Economy News

Japanese Bankruptcies at 50 Year Low

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Japan is feeling the effects of a country hosting the Summer Olympics in the middle of a pandemic. Fortunately, their bankruptcy rate does not yet reflect this reality.

This phenomenon can be accredited to the country’s loan and grant funding to businesses, which was rapidly increased during the pandemic.

2021 bankruptcies were down by 40% compared to 2020 bankruptcies.

Unfortunately, more companies that filed for bankruptcy in 2021 claimed that their circumstances were due to the pandemic than they did in 2020. This could indicate that prolonged economic effects of the pandemic are catching up to Japanese corporations. This trend becomes especially apparent when one considers that bankruptcies had been slowly decreasing prior to the pandemic.

Many companies worry that they are incurring debt which they will not be able to repay with their core earnings, even once Japan’s economy returns to pre-pandemic activity levels. Consequently, while the Japanese government intended to prevent bankruptices, they may have actually just drawn out the inevitable.

However, Japan’s economy and consumer spending may ramp up as their vaccination rates increase. In June 2021, Japan’s vaccination rate was double that of the United States (Deloitte). Analysts expect Japan to see hefty consumer spending in the second half of 2021 due to delayed demand.

Yet economists expect consumer spending to quickly stabilize after the recovery, as prior to the pandemic, wage growth was occurring at a dismal rate of 1.8% (Deloitte). Disposable income has seen statistically insignificant growth since the end of 2018.

All of these issues are further exacerbated by the continuously falling working age population of Japan. In the past year alone, this demographic has fallen by 590,000 workers (Deloitte). Prior to the pandemic, Japan looked to foreign workers to solve this problem, but the pandemic halted progress in this area.

Of course, even if the rate of foreign-born workers were to catch up to pre-pandemic levels, Japan will not be able to recover a working population considering how quickly the Japanese demographic is shrinking.

Consequently, the reasonable person would expect Japanese bankruptcies to increase rapidly during the next two decades or so. The only other choice for the Japanese government is to shoulder the burden themselves by continuing to provide funding, therefore increasing its own debt.

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Michelle D. Madsen

Michelle D. Madsen graduated from the University of Westminster and has been deeply involved in the world of finance ever since. She has worked as a Broadcast Journalist hosting various news shows and informative webcasts about the financial markets. Since 2004 she has also been writing for Metanews daily, her attention to detail, and her in-depth knowledge of the financial markets have led her to cover Foreign Exchange and commodities. The world of finance has changed in the last few years with the introduction and rising popularity of cryptocurrencies. She has in no means been left behind, adding this to her bank of intellect and is now also an expert in cryptocurrencies. For the last ten years, Ms. Madsen has been engaged in the financial market. She has notedly written a great number of incredibly informative reviews for the crypto exchange and forex brokers. Her wealth of knowledge has enabled her to become a leading expert in the field. She continues to inform the public writing up-to-date, thorough reviews for the readers of Metanews as she has for the last decade.
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