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Economy

Bankruptcies in Japan fall but outlook bleak due to coronavirus

Courts and law firms curtailed operations, leading to 56-year low in cases last month

Saitama-based bus operator Maruken Jidosha and clothes maker Renown filed for bankruptcy in May, while noodle restaurant chain Tokyo Mimiu closed six restaurants in Tokyo and other Kanto areas in the same month. (Source photo by Kyodo)

TOKYO -- The number of bankruptcies in Japan in May fell from a year ago, bucking eight months of increases, in spite of the impact of business closures and a fall in consumption amid the coronavirus outbreak.

Financial research company Tokyo Shoko Research said the number was likely an anomaly and was expected to rise again in the months ahead. It reported that the number of companies that filed for bankruptcy dropped 55% to 314 in May from a year earlier, the smallest number in 56 years.

"The number is obviously not reflecting the actual status of many businesses," said Shigenobu Abe, an analyst at financial research company Teikoku Databank. Abe said that a key reason for the surprising figure was that many law firms and local courts may have reined in operations in May due to the pandemic. The annual weeklong spring holiday also meant that court hours were reduced.

Of those companies that filed for bankruptcy in May, 87 were victims of the virus outbreak, a fall of 16% from April. As of June 5, 222 companies went out of business because of coronavirus.

May's respite comes after eight straight months of year-on-year rises in bankruptcies. Abe warned that there will be a "rebound" in the number of bankruptcy cases as early as June, as there was no end to the pandemic in sight.

On top of hotels and restaurants that have been severely affected by the coronavirus, a wider range of industries now face an existential threat.

Even long-established brands and shops have not been spared. On May 15, a century-old apparel maker Renown filed for bankruptcy under debt of 13.9 billion yen ($130 million), becoming the first Japan-listed company to seek such proceedings.

"The pandemic was the latest blow for many apparel retailers who were already suffering from low profitability due to a warm winter," said Yoshihiro Sakata, an analyst at Tokyo Shoko Research. As many department stores and malls were temporarily closed during the state of emergency declared by Prime Minister Shinzo Abe early April, apparel tenants "struggled to grow sales," Sakata said.

To date, 17 food manufacturing businesses including catering services, four wedding halls and three funeral parlors have gone bust, according to Tokyo Shoko Research. Although hotels and restaurants still account for nearly 30% of total bankruptcy cases, "more various industries are being affected as pandemic lingers," said Sakata.

A bus operator based in Saitama, northwest of Tokyo, Maruken Jidosha filed for bankruptcy with debt of 500 million yen on May 15, becoming the first in its industry to fall.

"Revenues at bus companies decreased by one-third as many people refrained from going out," a company spokesperson told Nikkei Asian Review. The company is looking for sponsors that can help it continue the business. "We don't know when things will get back to normal," said the spokesperson.

Noodle restaurant chain Tokyo Mimiu also closed six restaurants in Tokyo and other Kanto areas on May 19, ending operations after nearly 50 years.

Although the government lifted the state of emergency on May 25, analysts do not expect consumption and economic activity to return to pre-pandemic levels anytime soon. "The fear of a second wave persists as the virus has not disappeared," said Masamichi Adachi, chief economist at UBS Securities.

Just a few days after the nationwide state of emergency was lifted, Tokyo Gov. Yuriko Koike triggered the Tokyo alert system as new coronavirus cases again increased.

Akihiro Nisugi, a managing director at Funai Soken, said it was "highly unlikely" that Japanese would consume and eat out at the same frequency as before within the year.

"It will especially take time for restaurants in the downtown area to recover, and they are financially more vulnerable as they are subject to expensive rent compared with suburban areas," said Nisugi.

Teikoku Databank expects bankruptcy cases this year to reach 10,000 for the first time in seven years and owners and operators will choose to close over 25,000 businesses amid uncertainties over the future.

Many business owners had hoped that their operations would return to pre-pandemic levels once the state of emergency was lifted, but reality has been far harsher, said Abe at Teikoku Databank.

"Business owners are coming to realize how hard it is to bring customers back as before," he said. "We'll see more of them giving up on business and it is highly likely that there are more struggling companies than reported bankruptcy numbers."

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