Japan’s Inflation Hits 17-Month High, Fueling Continued Rise in Corporate Bankruptcies

Corporate bankruptcies have increased for 10 consecutive months

A customer shops for groceries at a supermarket in Tokyo on Jan. 27, 2023. (Yuichi Yamazaki/ AFP via Getty Images)

In recent months, the prices of essential items in Japan have continued to rise due to the weakened Japanese yen and the impact of higher resource prices. Meanwhile, the number of corporate bankruptcies in Japan has risen for 10 consecutive months as companies struggle with rising costs.

According to data released by Japan’s Ministry of Internal Affairs and Communications on Feb. 24, the country’s consumer price index (CPI), which was 100 in 2020, rose in January to 104.3. The number has risen for the 17th consecutive month.

The January index rose 4.2 percent year-over-year, more than double the Bank of Japan’s target increase of 2 percent.

In terms of categories, the price of non-perishable food items rose 7.4 percent year-over-year, bringing up the general price level. The price of cooking oil rose 31.7 percent year-over-year, milk rose 10 percent, and energy-related products rose 14.6 percent, Nikkei Asia reported.

Speaking with The Epoch Times on Feb. 25, Japanese political commentator Kenichi Yasuda predicted that prices of goods in Japan will continue to rise in 2023. Prices of everything from food, groceries, appliances, and fuel to dining out and entertainment “are all going up,” Yasuda said.

In addition, labor and logistics costs are also rising, he said. The main reason is the increase in global demand and the rising price of raw materials such as fuel and resources caused by the Russia–Ukraine conflict.

Meanwhile, the increase in oil prices has led to a rise in logistics and packaging materials costs.

Public data show that Japan’s core inflation rate—the price change of goods and services, minus food and energy—was only 0.6 and 0.8 percent in February and March of last year. However, Japan’s core inflation rate soared to 2.1 percent last April and continues to grow. It reached 3.6 percent last October and increased to 4.2 percent this January.

Yasuda said the yen’s depreciation is another factor leading to rising prices.

The average exchange rate of the dollar to the yen was about 1 to 110 prior to 2022. However, from the start of 2022, the yen gradually weakened. By February this year, the dollar’s exchange rate against the yen had risen, reaching about 1 to 136.

Since most of Japan’s fuel and raw materials are dependent on imports, a weakening of the yen will increase the cost of imports, leading to higher prices of daily necessities and industrial raw materials.

Yasuda believes the surge in fuel prices and the yen’s weakening will continue for some time, indicating that peak inflation has not been reached.

The Surge of Corporate Bankruptcies

Affected by the yen’s depreciation and the increase in production costs, the number of corporate bankruptcies in Japan is also rising.

According to data released on Feb. 8 by Tokyo Shoko Research Ltd., a credit reporting agency, 570 corporate bankruptcies (those with more than 10 million yen in debts, or about $74,000) were reported in January, a 26.1 percent increase compared with the same period last year.

Among them, insolvent companies with debts of less than 50 million yen (about $370,000) accounted for 60 percent. This is also the 10th consecutive month that the number of corporate bankruptcies in Japan has risen. Meanwhile, for four consecutive months, all reported bankruptcies were small and medium-sized enterprises.

The number of bankruptcies in the service industry is the largest, followed by the construction, retail, and manufacturing industries. Among them, the manufacturing industry saw the most significant increase: 76 percent year-over-year.

Yasuda said that despite high raw material prices, the cost increases that many companies experienced was not passed on to customers. Fearing that raising prices could lead to lower sales and lost customers, companies kept price increases as low as possible or kept prices the same with slightly smaller portions.

However, more and more companies have been unable to afford the increased costs and have eventually had to raise the prices of their products.

According to a joint survey conducted in January by media outlets from Japan, China, and South Korea, nearly 96 percent of Japanese business operators believed the prices of goods would continue to rise in Japan, Nikkei Asia reported.

Sean Tseng contributed to this report.