Over 800 Bankruptcies in One Month as World’s 4th Largest Economy Struggles

(Vietnam Insider) Tokyo, May 12 – Japan, the world’s fourth-largest economy, is facing a deepening economic crisis, as a surge in corporate bankruptcies, labor shortages, and inflationary pressure shake the foundations of its once-stable business environment.

According to Tokyo Shoko Research, more than 800 Japanese companies declared bankruptcy in April 2025, each with liabilities exceeding 10 million yen (approximately $68,100). The figure marks a 5.7% increase year-on-year, driven largely by small and medium-sized enterprises (SMEs) that have been unable to withstand rising costs and a chronic shortage of workers.

Services, Construction, and Retail Hit Hardest

The services sector experienced the worst impact, with 292 bankruptcies—the highest ever recorded in April. The construction industry saw 152 cases, a 4.1% rise, while retail recorded a staggering 32.5% jump with 106 companies going under.

Labor shortages are playing an increasingly damaging role. In April, 36 businesses failed due to a lack of workers, up from 25 a year earlier. Meanwhile, 56 bankruptcies were directly linked to inflation, underscoring the dual threat of rising wages and operational costs.

Experts say the burden is especially severe for SMEs still saddled with pandemic-era debts, now facing renewed pressure from inflation and reduced consumer spending.

Business Confidence Falters as Tariffs and China Slowdown Bite

Japan’s manufacturing sector is also losing momentum. According to the Bank of Japan’s Tankan survey of 9,000 companies, business sentiment among large manufacturers declined for the first time, citing U.S. tariffs and a slowing Chinese economy.

The Diffusion Index (DI) for sentiment dropped from +14 in December 2024 to +12 in March 2025, with steel producers hit hardest, falling to –18, after the U.S. imposed a 25% tariff on steel and aluminum imports in March.

Labor shortage figures are equally concerning. The Tankan survey reported a –37 score, reflecting a severe workforce imbalance. The problem is especially acute for small businesses, where low margins make it harder to raise wages and retain talent.

Here is a comparative infographic showing Japan’s economic performance in Q1 2025 alongside other G7 countries. The data highlights Japan’s relatively low GDP growth, moderate inflation, very low unemployment, and the highest currency depreciation against the USD—offering a visual context for Japan’s current economic vulnerabilities.

Over 10,000 Firms Collapsed in FY2024

The full picture is even bleaker. Tokyo Shoko Research revealed that over 10,000 businesses went bankrupt in fiscal year 2024, the highest figure in 11 years. A total of 10,144 bankruptcies involved debts of at least 10 million yen—a 12.1% increase from the previous year.

Alongside inflation and labor shortages, the weak yen has worsened the talent crisis. Many foreign workers are now hesitant to remain in Japan, citing stagnant wages and declining purchasing power. According to a 2024 Mynavi Global survey, 91% of foreign students and workers said they planned to stay in Japan—a 5.8-point drop from 2022.

Workers Feel the Squeeze

Take Spandan Sunar, a 27-year-old Nepali working in Chiba. He once sent home 50,000 yen per month to his family, but rising costs now require him to send 80,000 yen—a burden he’s struggling to afford. “Foreigners working in Japan are battling with low incomes,” Sunar said, comparing his situation to friends earning better in the U.S. or Australia.

The salary stagnation issue has broader implications. Companies like Bears, a household services provider that depends on skilled workers from the Philippines, raised service fees by 20% in 2024—the first hike in 18 years—just to cover increased wage demands. But many SMEs cannot afford such adjustments, pushing them closer to collapse.

Future at Stake: Can Japan Retain Global Talent?

Yamazaki, deputy director at Career-tatsu, warns that if wages remain stagnant while the yen weakens, Japan may lose its appeal to international workers, particularly in fields like IT and technology, where demand is high.

Kevin Naylor, executive at Future Manager World USA, notes that foreign professionals are often overlooked in favor of locals or foreign residents already living in Japan. Meanwhile, Luke Furnival of Robert Walters Japan says the expectation gap between foreign candidates and Japanese employers has widened, requiring constant mediation.

As Japan grapples with inflation, labor shortages, trade friction, and a weakening currency, its economic foundation is being tested like never before. For the world’s fourth-largest economy, the coming months will be critical in determining whether it can adapt or continue to decline in the face of mounting domestic and global challenges.

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Source: Vietnam Insider