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Business trends

Japan's COVID-induced business failures up 49% in August

Restaurant and bars have been hit hardest by state of emergency

Tokyo Shoko Research found that 1,026 businesses went bankrupt in Japan from January to August due to the COVID-19 pandemic. (Photo by Yuki Kohara) 

TOKYO -- Coronavirus-induced business failures in Japan rose 49% in August to 121 from a year earlier amid a fourth wave of COVID infections.

Analysis from research specialist Tokyo Shoko Research published Wednesday found that the total number of coronavirus-induced bankruptcies from January to August reached 1,026, accounting for around 26% of all business failures in Japan over the period.

The restaurant and bar businesses have been hit hardest. Of all the bankrupt businesses, 204, or 20%, were restaurants and bars, which saw revenues plummet due to bans on serving alcohol and restrictions on the movement of people during Japan's on-off state of emergency.

There were 138 coronavirus-induced bankruptcies in July alone. The number has remained above 100 since January.

With the pandemic still roiling on even after 19 months, many business owners have become pessimistic, said Yoshihiro Sakata, an analyst at Tokyo Shoko Research.

In addition to services, industries such as construction, apparel, and food producing and processing have also been severely affected by COVID-19. Those in the building trade, such as decorators, have been forced to postpone contracts due to spreading infections.

Daily COVID cases across Japan in early September fell to around 12,000 from around 25,000 in late August. The number of daily infections was around 3,000 at the beginning of the year and around 600 last September.

The Tokyo Olympics and Paralympics, which lasted from July to September, failed to generate extra income for restaurant and bar owners, as they were under restrictions over serving alcohol and operating hours, athletes were not allowed to leave the Olympic Village and there were no spectators at the games.

Tadayuki Susumu, who runs a small bar in Tokyo's Setagaya Ward, has kept his bar closed since July 12, when a state of emergency was declared in Tokyo for the fourth time. He now relies on financial aid provided by the Tokyo Metropolitan Government to keep his business afloat, which he says is sufficient for now as he runs the bar alone.

"But I do worry about losing customers, and I am not sure they will come back to my bar when I resume operating," he added.

Unlike Susumu, mid-sized and larger bars and restaurants cannot cover their rent and labor costs on handouts from the government alone. According to Tokyo Shoko Research, the number of restaurants operated by 11 major chains fell 9% by the end of March, compared with pre-pandemic figures.

In June, 18 organizations representing the restaurant and bar industries jointly asked the government and local authorities to lift the liquor ban and ease restrictions on operating hours. "The industry's endurance is reaching the limit and we've seen our friends going through bankruptcy and business closures," said Takeshi Ninoyu, representative director at Japan Gastronomy Renaissance, at a recent news conference.

"One thing to note is that bankruptcy cases are rising among restaurant and bar operators in prefectures where a state or quasi-state of emergency is not in place," said Tokyo Shoko's Sakata, adding people are likely to continue to stay home.

As concerns over the highly infectious Delta variant linger, the government on Thursday decided to extend the state of emergency to the end of September in 19 prefectures, including Tokyo and Osaka.

Ryutaro Kono, chief economist at BNP Paribas, expects that consumers will continue to remain cautious through September. "Consumer spending is expected to remain at a standstill," he said.

A glimmer of hope for struggling industries is the prospect of looser restrictions on travel and large events for those who are fully vaccinated or who test negative for COVID. The government is hoping to start easing restrictions in the autumn.

But Kono expects that it will be a while before all restrictions are lifted. "Without an expansion of capacity in the medical system, it is undeniable that restrictions will be on and off in the future," he warned.

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