Japan Bankruptcies Fall, but Danger Seen
TOKYO - Bankruptcies in Japan fell about 5 percent in the just-ended business year, a research firm said Monday, as a mild economic recovery and banks' reluctance to cut off ailing firms helped limit failures.
Independent research firm Teikoku Databank warned that the stock market's plunge to 20-year lows could cause a spike in bankruptcies in the new business year, but some economists say that is unlikely given the political fallout.
Teikoku said the number of bankruptcies dropped 5.6 percent to 18,928 in the year to March 31, the fourth highest level in the postwar period, with total debts of failed firms down 17.5 percent at 13.31 trillion yen ($110.3 billion).
The annual trend was reflected in March, when bankruptcy cases fell 1.1 percent on the month to 1,568, down 12.3 percent from the same month in the previous year.
Debts of firms that went bust in March totaled 1.18 trillion yen, a 42.1 percent fall from a year earlier and a 22.9 percent fall from February.
Economists put the improvement down to a combination of steady, albeit very slow, economic growth and steps taken by the government to support vulnerable firms and thus avoid the political fallout from mass bankruptcies.
"We've had a modest economic recovery in place since the beginning of last year ... and the government is using state financial institutions to support SMEs (small and medium sized enterprises)," said Mathew Poggi, an economist at Lehman Brothers. "I think there's a good chance bankruptcy numbers will continue drifting down this year."
LOSING REFORM BATTLE?
The fall in bankruptcies raises questions over whether Japan is taking a strict enough approach to thousands of heavily indebted firms that are surviving only on a drip-feed of funding from banks.
Banks are fighting an uphill battle to cut back on their huge bad loans as the sluggish economy and persistent deflation add to the burden. But rather than absorb the heavy cost of bankruptcies, banks have been keeping many big companies alive by extending more loans.
Analysts say the road to corporate revival in Japan lies not in propping up struggling firms but accelerating the flow of capital from deadbeat companies in industries such as retail, construction, and real estate into new growth areas such as information technology and health care.
"We still have a huge amount of restructuring to do in the Japanese economy," said Robert Feldman, an economist at Morgan Stanley. "What I'll be looking for in the coming year is an increase in new business formations."
Teikoku warned that business failures could surge in the new business year as the stock market's plunge raises the pressure on firms and their banks.
"It goes without saying that increasing valuation losses caused by the collapse in stock prices will hit banks, insurers, and corporations," it said.
In recent weeks a number of companies have revised down their profit estimates for the year ended March 31, hit by ballooning valuation losses on their shareholdings as the benchmark Nikkei languishes at 20-year lows.
"There is a risk that we'll see a number of listed companies forced into bankruptcy ahead of their earnings statements," Teikoku said.
BOGEY TROUBLE
The four biggest bankruptcies for the year were all golf course operators, led by the unlisted STT Kaihatsu KK, which went belly-up in October with 492.2 billion yen of debts.
The sector has been hit hard by 12 straight years of declining land prices, sluggish consumer spending, and excess capacity -- a hangover from the bubble years when a speculative construction binge carpeted the country with some 2,400 courses.
Bankruptcies in March included the condominium developer Cesar Co., which filed for court protection with 59.5 billion yen in debts, hit hard by an oversupply of new condominiums and falling prices.
Bankruptcies in the service industry hit an all time high of 2,263 in 2002/03. (Reuters, April 14, 2003) | 
