do not keep pace.
Prime Minister Sanae Takaichi, who secured a landslide victory in a general election on Sunday, has pledged assistance for small firms that are struggling to raise wages as part of efforts to boost pay across the economy.
Inflation dynamics add to the complexity. Japan's core consumer inflation has stayed above the Bank of Japan's 2% target for nearly four years, as companies continued to pass through elevated raw material costs to consumers. Analysts expect inflation to ease in the coming months because of the base effects from last year's sharp rises and the planned rollout of fuel subsidies from February.
Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, said he expects real wages to turn positive on a year-on-year basis in January and to remain so at least through March. He cautioned, however, about potential upside inflation risks from a weaker yen. "But inflationary pressure from a weak yen is a risk. Firms could become more keen to hike prices again if the yen weakens, which would keep inflation elevated," he said. "If this happens, real wages could sink back to negative territory in April."
The trajectory of real wages matters for monetary policy. The Bank of Japan raised rates to 0.75% in December, the highest level in 30 years, and Governor Kazuo Ueda has said the BOJ must have the conviction that underlying inflation is sustainable at its 2% target before moving ahead with further rate increases.
With the fiscal year-end approaching in March, Tokyo Shoko Research anticipates funding needs to rise, a development it said could push bankruptcy cases up moderately in the near term. The mix of sticky inflation, ongoing labour shortages, and rising pay pressures leaves smaller firms and labour-intensive sectors particularly exposed.